What is NFT? Is it investment or speculation?

What exactly are NFTs?

NFTs are digital assets that represent real-world things such as artwork, music, in-game items, and movies, to name a few. These digital assets are bought and sold online through cryptocurrencies.

Although NFTs have been around since 2014, NFTs are now becoming more notorious as they are becoming an increasingly popular way to buy and sell digital art. In November 2017, consumers had spent a staggering $174 million on NFTs.

In the early days, many NFTs were already digital creations that already existed in some form elsewhere, such as iconic video clips of NBA games or securitized versions of digital art already circulating on Instagram.

For example, well-known digital artist Mike Winklemann, better known as "Beeple", produced a composite of 5,000 daily paintings, but was the most famous NFT of the time, "EVERYDAYS: The First 5000 Days", which sold at Christie's for a record price - topping $69.3 million.

Anyone can view individual images or even entire image collages online for free. So why are people willing to pay millions for something they can easily screenshot or download?

Because NFTs allow buyers to own the original item. Not only that, but it also includes built-in authentication as proof of ownership. Collectors value these "digital bragging rights" almost more than the objects themselves.

Should you buy NFTs?

NFTs are risky because their future is uncertain, and we don't have much history to judge how they've performed, since NFTs are so new, it may be worth a small investment to try them now.

In other words, investing in NFTs is largely a personal decision. If you have spare cash, you can also consider investing in works that make sense to you.

But remember, the value of an NFT depends entirely on what other people are willing to pay for it. Therefore, demand will drive prices, not fundamental, technical or economic indicators.

So this means that NFTs may be resold for less than what you paid. Or, if no one wants it, you might not be able to resell it at all.

NFTs are also subject to capital gains tax - just like if you sell a stock at a profit. However, since they are considered collectibles, they may not receive the favorable long-term capital gains rates that stocks enjoy, and may even be taxed at higher collectibles rates, although the IRS has not yet ruled on which NFTs are considered for tax purposes. . Keep in mind that if the value of the cryptocurrency used to buy the NFT increases, it may also be taxed, which means you may need to consult a tax professional when considering adding an NFT to your investment.