Expanding Metaverse: The ABCs of Investing in NFTs

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NFTs, or non-fungible tokens, which guarantee ownership of a unique asset — usually one that is digital such as a piece of art, musical composition, or item within a video game — are about to explode in the Web 3.0 metaverse.

The metaverse explained

The metaverse, a combination of the prefix “meta,” meaning beyond, and “universe,” is being called Web 3.0. The metaverse refers to virtual worlds, but it covers a wide variety of virtual realities encompassing everything from games to community platforms to workplace tools.

In the metaverse, users share “virtual” land, buildings, avatars, and even names. All of these assets can be sold, often using cryptocurrencies, Reuters reports.

But there’s more going on as well, as artists are launching unique concerts within the metaverse. Rapper Travis Scott and DJ Marshmello were among the first to offer in-game concerts.

Taking it up a notch, Ariana Grande created a multi-day live experience on Fortnite, which also tapped into wider storytelling on the platform, NAB Amplify reported.

The chief of Epic Games, Donald Mustard, sees it as “an opportunity to almost create a new medium.” In other words, we could be moving into a medium of virtual pop stars.

Facebook recently changed its parent company name to “Meta” as a clear indication of where its entire family of brands is putting their focus.

The essentials of NFTs

Many of the New Platforms in the metaverse use blockchain technology, as well as cryptocurrency and non-fungible tokens (NFTs).

A blockchain is simply a database that is shared across a network of computers, making it very difficult to change a record once it is added to the chain, enhancing security. It is the same technology that underpins cryptocurrencies, such as Bitcoin.

Understanding what makes NFTs unique

NFT stands for non-fungible token. It essentially means a unique token. Stocks and cryptocurrencies are fungible – meaning each unit is identical to another. For example, one share of Apple stock is the same as another share, as is one Bitcoin equal to another.

But NFTs are non-fungible, therefore, each token you purchase is a wholly unique item not replaceable by anything else.

Purchasing NFTs

NFTs are sold via marketplaces purposely built for such sales. They can either be purchased at a fixed price or function in a virtual auction, much like current exchanges for buying and selling stocks or cryptocurrencies, the Motley Fool reports.

Investors need to open and fund a crypto wallet – which is like a digital wallet on an e-commerce platform – on an NFT marketplace to bid on them. As an example, if the NFT is built with blockchain technology such as Ethereum, it might require Ether tokens for its purchase.

What can you do with an NFT?

Once you purchase and own an NFT, the digital asset is yours to do as you please, whether to use and display in a larger digital project, keep it as a collectible, or put it up for sale.

Pros and cons of NFTs

To sell your NFT, it will need to be listed on a marketplace which, naturally, will charge a fee for the sale.

As an investor, it’s important to know that the fees involved in creating and selling some NFTs could be pricier than it is valued by other users on the marketplace.

Additionally, demand for certain NFTs can rise or fall, affecting their value. What is demanding sky-high prices today may not hold the same value six months from now. Conversely, demand and prices can also climb over time.

Similar to mining cryptocurrencies, NFTs use blockchain technology which uses a significant amount of energy both in their creation and for the verification of transactions.

NFTs and gaming

Many games in the metaverse require that players purchase NFTs in order to play.

How NFTs have value in gaming is that you have a unique game character that someone else may not. This token could be more valuable now than when you purchased it because of soaring demand. If someone else wants to play, especially with the character you have – which may also have unique abilities other characters don’t – you can then sell that NFT at a significantly higher price.

One game, Axie, requires that a minimum of three monster characters called Axies be purchased to play the game. At roughly $300 a piece, players must fork out nearly a grand to play, with no guarantee of success. As of the end of October, Axies were the most valuable collection of NFTs anywhere, according to Bloomberg.