NFTs: What Are They, and How to Invest?

Here’s what non-fungible tokens (NFTs) are all about, and why the market is seemingly going crazy for stocks in companies in this sector.

Question marks in a pile

Image source: Getty Images

Non-fungible tokens (NFTs) are quite the rage right now in the cryptocurrency universe. Whenever such acronyms create a buzz in the investing world, it’s imperative that individuals find out what the craze is all about.

An NFT is a unit of data that is backed by a digital ledger called blockchain. It is a representation of a distinct digital item that investors can buy and sell if they consider it to have value. Indeed, it appears to have the potential to become massive soon. So, it’s imperative that investors learn the details concerning an NFT to find out if it’s worth their time.

How do NFTs exactly work?

NFTs can really represent nearly anything available on a digital platform. Yes, this includes tweets, video clips, jpegs, gifs, and more. Individuals can make use of the Ethereum network to create digital tokens for their content, which can potentially be worth millions in the future.

To put it in simply, non-fungible tokens could be any digital asset that the creator wants to make unique. These assets run on a digital ledger which validates all the details of the NFT.

Here’s an example: Recently, Jack Dorsey, the founder of Twitter, sold his first tweet for more than $2.9 million. This tweet will continue to be on the social media platform. However, the winning bidder would have ownership of the NFT. It will be signed and verified by Jack Dorsey himself.

Some investors have compared NFTs to owning the “master copy” of an LP. While collectors can buy the mass-produced copies on the open market, there are only so many master copies to buy. These are valuable mainly because of scarcity.

As a result, the price of these non-fungible tokens is tied to the supply and demand of these items. It’s really a speculative environment similar to that of the high-end art market. At least, that’s what early NFT investors are betting on.

How to get in on the NFT trade?

In North America, many companies such as CurrencyWorks (TSXV:CWRK) have been making efforts to provide investors with access to NFTs.

Indeed, the shares of CurrencyWorks have soared more than 400% this year as investors pile into this trade. CurrencyWorks is a FinTech company that primarily focuses on blockchain. It already has an extensive platform dedicated to NFT. However, it plans to grow this platform to include Bitcoin and Ethereum.

Although NFTs are relatively new in the investing world, it appears that investors are willing to invest in this asset class right now. However, investors must note that there’s a great deal of speculation surrounding NFTs right now. Hence, investors should proceed with extreme caution.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chris MacDonald has no position in any of the stocks mentioned.

More on Tech Stocks

growing plant shoots on stacked coins
Tech Stocks

Get Rich Slowly: 1 Smart Stock to Leave in a TFSA for Years and Years

The TFSA isn’t only for short-term goals. With a little time, here’s how you can use stocks to get rich.

Read more »

financial freedom sign
Tech Stocks

2 TSX Stocks for a Legit Shot at $1 Million in 20 Years

Are you looking for two TSX stocks that could get you $1 million in 20 years? Here are my two…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Tech Stocks

Shopify Stock Surges Past 52-Week Highs: Is it Still a Buy Today?

Shopify (TSX:SHOP) stock reported yet another record-setting Black Friday-Cyber Monday weekend. But does that mean it's still a buy?

Read more »

tsx today
Tech Stocks

TSX Today: What to Watch for in Stocks on Tuesday, November 28

Canadian bank earnings and the U.S. consumer confidence data could give further direction to TSX stocks today.

Read more »

A worker uses the cloud for paperless work. tech
Tech Stocks

Alibaba Just Became a Dividend Stock… Could This TSX Stock be Next?

Alibaba Group Holding (NYSE:BABA) recently became a dividend stock. Could Kinaxis Inc (TSX:KXS) be next?

Read more »

Business success with growing, rising charts and businessman in background
Energy Stocks

Rising From the Ashes: Canadian Stocks Bouncing Back Stronger

These two growth stocks have surged back after crashing and burning, and it doesn't look like they'll be slowing down…

Read more »

Growth from coins
Tech Stocks

3 Top TSX Growth Stocks to Buy for December

High-growth TSX stocks such as Lightspeed should help you generate market-beating returns over time.

Read more »

Shopping and e-commerce
Tech Stocks

TFSA Investors: Shopify Is a Top Stock That Could Soar in a Bull Market Rally

Shopify (TSX:SHOP) appears to be getting back on the right track, with shares starting to heat up again.

Read more »