The basics you need to know about NFTs

The internet is filled with talk about NFTs, but what actually are they and what can you do with them? That's exactly what we cover in this guide...

What are NFTs?

NFTs, or non-fungible tokens, are digital files stored on a blockchain, or digital ledger, that are ‘non-fungible’, which (in normal language) means they are unique and can’t be replicated. They can be different things, like drawings, photos, videos or even audio files.

How do you buy NFTs?

They can be bought from specialist online platforms, usually using cryptocurrency, but some are now being sold at major auction houses like Christie’s and Sotherby’s in the same way as physical artwork. The price of an NFT can vary widely depending on its perceived value and what people are willing to pay. Beauty is in the eye of the beholder and, in writing this blog, we’ve seen NFTs of actual cat poo to beautiful and intricate digital drawings, and it wouldn’t surprise us if the cat poo sold to some niche buyer (no judgement from us…).

Should I invest in NFTs?

If you’ve got the money to throw away, and you really don’t care if you ever make a return on your investment, then sure! But for normal people trying to make their money make sense, and go as far as it can, we wouldn’t advise it.

Similarly to investing in Crypto, it’s a huge gamble in a volatile market. Even physical art goes in and out of fashion, as do the artists themselves, and its value can fluctuate rapidly meaning it’s a risky form of investment.  

Some NFTs can be bought fairly cheaply, but if nobody else wants to buy it, then you’ll never get your money back, let alone make money. Treat an investment in an NFT as a high risk gamble – you might get lucky and you might not, and in whatever form of gambling, you should only bet what you can afford to lose.  

The Financial Services Authority, which regulates UK investments, has just introduced new rules for high risk investments such as cryptocurrencies but excludes NFTs (for now). If these proposed rules  are made into law, companies offering cryptocurrencies will have to meet stricter standards around how they advertise and sell them to people on average incomes, and investors will have greater protection against mis-selling. But NFTs will remain outside of this regulation, so if you do invest in an NFT and regret it, you will have no protection at all if things go wrong.

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