When buying a non-fungible token, there are many things to consider. In this video clip of "The Crypto Show" on Motley Fool Live, recorded on Feb. 2, Fool contributors Jon Quast and Travis Hoium discuss some relevant questions to ask when investing in NFTs.
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Jon Quast: "If everything looks the same, how do you differentiate the stuff that is not worth even spending one second researching and others that could actually be a decent long-term investment?"
Travis Hoium: This is the hardest thing in NFTs today and this is what keeps me up at night. [laughs] Is trying to figure this out, asking a few simple questions like, why are we here? Why are we doing this and why we are doing it with an NFT?
Sometimes, there's a really good answer to that. If there is that can make a project really interesting or maybe you're building something that you wouldn't be able to do, otherwise. Some of the metaverse projects are using NFTs and digital land sales as a financing round if you will. You're not actually buying equity in the project, but you're buying land on the digital platform. The Sandbox (SAND -2.66%) is a good example of that on the Ethereum (ETH -1.06%) blockchain.
It also opens up a different financing option if you're in that sense, it is like buying a stock. That's the way that I think I'm investing in this project. I own an NFT in this project, if this project continues to build over time, then my NFT should be more valuable.
But it's really hard and there's no perfect answer. The way that I like to think about it is that I think 90% of these are probably going to go to zero. Of the 10% that are left, maybe 1% of those are going to rise in value significantly. I'm trying to focus on that 10% and find as many of those 1%-ers as I can.
But it's the Wild West out there right now. But this is why I say it's a lot like it was in the '90s. When companies were popping up and going publicly treated based on the number of eyeballs that they had on their websites so that's I think the analogy is.
What I want people to take away from this is, there are interesting things happening in NFTs. You don't have to buy them. But I think everybody should be aware of them right now because the use cases are growing and getting more and more interesting.
I think the barriers are falling as we start to move away from things like having to buy Ethereum to buy an NFT, or paying gas fees, or understanding what minting is. Like all this complicated stuff, it doesn't really matter. What matters is what's the utility in some of those pictures are starting to come together, and that's what's really exciting to me at the end of the day.
