How many NFTs are there?
At the end of October 2021, there were nearly 7,000 different types of cryptocurrencies worldwide. Most NFTs are built on Ethereum, but many of these tokens utilize a different blockchain or were built on a proprietary NFT platform. As a result, there are innumerable individual NFTs representing works of art, videos, video game content, music, and more. As more artists and creators make use of NFTs to secure and monetize their work, this number will only increase over time.
Why are non-fungible tokens important?
Besides representing a way for digital artists and other creators to monetize their work, NFTs are imagined as the evolution of art investing and collecting and as part of a new cryptocurrency investment asset class. Since an NFT is unique, there's always a slim chance an NFT collection could balloon in value (like Beeple's digital artwork). If you're an art collector, NFTs are easy to buy and sell on an online marketplace such as OpenSea. Cryptocurrency trading app Binance is launching an NFT marketplace, and Coinbase Global (COIN -1.50%) might do the same (it has invested in several NFT marketplaces, including Rarible).
But, for the average investor, NFTs represent a highly speculative class of investment that should probably be avoided. NFTs don't gain in value because of their utility but are based on the value of the media they represent (digital art, video, music, etc.). Sticking a value on something like art is incredibly difficult and subjective and unlike valuing a share of stock, which represents an ownership stake in a business and a claim on future profits generated by the business.
Related investing topics
Investors who want some indirect exposure to NFTs anyway might consider adding a little Ether to their portfolio since most NFTs utilize the Ethereum network's blockchain. Ether is also a highly speculative investment, although it could increase in value if Ethereum network use rises over time. (It's important to note there is no cap on how many tokens of Ether can exist, but a recent change to the way transactions are validated from proof of work to proof of stake should decrease the supply of Ethereum over time.)
Even so, non-fungible tokens could be an important technological development. In a new digital era that blurs the lines between the physical and virtual worlds, a new way to track digital asset ownership and distribution online will be increasingly important. These blockchain-based tokens could also disrupt financial intermediaries and lower the cost of buying and selling big-ticket items such as autos and real estate. That doesn't necessarily mean you should invest in highly speculative NFTs, but, at the very least, their development is worth keeping an eye on.
About the Author
Nicholas Rossolillo has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, Ethereum, and Nike. The Motley Fool recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
