Ultimate NFT Gift Guide

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KEY POINTS

  • NFTs are digital collectibles that live on the blockchain. They've grown significantly in popularity this year.
  • NFTs can have both monetary and sentimental value, but there's a risk their value may not last.

If you're thinking of buying an NFT as a Christmas gift, read this first.

NFTs have skyrocketed this year. Blockchain data platform Chainalysis estimates that at least $26 billion has been spent on NFTs so far in 2021. Their growing popularity means many people are considering giving NFTs this holiday season.

But what exactly are NFTs? Should you get them for your nearest and dearest? If so, how do you do it? We spoke to six experts on cryptocurrency and NFTs to find out. If you're considering making it an NFT Christmas, our NFT gift guide has all the info you need.

What are NFTs?

NFTs (non-fungible tokens) are digital collectibles that live on the blockchain. They can be almost anything, from pieces of digital art to gaming assets to music to sports trading cards.

Pamela Drake, Professor of Finance and Business Law at James Madison University, explains that NFTs are special because the authorship and ownership information is baked into the token. "What makes NFTs different from other collectibles is that there is a system for verification of the seller’s identity and for the authentication of each NFT through the use of blockchain," she said.

Think of it as the difference between buying a print of a piece of art vs. a signed print, or even the original. There could be hundreds of thousands of prints, but the original and autographed versions are unique. Moreover, because the key information is stored on the blockchain, there won't be any questions about its authenticity further down the line.

Is an NFT a good gift?

It can be hard to find something special for someone who has everything. Not only are NFTs one of this year's big phenomenon, they are also unusual, and may even increase in value with time. Plus, there's no supply chain issues when buying these digital items.

Vivian Fang, Associate Professor of Accounting at the University of Minnesota Carlson School of Management, says the two big benefits to NFT gifts lie in potential growth in monetary value and sentimental value. "If one happens to pick out a token with high growth potential, the value of an NFT gift can keep rising for years," she said.

"NFTs are also quite novel to most so they make unique gifts, particularly for those who are tech-savvy. The sentimental value of such gifts is only going to compound as time goes on as people may still remember their first few NFT gifts decades down the line."

However, Fang warned that many NFT projects could fail, making the market extremely speculative. The worry is that the gift you buy might become worthless in a few years.

Professor Drake agrees. "Whereas there is a lot of excitement (and press) regarding NFTs, it still remains to be seen whether this phenomenon has lasting power as an investable asset, or whether this is a pet-rock syndrome or tulip mania," she said.

Some people have compared NFT gifting to giving someone a lottery ticket or scratch card. But it can be more than that. As long as the NFT has value for the recipient, it won't be so important if it later declines in value. For example, if you buy a Michael Jordan NFT for a lifelong fan, they may be happy to own it regardless of what happens to the price.

What you need to know before gifting an NFT this holiday season

Before you dive in and buy NFTs for all your nearest and dearest, be aware that they won't be right for everybody. We touched on the possibility they could lose value, but there are some other factors to take into account.

1. Gas and transaction fees

Hemang Subramanian, Associate Professor of Information Systems and Business Analytics at Florida International University, says you should be aware of the fees. A lot of NFTs are minted on the Ethereum (ETH) network, which struggles with high gas fees.

Subramanian points out there are ways to reduce gas fees, but he also says they aren't the only extra costs involved. "Additionally, NFT platforms charge anywhere between 2% and 12% as artist fee and platform fees for listing NFTs," Subramanian warns.

2. The recipient will need a wallet

As Dan Hunnewell, founder of Crypto Baristas and Coffee Bros told us, it's a good idea to make sure the recipient has a wallet and will understand the value of what they're receiving. Crypto Baristas are hand-drawn characters that back the world's first NFT funded café.

"You certainly don't want your gift to fall flat on its face if you try and give something to someone they know nothing about," he said. "If someone is already an NFT enthusiast or understands the concept, they may be a perfect candidate for an NFT."

Not only will your recipient need a wallet, but there are a lot of different NFT platforms and it can be hard to transfer your assets from one platform to another. Finally, be aware that some wallets have age restrictions, so it might be difficult to give an NFT to someone who's under 18.

RELATED: Check out Motley Fool Money's guide to the best NFT wallets.

3. Not all NFTs were created equal

There's a whole host of different NFTs out there, from videos of sporting moments to plots of land in the metaverse. You'll need to find the right NFT for each of your loved ones. For example, there's no point in giving an NFT of a Whitney Houston song to someone who doesn't even like her music.

Alex Salnikov, co-founder and head of product at popular NFT platform, Rarible, said the personalization of NFT gifts presents a great opportunity. You can choose a digital collectible that's in line with the recipient's favorite creator or hobby. "If you really want to get personal, a PFP (profile picture) avatar that matches the personality or style of a recipient is a thoughtful gift that they can show off on socials such as Twitter," he says.

There are a couple of copyright-related issues to consider. First, when you buy an NFT, you do not buy the copyright. This still belongs to the creator who might go on to sell other similar works in different formats.

Moreover, there have been instances of NFT fraud where unscrupulous players mint and sell NFTs of an artist's work without their permission. A spokesperson from Crypto.com told us,

"When individuals purchase NFTs they should carefully research the artist and the art itself as there can be situations where the NFT may not be genuine."

5. NFTs have a bad reputation on environmental issues

These digital collectibles can come with a sizable carbon footprint. So much so that one artist on Twitter labeled it an "ecological nightmare pyramid scheme." Be careful if you're buying for someone who's concerned about their carbon footprint.

It is possible to find more eco-friendly NFTs, as Salnikov points out. "There are existing solutions to help significantly limit energy emissions related to minting, and Rarible is at the forefront of creating a sustainable digital future for users."

For example, Rarible has partnered with more energy efficient blockchain networks to minimize their footprint. It also works with a blockchain-backed carbon removal marketplace so users can offset the carbon costs.

How to gift an NFT

Buying an NFT as a gift is not as simple as heading to the store and picking up a scented candle. Just as you wouldn't buy a random piece of art because you wanted to own "art," you'll need to find the right NFT.

  1. Find the NFT you want to buy and create an account. There are several NFT platforms, including Rarible, OpenSea, Nifty Gateway, and Mintable. It can be a bit daunting when you first log on, so try searching for specific themes that reflect your recipients' interests.
  2. Buy Ethereum (or the cryptocurrency your NFT is trading in). Most top cryptocurrency exchanges sell Ethereum and make it easy to deposit normal money like U.S. dollars.
  3. Set up a crypto wallet. There are a number of external crypto wallets, but Metamask is the most common. Move your crypto from the exchange into your wallet. Then you can connect it to the NFT platform and buy the NFT of your choice.
  4. Transfer the NFT to the recipient. You'll need to ask them for their wallet address, which will either be a long string of letters and numbers or a QR code. If they don't have a wallet, you might need to set one up for them.

Learn more: The Top NFT Marketplaces

If the idea of wallets and transferring assets sounds overwhelming, you could instead gift someone their own cryptocurrency so they can simply buy the NFT themselves. If you're shopping for an NFT lover, but don't know a lot about the NFT market, there are other options. For example, they might appreciate a digital frame to display their NFT collection. Or a hardware wallet to securely store their assets.

All in all, NFTs could make great gifts this holiday season that people will remember for years. Buying one as a gift could also be the start of your own journey into digital collectibles. Beware though -- as Crypto Baristas' Hunnewell told us, it could be addictive: "Once you get into the NFT world, it is tough to get out, and that is a good thing!"

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