Why is the billionaire investor fired up about NFTs?
NFTs have hit the headlines recently because some have sold for extraordinary amounts of money. But you don't have to spend millions of dollars at Christie's to buy an NFT. Successful entrepreneur Mark Cuban has found many ways to invest in NFTs. Find out how, and why he's so stirred up about them.
What are NFTs?
The simplest answer is that NFTs are digital collectibles. If you collect sports trading cards, you can now do it digitally. The same goes for art, music, videos, and much more.
To give you a more technical explanation, NFTs -- or non-fungible tokens -- are like a certificate that authenticates your item and makes it unique. You could copy an image onto your desktop or watch a clip on YouTube for free. But if you bought an NFT, it would be like owning an autographed copy of that image or video clip. The token gives it value and allows the creator to make money from their work.
Why is Mark Cuban so excited by them?
Speaking on the Delphi Podcast, Cuban explained it's the smart contracts contained in NFTs that got him excited. They mean that a creator can get royalties when an NFT is resold, which Cuban describes as a "game changer."
Sometimes called self-executing contracts, a smart contract is a little program that's stored on the Ethereum blockchain ledger. It doesn't need a middleman -- it will execute the clauses automatically. The collectible NFTs we're seeing now are just the tip of the iceberg. There's plenty of business applications that have yet to unfold.
Cuban uses the example of a farmer who could take out insurance against certain weather conditions that would damage crops. The smart contract would automatically pay the farmer if its monitors show those conditions have been met, without any need for a claim or an intermediary.
It's early days, and Cuban believes NFT collectibles are only the beginning.
How Mark Cuban has gone big on NFTs
If you want to see which NFTs Mark Cuban owns, check out his gallery on lazy.com. The website is an NFT gallery and Cuban's latest NFT project. He launched the site this year to give people a space where they could easily show off their collections.
He's also invested in the following:
- Mintable.app: A site where you can make, buy, and sell digital assets.
- CryptoSlam: A data aggregator you can use to get market data, including NFT sales histories and market rankings.
- nft42: This company is working to ensure NFTs are durable and won't disappear if, for example, the third party hosting the item takes its website down.
- Nifty's: In March, Nifty's announced it would launch an NFT-focused social media platform which will go live later this spring.
- OpenSea: This is a marketplace for NFTs and other digital goods.
Each of these companies is working to solve different problems and take NFTs to another level. If you want to learn more about this new industry, the companies Cuban is backing are a good place to start.
Should you invest in NFTs?
If you're a collector, NFTs could be an exciting way to collect. As you can see from the companies above, the way you buy, store, and display NFTs is improving all the time.
But think twice if you're buying because you're scared of missing out on the next big thing. Investing in art or collectibles takes a lot of knowledge, whether you buy physical items or digital ones. And the whole world of cryptocurrencies, including NFTs, can be risky. It is highly volatile and, like any investment, you might make a profit -- but you could also lose your money.
Buying NFTs brings its own challenges. It's not like using a stock broker to buy stocks: The NFT market is still extremely undeveloped and at times unwieldy. For a start, you'll almost certainly need to buy Ethereum to invest in an NFT, and you'll need to put it in a wallet that connects with the NFT exchange.
There are also other risks. Do your due diligence and research before you spend any money. One thing to watch out for is NFT fraud -- you don't want to buy a piece that wasn't actually made by the artist it claims created it. A good exchange should check the credentials of the artists it displays.
Just as it's good to buy crypto from a reputable cryptocurrency exchange, make sure you buy from an NFT exchange you trust. That way you reduce the risk of theft, fraud, or accidentally falling foul of U.S. regulations. Also, think about where you're going to store your NFT. You might need an NFT wallet to protect your asset.
It's worth pointing out that you don't have to buy an NFT to put money into this burgeoning market. Smart contracts are exciting and have the potential to transform many types of businesses. So you could follow Mark Cuban's example and look out for companies that use this new technology. You don't need an actual NFT to come out ahead of the curve.
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Emma Newbery owns Bitcoin and Ethereum. The Motley Fool owns shares of and recommends Bitcoin.
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