What are Non-Fungible Tokens (NFTs)? Bankrate Caret RightMain Menu Mortgage Mortgages Financing a home purchase Refinancing your existing loan Finding the right lender Additional Resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Bank Banking Compare Accounts Use calculators Get advice Bank reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Credit Card Credit cards Compare by category Compare by credit needed Compare by issuer Get advice Looking for the perfect credit card? Narrow your search with CardMatch Caret RightMain Menu Loan Loans Personal Loans Student Loans Auto Loans Loan calculators Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Invest Investing Best of Brokerages and robo-advisors Learn the basics Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Home Equity Home equity Get the best rates Lender reviews Use calculators Knowledge base Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Loan Home Improvement Real estate Selling a home Buying a home Finding the right agent Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Insurance Insurance Car insurance Homeowners insurance Other insurance Company reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Retirement Retirement Retirement plans & accounts Learn the basics Retirement calculators Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Advertiser Disclosure
Advertiser Disclosure
We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.
Our articles, interactive tools, and hypothetical examples contain information to help you conduct research but are not intended to serve as investment advice, and we cannot guarantee that this information is applicable or accurate to your personal circumstances. Any estimates based on past performance do not a guarantee future performance, and prior to making any investment you should discuss your specific investment needs or seek advice from a qualified professional. How We Make Money
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. Editorial disclosure
All reviews are prepared by our staff. Opinions expressed are solely those of the reviewer and have not been reviewed or approved by any advertiser. The information, including any rates, terms and fees associated with financial products, presented in the review is accurate as of the date of publication. SHARE: On This Page
Bloomberg/Contributor/Getty Images September 16, 2022 Bankrate senior reporter James F. Royal, Ph.D., covers investing and wealth management. His work has been cited by CNBC, the Washington Post, The New York Times and more. Brian Beers is the managing editor for the Wealth team at Bankrate. He oversees editorial coverage of banking, investing, the economy and all things money. Bankrate logo The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our investing reporters and editors focus on the points consumers care about most — how to get started, the best brokers, types of investment accounts, how to choose investments and more — so you can feel confident when investing your money. Investing disclosure: The investment information provided in this table is for informational and general educational purposes only and should not be construed as investment or financial advice. Bankrate does not offer advisory or brokerage services, nor does it provide individualized recommendations or personalized investment advice. Investment decisions should be based on an evaluation of your own personal financial situation, needs, risk tolerance and investment objectives. Investing involves risk including the potential loss of principal. Bankrate logo Editorial integrity
Bankrate follows a strict , so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. Key Principles
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers. Editorial Independence
Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo How we make money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. You might not have heard of non-fungible tokens (NFTs), but they’ve enthralled a fast-growing segment of digital speculators who are ready to pay big bucks with the hopes that they can resell an NFT for much more in the future. The price of some of the hottest NFTs, such as Bored Ape Yacht Club and Cryptopunks, zoomed higher almost overnight. Why are so many people betting on a cryptocurrency-like asset that produces no cash flow and generates no royalties? Here’s what you need to know about NFTs, why they’ve been a hot product in the trading world and why those plunking big money down on them face the prospect of losing a hefty sum on what amounts to digital art or virtual sports cards. What is an NFT
An NFT is a kind of digital asset that is unique – that is, non-fungible. An NFT can represent a number of digital properties, including artwork, collectibles, video snippets, an item from a video game or even a music album, among others. Music group Kings of Leon that entitles users to download the album and related artwork. “It can’t be traded with another one, like a dollar can be traded for another dollar,” says Dr. Richard Smith, CEO of The Foundation for the Study of Cycles, explaining non-fungibility. NFTs are built on the same kind of infrastructure – blockchain – that are. Because they use blockchain, the transfer of an interest in NFTs is recorded on the blockchain, putting ownership on a permanent record, making it impossible (or at least very hard) to falsify. “Each time an exchange on the blockchain occurs, whether that’s buying and selling an NFT or transacting in , the transaction is made public on the blockchain and marked with a unique digital signature,” says Aubrey Strobel, advisor at Lolli, a Bitcoin rewards app. “This distinct signature verifies the transfer of ownership of an NFT.” But would-be buyers should be clear what they’re getting here. An NFT is not a royalty and does not give you an economic interest in, for example, the broadcast of a sports clip. Rather, it’s more akin to a piece of digital art or a digital sports card. Or in the case of an album NFT, it gives you the right to a certain asset, which you can then use and enjoy. Some businesses, such as those in the music industry, envision the NFT as a future way to track the interest in a specific asset and then quickly pay the artists responsible for it. Similarly, when owners sell the asset to someone else, the original producer may even be able to take a cut of the sales price. Blockchain tech enables the hard-to-falsify record of ownership. And NFTs have the other advantages of blockchain technology, says Alex Salnikov, co-founder of Rarible, an NFT marketplace: They’re instantly and verifiably transferable, and your ownership is borderless and independent of the platform. “NFTs actually have an advantage over physical art,” says Strobel. “Whereas a painting can be stolen from a museum in a heist, stealing an NFT would usually involve hacking an individual user’s private key – no easy feat if they’ve secured it offline like most people do or should.” NFTs exploded in popularity – then crashed
While NFTs seemed to explode on the scene, interest in them had been building for a while. But just as suddenly they’ve seemingly flamed out. As of September 2022, daily dollar volume in NFTs on the popular OpenSea exchange is down a stunning 99 percent since its peak in May 2022, according to DappRadar. Several factors working together may have led to the recent explosion in interest. “High-profile investors like Mark Cuban have been talking about them, the NBA is using them in their new Top Shot site, several major artists are jumping on board, and let’s not forget the nosebleed-level surges in cryptocurrency prices such as Bitcoin and Ethereum,” says Anthony Citrano, founder of Acquicent, an NFT marketplace. “It feels like a perfect storm here.” Because NFTs are denominated in cryptocurrencies, their prices surged as crypto prices skyrocketed, explains Citrano. But in 2022, cryptocurrencies plummeted in value, with – the key cryptocurrency involved in trading NFTs – down 66 percent from its all-time high. Meanwhile, the growing longer-term interest in cryptocurrencies such as Bitcoin and Ethereum and the ease of getting started with them also powered interest in NFTs, says Salnikov. “It’s a whole new non-financial use case for people, not only geeks,” he says. “The pandemic has increased the amount of time that people are spending online, making digitally native products like NFTs more attractive, as we’re living digitally now more than ever before,” says Strobel. How to buy NFTs
If you’re looking to buy NFTs, there are a few things you’ll need to understand before getting started. First, you can find a large offering of NFTs available on popular marketplaces such as or . These marketplaces typically function a lot like an auction house. If you’re an interested buyer, you can place a bid and wait to see if you’re the top bidder for your chosen NFT. Some of these sites also offer the option to “Buy Now” at a fixed price. When it comes to payment for NFTs on these marketplaces, prices are usually listed in ether — the currency of the Ethereum blockchain. (Don’t worry, you’ll also see the price shown in dollars too.) You’ll need to either send the amount in ether from a crypto exchange or connect a supported cryptocurrency wallet before you can complete your transaction for any NFTs you purchased. In some instances, you can also buy ether directly with a credit card. It’s not all that different from how investors might add money into an to buy stocks or a to get invested in index funds. What are the risks of NFTs
But NFTs are not a sure investment. In fact, they look much more like a speculative furor. Again, the comparison with sports cards looks apt, though one could consider them like other speculative assets such as sneakers, handbags or art. They produce no cash flow, and . Misunderstanding of the investment
Naturally, you could also view or digitally save a video clip online for free, but collectors are still paying serious money for the right to own the “authorized” version of the clip or art. “There’s a lot of room for misunderstanding and mispricing here,” says Smith. “NFTs don’t give you any royalties, and there’s no guarantee how many of one sort are out there.” Because NFTs don’t produce cash flow, the only way to make money is if someone else comes along and is willing to pay more for them, what’s called the “greater fool” strategy of investing. Smith says it’s “treacherous times” for those buying high-priced collectibles. “There’s a lot of greater fool theory speculation driving the markets right now,” says Smith. “I’m excited about them, but I’m not pulling out my wallet to buy them.” Liquidity risk
NFTs also suffer from liquidity risk: If no one wants to buy your NFT, you won’t be able to resell it soon or at all. That’s in sharp contrast to the stock market, which provides ready liquidity. Salnikov also points to counterparty risk, where the original producer of the NFT may not have had rights to the sports clip, for example. Still, many traders are turning to NFTs as a way to turn a quick profit. That kind of market usually turns out poorly for those who mistime when to enter and exit. “I’d urge speculators to be very careful here, and, as with any speculative investment, only invest what you can afford to lose,” says Citrano. “I’m bullish on the space but – like any asset class – they will experience their highs and lows.” “If you’re buying an NFT because you really like it and want to own it, there is very little risk because it will be yours forever, or for as long as you wish to own it,” says Citrano. “If you’re buying NFTs to speculate, that’s another story.” Bottom line
As with all collectibles, buy them because you love them, not to make money. Buy art because you like to look at it or it brings you joy. Buy handbags because you derive pleasure from them. Do not expect to make money on these speculative assets, because the odds are not great. Still, if you would like to get involved, you may not have to pony up huge amounts to get started. “Some NFTs are relatively inexpensive, making it possible for people to get a part of the action at less extravagant prices,” says Strobel. However, you’ll want to be content if you’re never able to sell the NFT again. And that means being comfortable with losing your entire investment. Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation. SHARE: Bankrate senior reporter James F. Royal, Ph.D., covers investing and wealth management. His work has been cited by CNBC, the Washington Post, The New York Times and more. Brian Beers is the managing editor for the Wealth team at Bankrate. He oversees editorial coverage of banking, investing, the economy and all things money. Related Articles