Many people hope to get rich from NFT, some have even become millionaires with it. NFTs are digital certificates that indicate that a specific file, often a digital image, is genuine. NFTs only come out once each, so collectors buy them on the internet. Saidi Sulilatu, Youtuber at Geldratgeber Finanztip, explains whether this can be a good investment in an interview with SWR-Aktuell moderator Jonathan Hadem.
SWR: What exactly are NFTs?
Saidi Sulilatu: NFT stands for Non-Fungible Token, and you can think of it as a digital certificate of authenticity: like a certificate that is written on a blockchain, i.e. in a distributed computer network, a distributed stored book, a database, just that it represents a specific work of art. You can imagine it like this: If I’m an artist now, but I don’t paint my images on a canvas, but just draw on the computer screen, then I have the problem that I don’t anyone can immediately copy it with a right click. And then I can have such an NFT generated. This proves that THIS particular file is the original. Now, it’s fair to say that I can still copy this file by right-clicking. But it’s the “Mona Lisa” like in real life. Of course, there are also millions of copies of the . But of course, there is only one original hanging in the Louvre.
Is it easy to create an NFT?
It’s not so difficult anymore. There are different platforms, one of the biggest and best known is OpenSea. I have to create an account there. It then costs something, and there I can have such an NFT created for any object, like any file above all, that is, works of art. And above all, and this is the main thing, I can then simply sell it – for example at an auction. This is what is interesting for artists or musicians. Music is now also sold at NFT. The fact that these digital artworks can be made marketable is an important source of income for many artists, especially in times of Corona.
There are always people who suddenly become millionaires because they sold a few NFTs. How does it work exactly? Is it only such auctions?
There are NFTs, or small collections, which are relatively well known – for example, “CryptoPunks” or “Bored Ape”. So there are similar images that appeared in different variants and then they get a decent amount of hype. And suddenly a lot of rich people are obviously willing to pay a lot of money for it. And it turned into a certain boom, which then you can also, you have to say it clearly, brag about something like that. That means you can use it as a social media profile picture, for example, and say “Hey look, I bought that expensive NFT” – for a couple hundred thousand dollars, if you want. It’s a bit like wearing a Rolex or buying an expensive sports car, except it’s all digital. But very clearly: this only affects a relatively small part of the NFT. Of course, it’s not like an image is going to sell for hundreds of thousands of dollars right now.
If I really want to buy an NFT, how can I pay for it?
NFTs are written in blockchains, very similar to cryptocurrencies, and they are also paid for in cryptocurrencies. As a rule, they are written on the so-called “Ethereum” blockchain, and that is why I pay in the currency that this blockchain promotes, namely “Ether”. This means that I need a wallet, i.e. a digital purse, where I can buy the cryptocurrency “Ether”. And then I can buy such an NFT. It should be noted that, unfortunately, it is almost never free. Because just to trade, to write this NFT is also to generate, I have to pay, if only because Ethereum, very similar to Bitcoins, consumes a lot of energy. This means that I have to pay the electricity costs myself. And it is also a criticism of NFT that there is again a lot of energy consumed there.
We then come to the real question: is it financially interesting? Is it worth investing a few hours and money and reading about it so you can get involved?
I would generally say no. Because that’s actually how it is: if I invest there, if I buy an NFT, I’ll usually do it to hope it goes up in value. And I can’t trust that at all. One has to imagine that a huge market naturally developed immediately. And it doesn’t say at all that I can then sell the artwork I buy with a big profit. Worst case scenario I may have bought an NFT, maybe for a few hundred bucks or something, which no one will want after that. As it is not a liquid market, it is not certain that the file that I have there, the photo, is really well received. And that’s why it’s a very risky investment. If you have a lot of money left, maybe you can start with little money – especially if you also want to be an arts sponsor. But as a serious investment, as a serious investment, it is very dangerous.