What are the opportunities and risks? – Current SWR

Many people hope to get rich through NFT, some even become millionaires with it. NFTs are digital certificates that state that a particular file, often a digital image, is original. NFTs are only issued once, so collectors buy them online. Saidi Sulilatu, Youtuber at Geldratgeber Finanztip, explains whether it could be a good investment in an interview with SWR-Aktuell Director Jonathan Haddam.

SWR: What exactly is an NFT?

Saidi Sulilatu: NFT stands for “non-fungible token,” and you can imagine it as a digital certificate of authenticity: as a certificate 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 you are an artist now, but don’t paint my pictures on a canvas, but just draw on a computer screen, then I’m having a problem that anyone can copy them right away with a right click. And then I can get such an NFT. 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 this is the “Mona Lisa” as in real life. Of course there are also millions of copies of . But of course there is only one original that hangs in the Louvre.

How easy is it to create an NFT?

It is no longer that difficult. There are many platforms, one of the largest and most famous is OpenSea. I have to create an account there. This costs something, and there I can create such an NFT for any objects, such as any files above all, ie artwork. And above all, and this is the important thing, I can then sell it – for example at an auction. This is what interests artists or musicians. Music is now also sold on NFT. The fact that such digital artworks are tradable is an important source of income for many artists, especially in the time of Corona.

There are always people who suddenly become millionaires because they sold quite a few NFTs. How exactly does this work? Is it just about auctions like this?

There are relatively well-known NFTs, or small groups – for example, “CryptoPunks” or “Bored Ape”. So there are similar images that came out in different formats, and then got a fair amount of hype. Suddenly it became clear that many rich people were willing to pay a lot of money for it. And that evolved into a certain mutation, and then you can also, you have to say it clearly, and bragged about something like that. This means you can use that as a social media profile picture, for example, and say “Hey, I bought this expensive NFT” — for a few hundred thousand dollars, if you like. It’s a bit like wearing a Rolex or buying an expensive sports car, except it’s completely digital. But it’s pretty clear: this only affects a relatively small portion of the NFT. Of course, it’s not as if any photo would 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 on blockchains, much like cryptocurrencies, and are also paid for in cryptocurrencies. As a rule, it is written on the so-called “Ethereum” blockchain, which is why I pay with the currency that promotes this blockchain, which is “Ether”. This means that I need a wallet, that is, a digital wallet, where I can buy the cryptocurrency “Ether”. And then I can buy such NFT. It should be noted that, unfortunately, this is practically never done for free. Because it is only for trading, to write this NFT also for generation, I have to pay, only because Ethereum, which is very similar to Bitcoin, consumes a lot of energy. This means that I have to pay for the electricity myself. This is also a criticism of the NFT that there is again a lot of energy expended there.

Then we come to the real question: Is this financially interesting? Is it worth investing a few hours and money and reading it so you can get involved?

I would say no in general. Because it’s actually like this: If I invest there, if I buy an NFT, I usually do it in the hope that it will increase in value. I can’t count on that at all. You have to imagine that a huge market developed naturally immediately. And it doesn’t say at all that I can sell the artwork I bought later for a big profit. At worst, you probably bought an NFT, maybe for a few hundred euros or something, no one will want it anymore. Since it’s not a liquid market, it’s not certain that the file I have there, the image, will be well received. This is why it is a risky investment. If you have a lot of money left, you can probably start from there with a little money – especially if you also want to be an art sponsor. But as a serious investment, as a serious investment, it is very dangerous.

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