Cap3 on US News & World Report: What Are NFTs? A Guide for Investors

Most investors probably didn't hear about non-fungible tokens until last year. That's when NFTs exploded onto the scene, mostly in the form of digital art.

Sales hit a monthly record near $5 billion in August 2021, according to numbers from industry data aggregator CryptoSlam. Sales continued in the billions before falling steeply this June along with the value of cryptocurrencies, which are often used to purchase these tokens.

Like cryptocurrencies, NFTs are authenticated with blockchain technology. But unlike, say, Bitcoin (BTC), NFTs represent ownership in something specific, like a digital painting. While NFTs can be bought and sold in a similar way that a sculpture might be auctioned, they can't be exchanged for goods and services in the same manner as cryptocurrencies like Bitcoin.

When it comes to investing, the market for NFTs is far from mature. Any but the most speculative of investors may want to steer clear until the regulatory haze dissipates and more real-world uses for NFTs are developed. In the meantime, you may want to consider them as something fun to collect that, like a stamp collection, might end up being worth something one day.

"Their true value lies in their underlying utility and the fact that they represent ownership," says Anthony Georgiades, general partner with technology venture capital firm Innovating Capital. "There are so many useful future applications of the technology that will have practical implications for businesses and consumers."

The following are some factors for investors to keep in mind as they explore the ins and outs of NFTs:

• What are NFTs, and how do they work?
• NFTs and art.
• Risks of NFTs as investments.
• Regulatory risk.
• Investing case may improve as use cases proliferate.
• Bottom line: Should you buy NFTs?

What are NFTs, and How Do They Work?

NFTs are media files attached to a specific digital token that can be tracked and verified on a blockchain, explains Jeff Davis, founder of Cap3 Collective, an organization launching later this month that will fund blockchain-based web projects.