CNN reports that a new record price was paid for bottle of Champagne. The bubbly sold at auction for $2.5 million, making it the most expensive bottle of wine ever sold. The record setting magnum of Chateau Avenue Foch, 2017, comes with a bonus. For $2.6 million the owners also got a single non-fungible token (NFT). The NFT is for the rights to an image of “Bored Ape Mutant” and other cartoon figures that decorate the bottle.
What is a non-fungible token
Non-fungible tokens (NFTs) are the latest cryptocurrency phenomenon to go mainstream. NFTs claim to transform digital works of art and other collectibles into one-of-a-kind, verifiable assets that can be traded on the blockchain. Sales of NFTs have been driven by celebrity endorsements, Online characeters like Elon Musk and Lindsay Lohan have pushed the NFT market to $41 billion in sales to 2021.
Non-fungible tokens are cryptographic assets on a blockchain with unique identification codes and metadata. These traits distinguish them from each other. Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency. This differs from fungible tokens like cryptocurrencies, which are identical to each other and, can serve as a medium for commercial transactions.
How to Buy NFTs
To get into the highly speculative non-fungible token market, you will need to do some work before you can own an NFT.
- Set up a digital wallet that allows you to store NFTs and cryptocurrencies.
2. Purchase some cryptocurrency. Eth, on the Ethereum network is the most popular cryptocurrency to buy NFTs. You can buy cryptocurrency using a credit card on platforms like Coinbase or PayPal.
3. Move your cryptocurrency from the exchange to your wallet.
3. Start shopping at non-fungible token marketplaces. NFT marketplaces are platforms that host thousands of non-fungible tokens creators and collectors.
NFT marketplaces
Foundation is a community-curated marketplace. It requires non-fungible token creators to be invited by other creators who are already part of the platform.
Nifty Gateway is an non-fungible token marketplace with plans “to make NFTs accessible to everyone.” They work with big-name brands, athletes, and creators to create limited-edition digital art collections exclusive to the platform.
OpenSea.io is one of the first NFT marketplaces. It bills itself as the “largest NFT marketplace.”
Rarible is a community-owned non-fungible token marketplace. The platform focuses on art assets. It uses the RARI cryptocurrency issued on the platform.
The high profile NFT craze is attracting scammers. Some may try to sell you an non-fungible token when it’s not. Others may claim they have the right to sell an NFT they don’t own and didn’t create.
You have been warned.
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CNN reports that the Champagne was bought by Italian cryptocurrency speculators. Despite their crypto profile, the purchase was made in dollars due to the recent cryptocurrency implosion. The price of a Bored Ape Yacht Club token has fallen. The price fell from an all-time high in April 2022 of 153 eth ($163,000), to 75 ethereum in May 2022.
Remember that the value of a non-fungible token is based entirely on what someone else is willing to pay for it. Therefore, demand will drive the price rather than fundamental, technical or economic indicators, which drive stock prices and investor demand.
Even if you buy a non-fungible token winner worth millions, Forbes warns that NFTs are subject to capital gains taxes. NFTs are taxable just like when you sell stocks at a profit. Since they’re considered collectibles, they may not receive the preferential long-term capital gains rates stocks do and may even be taxed at a higher collectibles tax rate.
The cryptocurrencies used to purchase the NFT may also be taxed if they’ve increased in value since you bought them. This means you may want to check in with a tax professional when considering adding NFTs to your portfolio.
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Ralph Bach has been in IT long enough to know better and has blogged from his Bach Seat about IT, careers, and anything else that catches his attention since 2005. You can follow him on LinkedIn, Facebook, and Twitter. Email the Bach Seat here.