As you and your fiance plan your future together, you’ll probably talk about a range of topics related to the relationship. You might discuss things like conflict resolution, making a graceful transition out of the honeymoon phase, whether you should have kids, and how to prepare for the transition if so. You probably also find it easy to list and imagine your dreams. Maybe you want to invest in your first property or buy a second home together in a ski town, or perhaps you’re more the traveling type and you dream of an extended overseas trip. Whatever your dreams, there’s one common denominator: You’re probably going to need money to make them happen. Thoughtfully planning your finances together is one of the best ways to invest in your future and in your dreams.
With the rise of bitcoin and other cryptocurrencies and digital assets, an entirely new brand of financial literacy has become important for millennials and Gen Z-ers. Enter NFTs: a new trend which has taken the digital world by storm. But what the heck is an NFT? Why would anyone want one, and what does this have to do with your financial future? Read on for an easy explainer.
What is an NFT?
In short, an NFT is a non-fungible token. Say what now? It’s just a token that you can’t funge, duh! So simple. Just kidding, we know that doesn’t actually make any sense to most people. If an asset is fungible, that means that something can be exchanged or substituted and will hold the same value. It is interchangeable. Some examples of fungible assets are currency, gold, cryptocurrencies, and even casino chips (Dashwood, 2020).
To illustrate the concept of what makes something fungible, imagine that you lend a friend a $20 bill, and then your friend pays you back with two $10 bills. That’s cool with you, because those bills hold the same total value; they are interchangeable with the $20 bill in terms of value. They are fungible. Similarly, take yellow no. 2 corn as a non-currency example. All no. 2 yellow corn is worth the same amount no matter where it was grown (Frankenfield, 2021). You can substitute one pound of yellow no. 2 corn from Kansas for one pound of yellow no. 2 corn from Kentucky. Therefore, it is fungible.
So, non-fungible refers to an asset that cannot be substituted. It has unique properties that make it different (and therefore not interchangeable) from something else in the same asset class (Dashwood, 2020). Some examples of non-fungible assets include a painting or other piece of original artwork (which cannot simply be exchanged for another and have the same value and properties) or a house. A house, for example, is not fungible because it cannot be interchanged with another item in its asset class–i.e., another house. Even on a street with a row of identical houses, you cannot simply change one house for another and have their value be truly the same, because each house will have subtle differences, such as experiencing different levels of light and noise pollution (Frankenfield, 2021) or having soil with better quality and less rocks for easy gardening.
An NFT, or non-fungible token, then, is a digital asset which exists in the form of a digital certificate stored on a secure, distributed database (a blockchain) (Dashwood, 2020). There’s a common misconception that NFTs are merely digital images; while digital artwork is one use of an NFT, there are many other popular use cases for NFTs, such as virtual land, gaming, collectibles, and more.
NFTs are crypto currencies, but they are distinct from others because traditional cryptocurrencies (such as Bitcoin) are fungible. The information about their ownership is encrypted and stored securely, which ensures both their authenticity and their scarcity. Before NFTs, digital creators online faced the unique difficulty of not being able to make their creation scarce, raising its value. NFTs are scarce because they are non-fungible; only one of each token can exist and they cannot be traded for anything similar because there is nothing similar (Wall Street Journal Youtube, 2021).
How to Invest in NFTs
There are several marketplaces on which one can buy NFTs. The biggest marketplace is called OpenSea. There you can browse through a huge range of NFTs, ranging in form from digital art to videos, collectibles, music, virtual land, access tokens, profile picture projects, games, and more. In order to use OpenSea, you’ll first need to buy some Ethereum, the cryptocurrency blockchain on which OpenSea runs. You’ll also need to set up a MetaMask wallet (also linked to Ethereum). After that, you’re ready to invest (Corporate Trash, 2021).
How to Choose an NFT
The first thing you should do is check which projects have the highest trading volume at the time when you would like to invest. This gives you an idea of which projects are trending and worth looking into. Still, it’s important to be aware that trading volume can drop drastically and suddenly as fads dissipate (NFT Trading Academy). It’s rather common that as new projects enter the market, people rush to buy, but soon hype dies down quickly. Only a fraction of these will pick back up again, often through community building and game development, while many more will fizzle out (NFT Trading Academy).
Another thing you should consider is whether users and trading volume are on their way up, or on their way down. If you only plan to do a short-term trade, make sure you buy when users and trading volume are trending up (NFT Trading Academy).
Additionally, consider how involved community members are with the project, as this will impact the value of the NFT. There are a few things you can do in order to gauge community involvement, such as following the project’s Twitter, Discord, and Telegram communities and checking how much activity and involvement exists there.
Before investing, also check how old or new the project is. If there is a developed game or another measure of progress which gives the NFT utility, then it’s a less risky investment. Without this, it will be harder for the project to maintain a community, leading to devaluation (NFT Trading Academy). Buying early can have massive payoffs if you are very clever and lucky as well, but it is much riskier (NFT Trading Academy).
Since NFTs are still new and have only recently exploded in popularity, now is a great time to get in.
Digital assets and prenups
Once you have some digital assets, can you guess what we’re going to advise next? If you think it has to do with a prenup, you guessed it! It’s important to protect your digital assets with a prenup. Just as you have to think about what will happen to your physical assets in case of a change in relationship status, you must be equally attentive to the future of your digital assets in all possible situations.
Another thing to consider as you write your prenup is who will be responsible for the maintenance of digital assets. Just as one of you might prefer cooking while the other prefers doing the dishes, some people are better at managing digital assets than others, or one of you might prefer that kind of task over others. However, if you do appoint one person to be in charge of managing the digital assets, make sure that both people are on the same page about how much power that person has to control digital assets in terms of making new investments and moving cryptocurrencies around. What level of consultation is necessary before making changes? Make sure you talk explicitly about your expectations regarding how you will manage digital assets as a couple.
As digital assets become more and more mainstream, it’s a good idea to continually educate yourselves on your options. And who knows? Maybe your first NFT purchase will appreciate in value and eventually lead to the ski lodge of your dreams 🙂
References
Corporate Trash. 2021. How to Choose the Right NFT to Buy. Retrieved from: https://momentranks.com/blog/how-to-choose-the-right-nft-to-buy-nfts-for-beginners
Dashwood, R. 2020. What is an NFT? (Crypto Beginners). Retrieved from: https://www.youtube.com/watch?v=a8ww4aNlPQU
Frankenfield, J. 2021. Fungibility. Retrieved from: https://www.investopedia.com/terms/f/fungibility.asp
Julia Rodgers is HelloPrenup’s CEO and Co-Founder. She is a Massachusetts family law attorney and true believer in the value of prenuptial agreements. HelloPrenup was created with the goal of automating the prenup process, making it more collaborative, time efficient and cost effective. Julia believes that a healthy marriage is one in which couples can openly communicate about finances and life goals. You can read more about us here Questions? Reach out to Julia directly at [email protected].
0 Comments