You’ve probably heard of NFTs and cryptocurrency before. But what do those terms mean? More important, how do investors make money from NFTs?

NFT stands for non-fungible token, meaning unique digital asset. When you purchase NFTs, you are buying the ownership of digital items, often art pieces or other creative products.

They are usually produced using the same programming as cryptocurrencies, such as Bitcoin and Ethereum, but NFTs cannot be traded equally, since they do not hold the same value.

Similar to rare art pieces in the physical world, NFTs could be sold for millions of dollars. For example, artist Beeple created a collage of 5000 digital images, which sold for $69.3 million in 2021, the most expensive known NFT purchase so far.

Although NFTs have recently plummeted in popularity, with NFT sales falling about 75% from May to June, according to data from OpenSea, some people remain optimistic about the sector's future.

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Falling values crush NFT communities

Bofan Ji bought his first NFT in February this year. He said he made the purchase because of the social aspect of NFTs: His ownership gives him access to communities that own similar kinds of NFTs.

“I heard NFTs are the social layer … crypto(currency) is like the money layer, and Blockchain is sort of the technology layer,” Ji said.

Ji later found out that these communities could be very fragile. Though members are very close when their NFT values increase, the community falls apart when the values drop.

He added it’s also difficult to make profits through NFT investments, because the purchase platforms and artists charge fees, meaning investors make money only when the NFT’s value increases by at least 10% to 20%.

In addition, Bitcoin and Ethereum prices have continued to drop over the past several months, leading to NFT value depreciations and some celebrities, such as Jimmy Fallon and Shonda Rhimes, abandoning their NFT avatars.