Pros & Cons of Investing in NFTS
Let’s take a closer look at what NFTs are, how to invest in NFT tokens, and what the pros and cons of investing in them are.
Why Do People Invest in NFTs?
Non-fungible tokens, aka NFTs, are certificates of ownership of a unique digital asset or artwork.
The “non-fungible” part refers to the fact they are the only version of that asset, one that cannot be copied or replicated. In contrast, an example of a “fungible” token would be a unit of cryptocurrency. NFTs can be a graphic, movies, music, game, meme, sound, virtual assets, or a combination of several types of digital media.
When you purchase an NFT, you receive a token that’s proof of ownership. This certified ownership is searchable via blockchain. Think of them as the collector’s cards of the crypto/blockchain space. They represent a certificate of ownership of a unique piece of digital art, one that cannot be replicated. They can be traded and sold similar to tangible pieces of art.
Recommended: What is an NFT? How do Non-fungible Tokens work?
Tips for Investing in NFTs
Let’s start with the basics of NFT investing: to invest in NFTs, you need to access an NFT marketplace. To buy and sell NFTs at a marketplace, you’ll need a cryptocurrency wallet. The most well-known marketplaces include OpenSea, Rarible, SuperRare, and Foundation.
Some crypto wallets connect to NFT marketplaces where you can browse what’s been created and make purchases if something catches your eye. Your NFT will then be stored in your wallet securely after purchase.
The majority of NFTs are linked to the cryptocurrency Ethereum. Once you own an NFT, you can keep it, display it, or list it for sale. NFT sales are subject to marketplace fees, and marketplaces use blockchain computing to verify the NFT. The marketplace handles the transfer between the buyer and the seller of the NFT and the crypto funds once it has been sold.
Are NFTs a good investment?
Pros of investing in NFTs
1. Value of the Art
A traditional investment portfolio might include things like stocks, bonds, physical artwork, or other forms of collectibles that are known to appreciate in value over time. If NFTs and digital art proves to have a lifespan similar to traditional art pieces or collectibles in the physical world, there could be an appreciation of the value of the NFTs you purchase. You can use NFTs to diversify your investment portfolio however, you must bear in mind that like any investment option, NFTs too come have some risks.
2. Benefits for Artists & The Creator Economy
NFTs represent a way that investors and patrons can support the artistic community, and for artists, they represent a potential revenue stream. What’s more, the smart contracts that underpin blockchain tech means artists can attach what’s called a royalty “rider”.
This rider executes automatically if the NFT owner resells it for a profit, so the artist is compensated immediately. This is a departure from the traditional, physical sale of art where the artist isn’t necessarily compensated royalties for significant sales of earlier work that occur after they’ve built a name for themselves.
3. Secure Ownership Certificate
The blockchain technology that NFTs run on is secure, and the token stored on it cannot be copied or stolen. A blockchain NFT is what’s referred to as “immutable”: it is completely irreplaceable and the authenticity is verifiable. Digital ownership is secure and transactions are transparent.
4. Fractional Buying
Physical asset ownership is difficult to fractionalize i.e. broken down into fractions to be sold individually. This process occurs more commonly with company shares. However, NFTs allow for a set of fungible tokens tied to a whole to be sold to different investors. Each person buys a small portion of the whole NFT, which they can sell when they wish. Fractionalization, therefore, helps remove entry barriers to the NFT market for smaller investors, while improving the liquidity of the market as a whole.
Cons of investing in NFTs
1. They aren’t a liquefiable asset
One of the main ways NFTs differ from traditional investments is that they are illiquid. They are a new kind of investment. A lot of what makes NFTs an interesting option is their future potential, which is purely speculative.
2. Environmental concerns surrounding NFTs
Blockchain is energy-intensive, and many debates around the cons of investing in NFTs center on the environmental concerns that using this technology in the future could provoke. As the effects of climate change rage on, becoming ever more visible, the potential for energy-sustainable methods of blockchain technology will continue to be in the spotlight. Having said that, the Ethereum network recently completed the Merge, promising a 99,95% reduction in energy consumption.
3. Still a nascent market
The value of anything is the amount someone is willing to pay for it. Being a digital asset run on blockchain that’s exchanged for cryptocurrency means the future value of NFTs remains uncertain.
4. Potential for Fraud
Scammers or fraudulent actors are everywhere, even in the NFT space. By using a legitimate marketplace and practicing secure methods of accessing your private key, you can reduce your risk or chance of having NFTs stolen.
Similar to any type of investment: it is essential for investors to thoroughly research this field too before taking decisions. There is a lot of potential in the NFT space, but ownership doesn’t come without risks. NFTs have a unique potential even if they are still in a relatively nascent stage. As a new creation, their possible future is uncertain, but by examining the pros and cons, you can make an informed decision about whether you’d like to invest in NFTs.
This blog is for educational purposes only. The information we offer does not constitute investment advice. Please always do your own research before investing. Any views expressed in this blog and by BOTS do not constitute a recommendation that any particular cryptocurrency (or cryptocurrency token/asset/index), portfolio of cryptocurrencies, transaction, or investment strategy is suitable for any specific person.