It can be challenging to invest in the right asset. This doesn’t end here, especially now that the globe has witnessed the negative effects of a pandemic.
We live in a technologically evolved culture where innovations like Robo-advisors, peer-to-peer lending platforms, mobile payment applications, and blockchain-based databases are increasing exponentially. These are transforming how we do business and financial transactions.
The NFT token is one such blockchain-based tokenized asset that is the focus of this essay. You may have considered investing in NFTs (non-fungible tokens) if you’ve heard of them. But what exactly does investing in NFTs entail, and what are the pros and cons of doing so? Any asset class should be understood before you begin investing in it.
What Are NFTs?
NFTs (non-fungible tokens) is the digital representation of assets created, saved, sold, and bought using blockchain technology. These are known as NFTs (non-fungible tokens). They can be distinguished from other NFTs because of their special identifying code, which also helps to avoid plagiarism. These tokens were developed for anything that can be turned into a digital form. This means that in addition to artworks, photographs, movies, gifs, music, sounds, and words can all be digitalized and monetized. Jack Dorsey, the creator of Twitter, digitalized his first tweet and sold it for close to $3 million.
Pros of Investing in NFTs
There are many reasons why investors would desire to purchase tokenized assets in NFTs. The following are some benefits of investing in NFTs:
1. Anyone can invest in NFTs.
Everyone has access to making investments in tokenized assets. When assets are tokenized into an NFT, ownership may be transferred between individuals more effectively and easily from one place to another.
2. NFT ownership is secured by a blockchain.
An investor’s ownership of an asset can be made more secure by using blockchain technology to digitally represent ownership. The transparency of asset ownership can also be improved by blockchain technology.
3. It’s an opportunity to learn more about blockchain technology.
Investors can diversify their portfolios and increase their understanding of blockchain technology by investing a small amount in tokenized assets.
4. Unique Ownership
NFTs don’t have a designated owner because they are singular objects. They don’t adhere to conventional property ownership norms. This indicates that they are interchangeable while remaining original and unrepeatable. Additionally, NFTs attain the utmost level of transparency because blockchain technology is used in their creation and transaction. This openness stops dishonest and corrupt behavior.
An NFT with blockchain verification is unchangeable and unreplaceable. Their sincerity becomes both their internal and exterior value.
6. Blockchain Security
An investor’s digital ownership of an asset is more secure when a transaction is made using blockchain technology. In addition, blockchain creates transparency throughout. This results in increased transaction transparency and a decline in fraud.
NFTs are asset forms that have been digitalized, and because of this digitization, everyone around the globe can access them. Additionally, it is possible to transfer NFT and asset ownership more quickly and easily.
8. Portfolio Diversification
With NFTs, your portfolio becomes more diverse. They vary from conventional assets like bonds and equities since they have unique features and advantages, making them a huge success in cryptocurrency.
9. Revenue Stream for Artists
The artists have been the most benefited due to NFTs. NFTs were partially created for artists to make money on the digital platform. If the artist makes more value for their artwork on the internet, their income increases, and they become more and more popular.
Cons of Investing in NFTs
Investors should exercise caution when purchasing tokenized assets for various reasons. The following are a few cons of investing in NFT.
1. NFTs are not an asset class.
NFTs are commonly and incorrectly thought of as assets rather than a technological method of indicating ownership. The enthusiasm and general misunderstanding around NFTs may result in inflated and unstable tokenized asset valuations.
2. NFT generation is highly energy-intensive.
The Ethereum blockchain, which employs the energy-intensive operational protocol known as proof of work, now supports the majority of NFTs. The amount of electricity used by one NFT transaction is equivalent to that used by the typical home for around two days.
3.You may need to own Ether (ETH).
Since most NFT sales take place on the Ethereum platform, possessing Ether (ETH), the cryptocurrency used by the blockchain, is frequently required to buy an NFT. Investors may have few options to purchase NFTs using fiat currency like the dollar.
4. Illiquid and Volatile
The NFTs are now in a developing stage. They are frequently viewed as an asset rather than a method of technologically showing ownership. They are not fully understood because the market is new, and their prospective purchasing and selling market is likewise limited. They are, therefore, more difficult to trade. Additionally, in general, disinformation might cause an NFT’s value to deflate or inflate. As a result, they are seen as volatile and illiquid.
5. Inability to Digitalize Physical Art
Digitalization of paintings or sculptures into NFTs is not possible. NFTs are digital assets kept on a blockchain, whereas they are actual three-dimensional objects.
6. Environmental Harm
The blockchain requires a significant amount of computational power to create records. The damage this does to the environment has been the subject of an ongoing dispute. With the present rate of carbon emissions, mining for cryptocurrencies and NFTs would eventually surpass London’s emissions.
7. Ownership Won’t Equate to Control
Even while you own the original NFT, you do not have complete control over its copy or distribution across many platforms. In the context of NFT, ownership merely refers to possessing the original image and the authority to reproduce it in prints.
8. Risk of Stealing
There is a danger that the owner’s NFTs will be taken if their private key is hacked. Additionally, you cannot regain access to your NFT or your money if it has been stolen or lost.
Are NFTs a Good Investment?
NFTs are intriguing and attracting more and more attention every day. However, an investor should carefully consider all the pros and cons before investing in NFTs. It is not advised to purchase them to receive a double or triple price return. An NFT’s true worth is instead based on its capacity to alter how the market operates.
Due to their potential for financial gain and the fact that reselling NFTs has been profitable, many people invest in them. For investors, the resale value of NFTs might represent a sizable source of profit.
In summary, NFTs have pros and cons, but investing in NFTs or any asset is probably not a good idea simply because it has been tokenized. Investing fundamentals remain the same whether or not a blockchain identifies who owns an asset. Finding high-quality assets, you’d most like to buy and taking the necessary steps is your best course of action as an investor.