Experts have provided evidence that about $41 billion of crypto was spent at the NFT marketplace back in 2021. You may have heard the term, but you may still not be entirely sure what is NFT. NFTs are non-fungible tokens, and they are becoming more and more popular as an investment vehicle.
These are unique sets of tokens available on the blockchain, which cannot be replaced or restored with something else. Besides that, you can use NFT to represent the ownership of any asset, such as a deed of a digital or a physical product.
These tokens can represent anything from virtual goods to real estate. This makes them perfect for various applications, including gaming, collectibles, and more. Are you also wondering how to invest in NFT and what are the pros and cons of this investment? If you are, then it is essential that you first understand the basics before making the purchase.
How do NFTs Work?
NFTs are stored on a blockchain, which is a distributed ledger that records transactions. This ledger is public and can be viewed by anyone. The most popular blockchain for NFTs is Ethereum, which is also the same blockchain that is used for cryptocurrency.
NFTs play the role of digital collectibles, which are one-of-a-kind. You cannot exchange or replace them for another token, which is possible with other tokens. NFT is launched by its creator on the blockchain and then it’s put for sale. All the buyers are free to offer them directly to all the secondary buyers or right through the marketplace platforms.
But the NFT is associated with a high level of regulatory and financial risks. You have to be careful when purchasing NFT because experts say that any type of digital underlying can be replicated pretty easily. This can lead to “counterfeiting”, which is one of the main risks that is associated with NFTs.
When you buy an NFT, you are actually buying a token that represents ownership of the asset. These tokens can be bought and sold like any other asset, and they can also be used to represent ownership of real-world assets. For example, an NFT could represent a piece of art, a virtual world, or even a physical object.
So, Are They a Good Investment?
NFTs are a new and emerging market, which means that there is a lot of potential for growth. However, there are also a lot of risks involved. The price of NFTs can be very volatile, and it is important to remember that you could lose all of your investment.
NFT is also known as a tokenized asset. This means that anyone can access it and the asset ownership can be efficiently and easily transported among people across the globe. Apart from that, investing in NFT can also provide you with a lot more understanding and knowledge about the blockchain technology.
You will not just gain knowledge about blockchain, but also get to diversify your portfolio by allocating a small amount to all the tokenized assets. Also, when you have the funds and also found the asset you like, you can proceed further and purchase it.
With that being said, if you are careful and do your research, investing in NFTs could be a great way to make money.
Advantages of NFTs
One of the biggest advantages of NFTs is that they are very versatile. They can be used for a variety of applications, including gaming, collectibles, and more. This makes them perfect for a variety of investors. Another advantage of NFTs is that they are stored on a blockchain. This means that they are very secure and cannot be modified or deleted.
NFT also allows the creators to make cash right from their work. Here, one of the biggest examples is “ART” where a person will get an agent to market and sell their work. But NFT terminates the presence of a 3rd party completely. It enables the actual creators or artists to transact and communicate with their customers directly.
NFTs are also resellable. This is pretty much true because many individuals are making a good amount of cash by selling them. Remember, when you invest in NFT just for their resale value, you will get the chance to make huge profits. Many of the NFTs have been sold for over $20,000 while the actual creator invested only a few thousand dollars.
Finally, NFTs have the potential to appreciate value over time. This makes them a great long-term investment.
Disadvantages of NFTs
NFTs also have some disadvantages that you should be aware of before investing. One of the biggest disadvantages is that they are very volatile. The price of NFTs can fluctuate greatly, which means that you could lose a lot of money if you are not careful.
NFTs cannot generate or provide an income potential like the real-generating real estate and dividend-paying stocks. Just like the various other collectibles, the returns are entirely based on price appreciation. This is something that you must not count on.
Although the integrity of the blockchain is pretty unquestionable, NFTs can be easily utilized to perpetrate fraud. This is actually true because many artists have claimed that their work was put up for sale at the NFT marketplace without their permission. This can easily violate the usage of NFT for the sale of art.
Another disadvantage is that there is a limited number of NFTs available. This could lead to inflation, which would decrease the value of your investment.
NFT can also harm the environment greatly. This is because it takes a good amount of computing power to produce blockchain records, which can have a negative impact on the environment.
Experts have predicted that the carbon emissions through the mining of cryptocurrency will exceed the ones that is associated with the whole city of London in the upcoming future.
Finally, NFTs are still a new and emerging market. This means that there is a lot of uncertainty surrounding them.
Things to Keep in Mind Before Investing in NFT
NFT investors must pay attention to three key factors: liquidity, utility, and price.
The first factor, liquidity, refers to how easy it is to buy and sell an NFT. The more liquid an NFT is, the easier it will be to find a buyer or seller. For example, an NFT that is listed on a popular marketplace is more liquid than an NFT that is not.
The second factor, utility, refers to how useful the NFT is. The more useful an NFT is, the higher its price will be or An NFT with high utility will be more valuable than one with low utility. For example, an NFT that can be used in a game or virtual world is more useful than an NFT that cannot.
The third factor, price, refers to how much you will pay for the NFT. This is self-explanatory. The price of an NFT can vary greatly depending on its liquidity and utility. It is important to remember that you could lose all of your investment if you buy an overpriced NFT.
Other factors may include the team behind the NFT, the community around it, and the roadmap.
So, you should also do your own research before investing.
Invest in NFT Now!
If you are thinking about investing in NFTs, it is important to do your research and understand the risks and the potential rewards. With that being said, NFTs could be a great way to make money if you are willing to take on some risks. Only you can decide if they are right for you. You can also take a look at our website to learn more about investing in NFT or contact us to gain some valuable insights. Our experts will surely offer you the help you need and help you crack the best deals in NFT.
Gargi Sinha is working as Senior Journalist at Confea. She has completed her Masters in Journalism from Delhi University. She has interest in crypto and blockchain technology.