Non-fungible tokens (NFTs) may be something you’ve considered investing in. But what does it mean to “invest in NFTs or digital art”? What are the pros and cons? It’s good to learn about it before investing in any digital asset.
First of all, “investing in the NFT marketplace” is a lousy name because NFTs are not an asset class on their own. Non-fungible tokens use blockchain technology to show digital ownership of them. It makes NFT investing more like the title to a car than the car itself. Like you wouldn’t buy a car (physical asset) for the paper title that comes with it, you shouldn’t invest because the token turns into an NFT.
That doesn’t mean it’s always a bad idea to put money into tokenized assets. If you find an investment you like and have the money to buy it, you might want to do so. If a token represents the ownership of the asset, you can likely take advantage of the other benefits that come with NFTs. But make sure you also know the risks of investing in NFTs.
Read on to find out the pros and cons of investing in a non-fungible token:
Pros of Investing in NFTs
There are many reasons investors might want to purchase NFTs turned into certain assets . Some of the reasons why buying NFTs is a good idea are:
1- Anyone can buy Digital Artwork:
Anyone can invest in digital collectibles turned into tokens. Asset ownership tokenized into an NFT is transferred more quickly and efficiently between people worldwide
2- A blockchain protects the possession of an NFT:
Using blockchain technology to prove digital ownership can make it safer for an investor to own an asset. Blockchain technology can also make it easier to see who owns physical art.
3- Chance to find out more about blockchain technology:
By devoting a small amount to blockchain-based digital assets, investors can increase their knowledge of blockchain while diversifying their portfolios in this growing market.
Cons of Investing in NFTs
There are also good reasons for many investors to be wary of investing in tokenized assets. Some of the problems with investing in NFTs are:
1- NFTs aren’t a type of asset:
People often, and wrongly, think of NFTs as physical assets rather than a way to show ownership through technology. The hype and general misinformation about non-fungible tokens can make the prices of tokenized assets go up and down.
2- NFT production uses a lot of energy:
The Ethereum blockchain currently, supports non-fungible tokens on a broad scale which runs on a protocol called “proof of work” that uses a lot of energy. A single NFT transaction uses as much electricity as the average home needs for about a day and a half. However, the Ethereum blockchain is to move to a “proof of stake” model, “Ethereum 2.0” in 2022 which will reduce energy consumption by 99%.
3- Need to have Ethereum (ETH):
Since most NFT sales happen on the Ethereum platform, you usually need to have the blockchain’s native currency, Ether (ETH), to buy the digital art. Investors might not have many choices if they want to purchase digital assets with fiat money like the U.S. dollar.
The Future of NFT Investments
NFTs are an excellent idea, getting more and more attention as the number of ways to use them grows. Some NFTs have high prices that make headlines, adding fuel to the fire.
But savvy investors should be cautious if they are thinking about buying these possessions because NFTs are tough to buy and sell and are very volatile.
It’s not a good idea to buy them with the hope of getting triple- or quadruple-digit price returns.
The real value of NFTs comes from the fact that they have the potential to change how markets work and improve and how we manage & keep track of sensitive data. Here, anything is possible.
Still, if you want to join the blockchain movement and think that NFT ownership is a good investment, you should do it. But please do it in a good way.
Don’t put too much money into NFTs, and always try to get positions with low costs. If you don’t, you could end up in a painful place financially and emotionally.
NFTs have a vast market, and it’s only growing. But even though it may seem like they have a lot of possibilities, you should be careful about investing in them because new, undefined markets are precarious and based on speculation.