NFTs are instrumental in the growth and development of the crypto economy, and as a result, enable ownership of things in the virtual space. As the world is shifting into a digital economy, the latest and arguably the hottest technological goods today are NFTs or non-fungible tokens. If you are thinking about investing in NFTs better check this out.
What is an NFT?
A Non-Fungible Token is a unique and non-interchangeable unit of data stored on a digital ledger. NFTs can be associated with easily-reproducible items such as photos, videos, audio, and other types of digital files as unique items, and use blockchain technology to give the NFT public proof of ownership.
Basically, NFTs create a medium whereby physical objects like artworks can be tokenized, thus eliminating the duplication of such artwork and limiting ownership to the artist.
How do NFTs work?
If a person or artist wants to make an NFT, they need to ‘mint’ it on a blockchain. When this happens, other people can recognize its creation and view its ownership details.
Once an NFT has been minted, it cannot be replicated anymore. It is unique and its ownership will be documented on the blockchain which is impossible to change or hack so your NFT ownership will be very safe. It is almost impossible to steal, adjust, or change it.
Because of the nature of NFTs, sometimes people confuse them as a kind of cryptocurrency. Despite both running on blockchains, the two are not the same. It’s like saying basketball trading cards are similar to all paper bills. While both are printed, they are not the same.
What can non-fungible tokens be used for?
- Tickets – if tickets are created using a non-fungible token, if you make an exchange of that ticket, there is a record of that exchange. As a result, there is no chance of someone scalping tickets, stealing tickets, or trying to use counterfeit tickets.
- Fashion – having a digital record of authenticity helps with issues such as counterfeit goods. Luxury items could have an attached NFT that would show it’s genuine. An NFT could show crucial data about the origins of an item, such as the materials used, where they were sourced from, and how far the item has travelled.
- Collectables – People have always enjoyed collecting art, memorabilia, trinkets, and other similar items. NFTs provide a way of ensuring authenticity, a kind of digital signature or stamp of approval.
- Gaming – NFTs provide gamers with a way of owning unique in-game items. Whether for fun, authenticity or in a competitive nature, such tokens can power in-game ecosystems.
Some of the notable NFT sales:
- The first Tweet. Jack Dorsey, the founder of Twitter, sold the NFT for his first Tweet for $2.9 million
- The ‘Nyan Cat’ GIF. The NFT for the colourful GIF sold for 300 Ether (a cryptocurrency), worth around $561,000 at the time.
Pros & Cons of Investing in NFTs
Before investing in NFTs, you first have to be familiar with their advantages and disadvantages.
Pros of NFTs
It gives ownership to digital goods. The main beneficiary of NFTs is digital artists. Before the advent of NFTs, digital artists were often at the mercy of individuals or companies who profited from replicating and selling their digital art without a cut, or even just credit.
Now that NFTs exist, artists can make money off of items they create by allowing buyers to purchase those digital assets directly from the blockchain. The main advantage of this on the collector’s end is that they are absolutely sure that what they’re buying is authentic and one of a kind.
They are collectible. A lot of people love the excitement that is associated with collecting rare items in games or digital art. NFTs are amazing investments because they offer legitimacy. It can even make collecting artworks more engaging and interactive.
It’s easy to buy. Because of the demand for NFTs right now, it has become so convenient to get one. There is also a wide array of platforms where you can buy or sell these assets.
Cons of NFTs
It’s a speculative market. The big question remains as to whether there’s any true value in NFTs. Are they a long-term investment? Or simply a passing trend? It’s really hard to tell. Currently, the only value is based on the emotive quality of NFTs.
It can be expensive. Because of the current NFT craze, a lot of collectibles have become expensive and not all may maintain their value in the long term. Things have value when they’re scarce.
There’s still speculation around it. Fad or future? No one really knows. It’s hard to say whether NFTs will be widely used over the years to come. Surely, there is a huge interest in them at the moment, as well as several potential benefits.
They can be copied or stolen. Although the technology behind NFTs is relatively secure, many of the exchanges and platforms aren’t. As such, there have been several reports of stolen NFTs after cyber security breaches. While it’s true that you’re the only person that can have an original, that doesn’t mean your NFT can never be copied.
NFTs are an evolution over the relatively simple concept of cryptocurrencies. Modern finance systems consist of complex trading and loan systems for different asset types, ranging from real estate to lending contracts to artwork. By enabling digital representations of physical assets, NFTs are a step forward in the reinvention of this infrastructure.
People invest in art, real estate, or even old cars and while these assets are amazing alternative investments, their value can increase over time due to their scarcity and creator.
Investing in NFTs is like the same only it’s a digital asset. The important thing to note is before investing in NFTs, we should understand their valuation and do your due diligence similar to when you’re investing in an artwork.
Before you invest in NFTs, you should think about what your goal is. If your goal is solely to make money, NFTs makes for a very risky investment. But if all goes well you could be looking at massive returns on your investment as more artists and investors are jumping into the NFT space.
On a personal note, I prefer investing in real financial assets like stocks, real estate, etc. as these are safe and regulated investments. Before investing in NFTs make sure that you already have a solid investment portfolio.
Remember that no one knows for sure whether NFTs will boom or bust. Whether they’re the future or not, NFTs are a fascinating part of popular culture and provide handsome returns to early investors.
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