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Are NFTs Worth the Investment? Discover the Pros and Cons of Owning an NFT
Like most new kids on the block, NFTs’ growth and popularity have been explosive and hard to ignore.
18:13 27 April 2022
Since their inception in 2014, they've become a fascinating phenomenon in the crypto world, disrupting global markets ranging from art to gaming and insurance. Right now, you can easily buy NFT to represent digital ownership of a wide range of irreplicable intangible items.
What are NFTs
NFTs (Non-Fungible Tokens) are tokens created on a blockchain to prove you’re the sole owner of a one-of-a-kind digital item. This can be a GIF, a viral tweet, or anything unique in the form of digital art. Currently, we have different websites that allow you to buy NFT art in exchange for another asset of equal value or cryptocurrency.
Any non-fungible asset (NFT) is non-interchangeable and usually exhibits unique qualities that cannot be authentically replicated. An excellent example of an NFT is a static image or video clip with unique originality. Therefore, anything convertible into a digital format can also be monetized and traded as NFT, as long as it exhibits unique and non-replicable qualities.
Is Investing in NFTs Worth It?
From an investment viewpoint, buying NFTs can be good and bad, depending on several factors. If you’re an investment starter, investing in NFTs sounds more misleading because the non-fungible tokens themselves don’t fall in any asset class. Instead, they leverage blockchain technology to signify digital ownership.
This makes NFTs more like the title to an asset rather than the asset itself. That’s why it’s advisable not to rush into investing in NFTs just for the title that comes with it. It's not a smart investment decision to buy a digital asset because it's been tokenized into an NFT. NFTs offer a unique, high-stakes investment opportunity that can wreck havoc in some huge profits.
Pros Of Owning An NFT.
Investing in NFTs is accessible to anyone. All assets tokenized into an NFT are easily and efficiently transferrable among people anywhere. Their ownership is secured by a blockchain, making the assets more secure and transparent to trade. Some of the advantages that make NFTs worth the investment include;
1. Investing in NFTs makes Marketplaces more Efficient.
Converting a physical asset into a digital art eliminates market intermediaries, improves supply chains, and bolsters trading security. In the current world where art is a key revenue stream, NFTs allow you to sell your digital art in global marketplaces without intermediaries and bulky transactions. Besides, NFTs are easy to authenticate and can’t be changed if their authenticity is verified on the blockchain.
2. NFTs are A good Way to Divide Ownership of Physical Assets.
Unlike assets like real estate and bonds that are hard to fractionalize, NFTs provide you a much easier route to divide ownership of your asset portfolio. It’s easier to divide a digitized version of your asset among multiple owners than a physical one.
By adding NFTs to your investment collection, you have a greatly expanded market for certain assets leading to greater liquidity and higher prices. This means greater asset diversification leading to a better balance of risk and return.
3. There’s an Investment Data Record for NFTs
While digital artwork continues to gain popularity in online marketplaces, records of authenticity and chain of ownership are not easy to maintain. However, NFT's leverage of blockchain technology has made them shine due to their clear ownership records.
Investing in NFTs will eliminate the subject of having your digital artwork’s authenticity questioned. Moreover, NFTs blockchain technology paves the way for easy management of all digital collectibles and opens up more opportunities for better ways to handle sensitive data and records.
Cons of Investing in NFTs
Some of the disadvantages that come with investing in NFTs include;
1. NFTs Are Volatile
Though they've grown in popularity, few people understand how NFTs work. In addition, the number of potential buyers and sellers is small, making them difficult to trade. So, investing in NFTs is not for the faint-hearted, and prices can be volatile.
2. NFTs Generate Lower Income
NFTs don't operate like valuable assets such as stocks, bonds, or real estate. Therefore, investing in them doesn't guarantee you any income potential. The returns associated with NFT investments only rely on price appreciation, which is volatile at times.
3. Generating An NFT Is Highly Energy-Intensive
The Ethereum blockchain that supports NFT creation is a highly energy-intensive operating protocol. Generating and transacting a single NFT transaction alone may require as much electricity as your average domestic consumption for about 36 hours. This excessive energy consumption means NFTs are a significant risk to our environment.
Investing in an NFT means you own a one-of-a-kind piece, whether it be a piece of a digital image, image, or audio clip. And like other investments, there's potential growth in the value of your investment when you buy these non-fungible tokens. However, NFTs come with a fair share of challenges worth considering before making an investment decision.