What Are the Pros and Cons of Investing in NFTs?

Mihai-Alexandru Cristea 22/06/2022 | 23:34

Investing in the correct asset is tricky. That doesn’t stop here, especially when the world has seen the downsides of a global pandemic. We live in a digitally advanced society where there’s an exponential increase in technologies like robo-advisors, peer-to-peer lending platforms, mobile payment applications, and blockchain-based databases. These are revolutionizing the way we carry businesses and conduct financial transactions. One such blockchain-based tokenized asset is the subject of this article – NFT.

 

What Are NFTs?

NFTs (non-fungible tokens) are the digital representation of assets created, stored, sold, and bought on blockchain technology. They have a unique identification code that distinguishes them from other NFTs and prevents plagiarism.

These tokens are created for anything that can be converted into a digital form. That means not only art pieces, but images, videos, gifs, music, sounds, and texts can be digitalized and monetized. Twitter’s founder, Jack Dorsey, digitalized his first tweet and sold it for almost $3 million.

While the tweet can be a trivial example, NFTs are serious business. You can make real estate transactions and streamline complicated private equity processes. They’re on a path to transform the way buyers and sellers across the internet make transactions.

Let’s explore the pros and cons of this digitalized form of tokens.

 

Pros of NFT Investment

Whether you’re an investor, a gamer, or an artist, everyone is looking forward to investing in NFTs. Here’re some pros if you’re thinking of funding them:

 

1.    Unique Ownership

Since NFTs are unique, they don’t have an assigned owner. They don’t go by the rules of traditional property ownership. This means they can be used in different ways and remain unique and irreplicable.

And since blockchain technology is involved in the creation and transaction of NFTs, they achieve the highest transparency. This transparency prevents dishonest and corrupted activities.

 

2.    Immutability

A blockchain verified NFT is irreplaceable and unchangeable. Their authenticity becomes the external as well as the internal value.

 

3.    Fractional Buying

Fractionalizing physical ownership of assets such as artwork, real estate or jewelry is difficult. But it’s easier to divide their digitalized version among several owners.

Whether it’s a rare wine case or a unique jewelry piece, the digitalization of certain assets has led to greater liquidity, expansion, and higher prices. Moreover, investing in fractional NFT also enhances your financial portfolio. This is a win-win situation as it allows greater diversification and precise positioning.

 

4.    Blockchain Security

Making transactions on blockchain technology signifies a more secure digital ownership of an asset for an investor. Moreover, blockchain makes everything transparent. This means more transparency in transactions and lesser fraudulent activities.

 

5.    Accessibility

NFTs are digitalized forms of an asset. And this digitalization makes them accessible to anyone around the world.On top of this, asset ownership and transfer of the NFT ownership can be done more easily and efficiently.

 

6.    Portfolio Diversification

Your portfolio gets diverse with NFTs. They’re different from traditional investments like bonds and stocks since they’ve distinct qualities and benefits that make them a massive hit in the crypto market.

 

7.    Revenue Stream for Artists

The artists have been the most benefitted due to NFTs. In fact, 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 NFT Investment

Every asset ownership has its own set of risks during investment. There are several reasons why an investor might be skeptical of investing in tokenized assets. Here are the reasons why:

 

1.    Illiquid and Volatile

The NFTs are at an immature stage now. They’re commonly regarded as an asset class rather than a technological way of indicating ownership.

Since the market is new, they’re not quite understood, and the potential buying and selling market is also small for them. This makes them harder to trade. Moreover, general misinformation can cause deflation or inflation in the value of an NFT. Hence, they are considered illiquid and volatile.

 

2.    Inability to Digitalize Physical Art

Paintings or sculptures cannot be digitalized into NFTs. They’re real three-dimensional objects, while NFTs are digital assets stored on a blockchain.

 

3.    Environmental Harm

Significant amount of computing energy is taken to create records on the blockchain. This has caused a long-term debate about the harm this causes to the environment. With the current carbon emissions continued from mining cryptocurrencies and NFTs will exceed the emissions associated with London in the upcoming years.

However, blockchain enthusiasts argue that there’s an upcoming pollution reduction on the way to transform the NFT global market. This will even reduce the need to travel and utilize office space.

 

4.    Ownership Won’t Equate to Control

Owning an original NFT does not mean you control the duplication or distribution right across different platforms. In terms of NFT, ownership only means holding the authentic image and the right to make prints of it.

 

5.    Risk of Stealing

If the owner’s private key is compromised, there are chances of their NFTs getting stolen. Moreover, once your NFT is stolen or lost, you can’t regain access to it or your coins.

 

Should You Invest in NFTs?

NFTs are exciting and harboring more and more attention day-by-day. But before making an NFT investment, as an investor, you should weigh every advantage and disadvantage carefully.

Buying them solely in hope of achieving double or triple price returns is not recommended. Rather the real value of an NFT is determined on its ability to transform the way in which the market functions.

The bottom line is that, like every other asset, even these tokenized digital assets have their own pros and cons. It’s your move as an investor to analyze quality assets and determine their several benefits and disadvantages.

 

Author Bio:

Akanksha Malik is a content creator & digital strategist at Mesha – India’s largest investing club & online community where the world’s best investors gather to share ideas, discover fellow investors, invest in NFTs & crypto, and compete in challenges for real money. She develops content to share her knowledge and insights helping her readers stay updated with the latest in fintech & investments, as well as cryptocurrency trends and upcoming NFT opportunities. Apart from being passionate about her work, Akanksha loves exploring architectural sites and different local dishes during her travels.

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