Blockchain technology has transformed numerous industries since its inception. Digitally showcasing artwork and valuables in the form of non-fungible tokens (NFTs) is one of the newest applications of the blockchain.
Numerous NFTs have already been sold for millions of dollars, and with forecasts that blockchain technology will play a major part in the future of virtual currencies, investing in them may seem appealing.
But what exactly does investing in NFTs entail, and what are the benefits and drawbacks of doing so? Let’s have a detailed look to help you decide if you should invest in NFTs.
What are NFTs, and Why are they so Popular?
Videos, works of art, audio, and in-game goods are real-world items represented as digital assets by NFTs. You get sole control of the object by purchasing the NFT. The individuality of NFTs is what makes them so great. Each item offered for sale as an NFT has its signature. As a result, the owner of the NFT keeps ownership of the original work regardless of how often the item is distributed or seen.
Numerous works of art and digital products have sold for millions of dollars because of the NFT market growth. For instance, Jack Dorsey, the former CEO of Twitter, auctioned his first tweet as an NFT for over $2.9 million.
Pros of Investing in NFTs
1. NFTs may Result in Financial Gain
Purchasing NFTs has the potential to generate profits over the long term, just like any other investment. In fact, a few NFTs have traded for surprisingly high prices. If you invest in an NFT at the beginning of a project, you might profit if it becomes successful.
A few well-known ventures, such as CryptoKitties, CryptoPunks, and Bored Apes, have made a lot of money through NFTs. If you choose the appropriate project, you may earn a sizable sum of money, provided that you sell it while the value rises.
2. Decentralized Nature
Since NFTs are a decentralized market, they let creators profit immediately from their efforts. NFTs eliminate the need for intermediaries and the charges that must be paid to them, benefiting investors. Additionally, because of this, the original developers of an NFT will be able to capitalize every time that NFT trades. This decentralized approach distinguishes the NFT marketplace from many others and makes investing worthwhile.
3. Helps in Portfolio Diversification
NFTs can be a good option if you’re trying to diversify the assets in your portfolio. They allow you to diversify your holdings and benefit from potential growth if NFTs gain popularity in the future.
Cons of Investing in NFTs
1. NFT Costs Fluctuate
The value of NFTs varies greatly. It’s challenging to determine whether it will increase or decrease due to high volatility. In some circumstances, if the cost of an NFT falls sharply, you can lose your investment almost instantly
2. Cryptocurrency is Required to Buy NFTs
Most of the time, you must have a cryptocurrency to purchase an NFT. For example, you might need Ethereum to complete your purchase because it is the most widely used currency for NFTs.
NFTs are also available on the Tezos, Polygon, and Solana blockchains. However, you often need to have the relevant crypto coin to buy anything on these blockchains.
Being cautious is the key when investing in NFTs. You must conduct thorough research to determine the worth of the digital art you are acquiring and its potential for an increase in value.
With NFTs, you cannot be sure whether you are investing in a precious work of art or a total disaster. Therefore, due diligence is critical.