Recently there has been a lot of hype about Non-Fungible tokens, also known as NFTs. You may have heard them called crypto-collectibles or digital assets. In the past year, they’ve become so popular that many people are considering them an investment opportunity. But before you buy into this new craze, it’s important to understand the pros and cons of these investments. In this article, we will be covering the benefits of NFT, investment, and trade, as well as the disadvantages that come with this venture.
NFTs are Ethereum tokens, which operate using the ERC-721 protocol. This means they are not fungible, meaning each one is unique and can’t be replaced by another token. Because of this characteristic, the tokens have many different use cases. One example is that some companies will use NFTs to represent digital assets in video games. These tokens can represent in-game items, such as weapons and armor, and each one is unique and irreplaceable in the game world. For example, a player might get a rare weapon that could be used to complete an end-game quest or save them from death. This is different from fungible assets like Bitcoin because each token has a very different value depending on its use in the game. In addition, NFTs can be bought and sold for Ethereum.
Subjective value
The price is determined by how much someone is willing to pay for the token. However, certain factors can influence this price such as scarcity and demand. For instance, a digital asset that costs 1 ETH when it is first launched might increase in price if the company behind the NFT decides to create more of them. They can do this by either generating additional tokens, like the jungle, or by creating an entirely new batch with different features. As more people hear about how rare and valuable these assets are, they decide to buy in hoping that the value will increase. This is what many people consider to be a digital version of investing in commodities like gold or diamonds. Although it’s not clear if NFTs are entirely stable, there is some evidence that these types of investments can hold their value over time.
Low-risk investment
Since NFTs are relatively new, there is always a risk in buying them. For instance, if the company that created the token goes out of business or decides to stop selling them, then its value will decrease significantly. This can be somewhat offset by getting tokens from multiple different companies and also diversifying your portfolio with other types of crypto-collectibles. Another way to help manage risk is by only buying small amounts of a specific token and then waiting for it to appreciate. If one NFT does end up going under, you can always sell the others that are doing well so your losses won’t be as significant.
In addition, some companies have introduced unique features such as scarcity and verification. For instance, if a company only generates 100 of their tokens, then those will be the only ones that have access to them. In theory, this makes them more valuable because it reduces the supply even further and gives people a better chance at owning one. Another aspect is knowing whether or not a token is real by verifying its authenticity. This can be done by checking if the digital asset is registered on a unique list of NFTs, which is stored on the company’s servers. If it turns out to be fake, then they can revoke its access to their game or website.
Safe from stealing
Although many people are considering these tokens safer than other digital assets, they are still susceptible to hacking. For instance, in 2018 a company called Axiom Zen reported that someone stole over $40 million worth of their NFTs. This shows how it’s hard to protect these kinds of cryptocurrencies from the growing number of hackers that are looking for access codes and private keys. However, if you can keep your assets in stores that offer good protection then you should be able to keep your tokens safe.
Undiluted ownership stake
Because they represent a digital asset, NFTs can be traded and exchanged at any time. If someone decides to sell them online or on the blockchain, then you’ll receive your tokens immediately. This also makes it easier to liquidate your assets so you can use them for other purposes such as buying more crypto-collectibles with the profits that you make.
Blockchain-based assets
The main benefit of NFTs is that they are created on the blockchain which makes them secure and incorruptible. For instance, every time someone creates a new account or tries to buy something from a website, it’s recorded on the blockchain. This ensures that no one can change the original transaction or try to sell the same assets twice. This is what some people refer to as having an undiluted ownership stake, where you can always tell who has access to your tokens and how many are out there.
Fraud-prone marketplace
Although NFTs are relatively new, there is still a high amount of fraud that takes place in this marketplace. For instance, some companies might raise the value of their assets on paper so people will try to buy into it. Once this happens, they can simply sell all their tokens and then let the price plummet which will decrease its overall worth. Another way that fraud can be committed is by creating fake tokens or items which are made to look like the real ones. This can be very hard to detect and a lot of people have ended up losing their money as a result of it.
Cannot easily resell or dispose
Since NFTs are unique, they cannot be easily disposed of or resold without the knowledge of the current owner. For instance, if someone buys a digital asset and then tries to sell it, they might discover that the original owner still has access to it. They can easily restore their privileges and remove your access so you won’t be able to take advantage of your investment. The same thing applies if someone else buys one of your tokens off the market because the original owner always has priority in these types of transactions.
Potential for profit
Although investing in NFTs might be risky, it can still provide you with a chance at making some good profits out of the blue. For instance, if they become popular or their value rises then you can keep them until the price is high enough to sell them off. This will allow you to make more money than you initially invested in the first place, which is why many people are looking for these kinds of opportunities.
Since NFTs can be freely traded on the blockchain, this means that their original owner might not have full control over them. For instance, if someone else buys 10% of your shares then they will receive 10% of everything that happens to your assets. This includes any profits that you make from reselling the tokens which means they might end up with a share of it through no fault of their own.
Investing in NFTs is not for everyone since many people have been scammed or lost money from doing so. You also need to make sure that you don’t sell your tokens to someone else or give them to anyone since it might cost you a lot of money. However, if you do enough research and ensure that you’re buying from trustworthy sources then NFTs can be an effective way of making quick profits.
