A person can find various digital assets representing non-fungible tokens (NFTs). The person can purchase or sell real-world items with the help of NFTs and digital artwork. Importantly, NFT will validate that the digital asset it represents is actual.
Blockchain is responsible for some trendy investment, one of which is NFTs which has become so much more popular for good reasons. For a person who wants to enhance their investment portfolio and take the high risk for them, NFT is the best option.
But before you think of investing in NFT, it is crucial to have basic knowledge about it, and you should also know whether it can be beneficial for you and what risks and returns it involves. From this guide, you will learn whether you should invest in it or not.
What are NFTs?
Non-Fungible Tokens, or NFTs, are digital assets that will present real-world assets. You may have heard about it, as it is a unique asset. It is a fantastic asset that you cannot exchange for assets of equal value but does not have any recognized market price. For instance, a music video would be a non-fungible asset.
NFTs are not widely recognized, and you cannot even exchange them for equal value. The digital assets which you can represent in NFT are-
- Online artwork
- Virtual collectable
Like cryptocurrencies, these NFTs also use blockchain technology, most of which are linked to Ethereum. The transaction will be registered on the computer whenever a transaction is made, and only the owner will have access to the code.
While investing in NFT, you must ensure that it has proof that it is original. Everyone knows that anything in the digital world can be copied quickly, and there is no limit to that. That is why it is just like anything that does exist in the metaphysical world, and there is one original, even when it comes to digital assets.
One of the most valuable NFTs you can find is Gogh’s original artwork. It does have several copies, and billions may be created in the future, but the value of the original will not be affected.
Most investor purchase the NFT based on speculation, and they think that the value of their NFT will be more someday, and they hold it until it sells for a higher price. But that may not be a safe investment strategy as it may not grow in the future, which is why it is a high-risk investment
How can you purchase or sell NFTs?
Several people purchase and sell NFT online, and many people do that with cryptocurrency. Like cryptocurrency, NFT uses the same underlying software and is becoming so popular as the means of trading or acquiring art.
The digital artwork can be viewed, downloaded, and screenshotted and might not seem like a massive issue for those unfamiliar with the concept of NFTs. Along with the investment potential of NFT painting, the investors can even value the proof of owning the original items and earn money from it.
NFT is a lot more than artwork because gamers and collectors can also make money from the in-game items and other unique assets in the game. Players can also profit from the attraction, like theme parks and casinos in the virtual world. While playing the game, gamers can even make some additional money from selling the avatars and outfits that they have got in the game.
How can you invest in NFTs?
Most people may want to invest in NFTs, and you may be wondering how you can do it. Buying NFT is quite simple, and it is not as simple as purchasing ETH, which is the Ethereum blockchain’s native cryptocurrency. In addition, NFTs are not even available on the cryptocurrency exchange, which is why you should look elsewhere.
If anyone wants to know how they can invest in that, then you have to consider the following steps-
Set up the crypto wallet
At first, the person has to create a digital wallet or crypto wallet where they can store the keys for NFTs and cryptocurrency. People even use external hardware, too, where they can store the money, and that wallet will be integrated with the cryptocurrency exchange from where you may want to purchase the NFTs.
Fund your account
Whatever you choose, you need to transfer money from your bank account to the cryptocurrency exchange or external wallet. The user must connect to their bank account or credit card to make the transaction. It will also include the verification process, which the exchange platform will do.
Look for NFT marketplaces
Once you fund the account, you need to look for the marketplace of NFT. It is the online marketplace where NFTs are listed for sale, and you can go there and purchase the NFT at the right price. One can consider several options, and many celebrities and creators often choose that platform to buy the NFT.
Search for NFT that you want to purchase
After you find the NFT marketplace, you need to look for the NFT you want to purchase. There will be several options, and you need to look for the one that you think will offer you a better value in the future. Many NFT marketplaces do provide the category browsing option for the NFT purchase.
Make a bid
If you have chosen the NFT, then the next thing you need to do is make a bid. Several NFT marketplaces work like auction houses, so you must make a bid, and the investor with the highest bid can purchase it.
While investing in NFT, you must know about the gas fees. If you have ever transacted in Ethereum before, you should know that it does have an additional gas fee, which is the money you require while making the transaction. If the gas fees you are paying for the NFT are high, you should wait a while since some buyers may even end up paying more gas fees which is even more than the NFT.
What are the advantages of NFTs?
NFT is built by blockchain technology, meaning it will have a unique record attached to it. It is for the buyer’s assurance that they receive a genuine product, not any counterfeit one.
Do you know that these NFTs can be transferred? Yes, the person can trade NFTs on some markets with different choices for trading. It is easy for buyers and sellers to move NFTs without worrying about losing or stealing them.
For instance, game creators may offer you several in-game items as Non-Fungible Tokens, which players may hold in their digital wallets. Players can even employ these products outside the game and sell them at a profit. With the smart contract, ownership transfers are made so much easy.
One of the significant advantages of NFT is that you can even use it to prove ownership. You can even identify a single account because NFTs exist on the blockchain. Moreover, NFT are indivisible, which makes it difficult to separate them from their multiple owners. Thanks to the NFTs ownership, the person will not have to worry about counterfeiting.
Some say they can click the picture of NFT, sell it, and give it for free. But that does not mean you have the original asset, and just because you downloaded the image from the internet, that does not make you the owner of that image.
The main advantage of NFT investment depends on the uniqueness of the tokens. Just mentioned above, no one can make a counterfeit NFT because of the unique nature of each token. NFTs are created on the blockchain, which is why they have outstanding records.
One person will have peace of mind knowing they are not getting scammed. With proper records and everything, the NFT issuer can issue a limited amount of NFTs, enhancing the token’s value.
4. Ownership of the content
Another significant benefit that you can experience from the NFT is that the content creator will have complete ownership of their work. Fans of digital artists who use these sites might help earn money; however, not all the money they receive will go directly to the artist.
Usually, the platform does take a larger share of the profit. But they do need to transfer the content owner. NFTs can even save the time and money of content providers.
The right to digital content is inseparable from the content, thanks to NFTs. But when content creator sells their work, then the profit will go to them only.
What are the risks which you can experience while investing in NFT?
Undoubtedly, an investor can experience several benefits if they choose to invest in NFT. However, anything with a positive impact also has some negative impact. The same happens with NFT. Some risks are associated with the NFTs, which are explained in the following section.
1. Smart Contract risks
It becomes beneficial for hackers if there is any flow in the smart contract, and they can steal an enormous amount of cryptocurrency or NFT from the DeFi network. If there is a weak security system, that will give the attackers an access point, and that will lead to the breach.
A smart contract can put the network at risk if there is any fault in the programming.
2. Legal challenges
NFT does not have any legal definition in the country because no international organization is in charge of implementing global regulation.
With the increase in the NFTs’ interest, there is a need for a regulatory body, which has become more apparent. It has evolved significantly, and it has well-designed rules and regulation which has been placed in that scenario.
3. Challenges in evaluation
Another big challenge that you will have to face is evaluation. There are many uncertainties still around the NFT price determination, and the price of the NFT is determined by the things such as creativity, uniqueness, and scarcity.
The fluctuation in the price remains constant because people find it challenging to pin down these factors that might drive the price of NFT, which is why price remains a massive challenge for people.
4. Cyber threat
With the rise in NFT popularity, cybercrime and attacks on the NFT market have also emerged. There are certain instances of several fake replicas of the NFT store set up the store online to lure buyers who cannot suspect.
Fake NFT stores look like the actual ones because they imitate their content, branding, and logos; the only difference is how they sell the NFTs. Several malicious activities are considered fraud, such as copyright theft, fake stores, NFT giveaways, and many others.
5. Intellectual property rights
Another benefit you can experience is that NFT ownership buyers can purchase the NFT from a legitimate source. However, purchasing the NFT from some reputable source may put the buyers at risk of buying the replica one. Buyers must be cautious before buying the stuff.
When people purchase the replica, they only get the right to use it, not intellectual property rights. It remains the weak point in NFT trading because there are no intellectual property rights.
6. Considering NFT as a security challenge
According to the SEC, most of the NFTs in the market are sold as a security. Many buyers consider purchasing NFT security risky because not all NFTs are securities. At first, the NFTs must pass parameters set for the securities, and NFT security depends on specific circumstances representing the ownership of the game collectibles, artwork, and other small items.
7. Bad for environment
Everyone knows these cryptocurrencies or NFTs are power-hungry and consume much energy daily. Several computers in different parts of the world will require energy to support the transaction. Not just the energy but the NFT and cryptocurrency also contribute to increased CO2 emissions.
It means it even makes things worse for the environmental state. However, it might not affect the investor in the short run, but they will get the return in the future, which will harm them.
Are investing in NFT s good?
It can be a debatable question because the value of NFTs is highly dependent on their use of it in that case. Some examples show that NFTs are the best option in which you can invest, and it happens when it is used to represent the ownership of the game collectibles or artwork. But generally, it is not easy to say whether NFTs are a good investment.
But on the other hand, when you will take a look over the obstacles which are in between the NFTs, then you may not want to invest in them. It does lack some regulations, which means the buyers and sellers do not have any rules which abide them while conducting the transaction, which makes it difficult for the person to invest.
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NFTs can be considered a good investment for the investor, but only if they have better knowledge. If you want to invest, make sure you have some extra money and can afford to lose that money. Investing in NFT is relatively easy, but that does not mean it does not involve any risks. So, be careful while investing.