The blockchain technology that propelled one bitcoin into the thousands of dollars equivalency has just permitted a new trend. Blockchain technology uses cryptography to create records of transactions that cannot be altered and remain that way for as long as possible.
Non fungible tokens, or NFTs, are digital assets that NFT enthusiasts and investors spend thousands of dollars on. Many influencers and famous people are drawn into the NFT craze. But is it an asset worth investing in?
Your Non Fungible Token (NFT) Explained
NFTs or Non Fungible Tokens are cryptographic assets that are one-of-a-kind and exist within the blockchain. As a non fungible asset, NFTs are not interchangeable because of their one-of-a-kind feature.
These NFTs have unique identification codes and metadata that separate them from one another. Creators can use them to represent real-life objects, in-game items, or virtual baseball trade cards by NFT designers. They also run on a blockchain, a decentralized digital ledger that tracks documents, transactions, and the ownership and authenticity of digital assets.
NFT As a Digital Asset
NFT is the digital representation of physical assets– from a video clip to music to photographs to a digital image or even shares of stocks. These are called digital assets because they exist in the digital space and allow virtual content material.
These digital assets are interchangeable, indivisible, and unique. They can be bought and traded online in an NFT marketplace, often using cryptocurrency stored in a digital wallet. They are typically encoded with the same software used to create several cryptocurrencies.
Although these digital assets have existed since 2014, they are currently gaining popularity as a popular means of buying and selling digital artwork.
Examples of NFT
The Ethereum blockchain was the home of the first fungible tokens, ERC-20, in the early days. Developers can design a range of applications using these fungible tokens, which have established requirements.
Non-fungible tokens, on the other hand, have been existing since the Bitcoin network introduced the concept of colored coins in 2012. Customers use it to identify a service, product, or person uniquely.
Some examples of NFTs are:
- Photographs or intellectual property in the digital world
- Academic titles,
- Domain names
- Game assets
- Music compositions
- Virtual fashion
- Stock shares
- Trading cards
- Digital collectibles
- NBA top shot,
- Service or subscription access and a range of other non-fungible objects can all be represented by non fungible tokens.
The Bored Ape Yacht Club, a collection of ape avatars and unique digital items on the Ethereum network, is also one specific example of a non fungible token project. These bored ape digital collectibles have been one of the most influential NFTs in blockchain technology.
Famous NFT Digital Art
The rise in popularity of NFT digital art has changed the creative industry. As a result, some graphic designers and artists have ventured into the NFT realm.
Everything under the sun, including tweets and memes, can be digitized and sold as an NFT digital art. One of the most popular with a headline-grabbing price tag is a piece of digital art by the artist Beeple traded as an NFT worth more than $60 million, making it the most expensive NFT asset sold at an auction.
Mike Winkelmann, aka Beeple, began a project in 200er sold at auction.7 to create a new piece of digital art every day for the rest of his life, and he hasn’t missed a single day since. The first 5,000 of these works, which he refers to as “Everydays,” were assembled into “The First 5,000 Days.”
Meanwhile, Jack Dorsey, the CEO of social media platform Twitter, sold his first tweet as an NFT at around $3 million. Dorsey’s first tweet, “just putting up my twttr,” which was sent out on March 21, 2006, was digitized and sold in 2021.
LeBron James’ NBA moment, dunking against the Houston Rockets was also sold at $387,000 by Top Shot, an NFT marketplace for trading, buying, and selling NBA videos and moments.
Advantages of Investing in NFT
There is a reason why most people, NFT fans, and digital artists flock to NFT marketplaces and spend millions of dollars acquiring and collecting NFT digital art and collectibles. For illustrative purposes or a collection of digital materials with artistic worth, the item’s art history is some of the reasons for this. Aside from that, there are several advantages to purchasing NFT.
Verifiable Record of Authenticity and Ownership
One of the advantages of purchasing NFT art is that it has verified ownership and authenticity records. It has a digital file with a secure digital signature stored on a blockchain network.
The chain of custody is marked in the digital file itself, and it’s difficult to swap in a fake because ownership changes are verified by a global network and publicly logged. Since NFT’s ownership is protected by blockchain, it grants the owner the only authority to execute transactions and transfer the token. Even the one issuing the NFT cannot replicate or transfer it without the owner’s consent.
Security of Records by Blockchain Technology
NFTs are part of a cryptographic system that ensures transactions are irreversible. In other words, once a block has been added to the chain, anybody cannot change it. It remains that way for as long as possible.
NFTs are also represented by cryptographic tokens that can be kept in a crypto wallet, one-of-a-kind artwork. A cryptographic token adds another degree of security by allowing a specific object to be tracked and identified. The tokens can be used to represent something unique in the digital world, such as collectibles and in-game objects. They can be employed in data security and sophisticated identifications because of their distinct properties.
Organizations also use NFTs to create a network where virtual assets can be kept and paired between those on the network and those utilizing it. As a result, it provides consumers with enhanced security by excluding any third parties, and as a result, all essential data is kept safe.
Diversified Financial Portfolio
As the economy and businesses prepare for what comes next in a post-pandemic future, this investment could help diversify your financial portfolio. Holding assets in numerous categories is worth investing in.
For example, when it comes to stocks, diversification may mean owning stock in a variety of industries such as technology, finance, medicine, transportation, and so on. An investor may opt to invest in non-traditional assets such as NFTs, especially if they want to develop their portfolio.
Investors opt to invest some of their money in a digital collectible. Rare coins, artwork, first edition books, sports memorabilia, trading cards, and other collectibles may be more than a hobby for art collectors worth spending millions of dollars. Although they are aware that these investments are risky, especially for an expensive NFT, investors feel comfortable including them as part of their larger, more diverse investment portfolio.
The efficiency with Smart Contracts by Streamlining Processes
Smart contracts that deal with transferability and ownership confirmation power NFTs. NFTs rely on decentralized finance (DeFi) as well. NFT market participants selling and buying these digital assets act decentralized and personally. DeFi does away with the necessity for intermediaries.
NFTs’ attractiveness stems from their digital representation of tangible assets and the distinct identification and security feature of smart contracts in the blockchain. The tokens cannot be replicated, deleted, or destroyed because of blockchain. NFTs may also be traced back to their true owners via blockchain, eliminating the need for a middle man to verify the transaction.
In effect, these few ways streamline the process of NFT trading. Its ownership is also protected through the blockchain, which grants only one owner the sole authority to execute transactions and transfer the token. Without the owner’s authorization, even the NFT issuer is unable to copy or transfer it.
Ownership of Something Unique
Purchasing NFT art or the NFT collection also grants you access to one-of-a-kind and limited-edition works by renowned fine artists and digital artists. It’s also a way to support your favorite musicians financially.
When you buy NFT art products, you’ll get basic features like the option to share them on social media. There’s also the pride of ownership that comes with owning an artwork with a blockchain entry.
Disadvantages of Investing in NFT
Along with the benefits, there are also drawbacks to NFT investing. Investors may spend their spare cash on NFTs’ worth of digital assets and expect it to grow in the future. They can also diversify their NFT portfolio by investing in these digital assets. However, there are some hazards associated with it.
Volatility of Investment
NFTs are high-risk, illiquid investments. Because it is a digital asset with various marketplace to buy, sell, and trade, there is not a lot of market data, financial study, or historical evidence to look at.
It’s a costly investment. Any asset in the form of digital art or physical art has a monetary value determined by what someone is willing to pay for it. That is an NFT’s distinct nature, which can be viewed as a benefit or a drawback.
NFTs are perplexing assets, even for some financial advisors. When you buy an NFT, you aren’t necessarily purchasing the artist’s copyright. All you truly get is a record stating that you hold the token that underpins the original asset. With its sky high prices, many investors would dare ask how much is the asset’s value you own but does not have control over. Long term investors who invested all that scratch into these tokens may be left holding a digital record that’s not worth much.
Within the blockchain technology and the NFT space, fraud and scammers are possible. NFTs can currently be hacked and stolen, despite the blockchain, a significant risk to consider.
NFT scams function by obtaining your cryptocurrency wallet login information or convincing you that you successfully sold or bought a genuine NFT. Many cybercriminals are drawn to the monetary worth of these digital assets, which is why they utilize traditional hacking techniques like social engineering and phishing to get access to crypto user accounts and steal their funds in the digital wallet.
Indeed, according to a recent Cambridge University study, almost everything related to the blockchain is highly unsustainable from an environmental aspect due to the quantity of energy consumed. Any record added to the Ethereum network necessitates a considerable amount of computing, which consumes significant energy. As a result, widespread trade in NFTs and other blockchain-based assets isn’t always environment-friendly.
It takes a lot of energy to make non fungible tokens the way they are. The proof-of-work approach, which consumes a lot of electricity, is used to produce the majority of NFTs. Any computing process, digital-related or crypto trading, increases carbon dioxide emissions into the atmosphere responsible for climate change. There are, however, more environmentally friendly methods of minting NFTs, such as proof-of-stake systems.
The Future of NFT: Will the Craze Continue?
With all NFTs value, is it worth the money or the trend? Some financial analysts believe that these digital assets will burst in a few years. Some other financial advisors feel that NFTs are here to stay and will forever revolutionize investment.
Considering the trend in the past year, NFTs are here to stay for the next 500 years. Digital art will still exist. While the technology is still in its infancy and the NFT space’s future is unknown, the current momentum implies that blockchain technology’s applications in the arts will only expand.
Famous contemporary artists such as David Salle, Tom Sachs, Petra Cortright, JR, and Roe Etheridge rapidly occupy the NFT art scene. With this, one can only guess that this trend isn’t going away anytime soon.
On the other hand, some skeptics usually associate NFTs with the Dutch Tulips market fall in the mid-1600s, one of the worst in history. Extreme speculation pushed plant prices to absurdly high levels during “tulipmania,” with the rarest varieties fetching multiples of the average person’s annual pay.
The mania is based on the Greater Fools Theory, which proposes that buyers buy assets to resell them at a higher price later. This can only last as long as other purchasers are willing to pay the higher price for the asset.
When there is too much demand for too little supply, prices rise as the assets are thought to be rarer. On the other hand, if there is too much supply for too little demand, the value of the assets is diluted. There are too many in the market for all existing customers to own.
The moment NFTs cross that level, and the thousands of new projects that appear to crop up every week outrun demand, prices are likely to fall.
Do the Benefits of NFT Outweigh the Disadvantages?
Investing in NFTs is contingent on the buyer’s perspective. NFT is worth investing in if the buyer’s goal is to collect or possess something unique. Do not expect to acquire an NFT and sell it for a profit in the next 24 hours. NFT enthusiasts would suggest purchasing NFT to support the art market and become community members. Everything else should be considered a bonus.
The NFT mania is likely to last a little longer because the novelty and buzz around it hold some value. However, these digital assets are not the best get-rich-quick scheme. If one buys NFT for investment, they should be prepared to take risks and perhaps accept the likelihood of losing money.