Author: Rianna Ramdharee
Publication date: 05.03.2024
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NFTs had taken over the financial world back in 2021 and since then there seems to be very little word since then. Is it still worth it to invest in them now?
What Is An NFT?
NFT stands for non-fungible token, implying that they’re not interchangeable.They are essentially assets that use blockchain technology to tokenize. Tokens will make use of metadata and encryption functions to create unique identification codes whilst the assets are stored elsewhere. Cryptocurrencies are interchangeable or fungible. NFTs can’t be exchanged for another because every token is unique and like passports, all have “non-transferable identities”(Sharma, 2024).
How Do NFTs Work?
NFTs use their unique identification codes for distinction and for owner verification and transfer. The market’s demand and supply set the value of NFTs. NFTs can then be exchanged for other NFTs, cryptocurrency and money. NFTs are also used as digital representations of artwork and real-estate. Tokenising these tangible assets makes trading seemingly more efficient and reduces the susceptibility of fraud. NFTs are generated through a process known as minting where they execute code from a smart contract and store this data on the blockchain
At higher levels, NFTs generally form a part of the Ethereum blockchain. Other blockchains have enacted their own versions of NFTs. Ethereum as well as other blockchains track who will hold and trade NFTs. NFTs can only have one owner.
Pros of NFTs
● Protects ownership- Blockchain technology is reputable and secure. It stores metadata and ownership data thus providing protection from theft and abuse. Blockchains immutability ensures non-tampering of NFTs.
● Fractional buying-NFTs can be distributed among various owners.
● Improved market efficiency-Digital assets like NFTs increase security and improve supply chains. In the example of artists, they can now interact with audiences directly and conduct transactions efficiently and securely.
● Multiple income streams-Multiple ways to profit from NFTs like creating, flipping and selling NFTs.
● Authentication ease-NFTs are distinct and verifiable which makes it easier to confirm authenticity and value. Using artists again as an example, they can utilize NFTs to prove they own their works and also prevent forgery that would possibly occur with physical artwork.
Cons of NFTs
● High volatility- There are still few buyers and NFT dealers as well as NFTs status in the market makes trading NFTs difficult, especially during times when markets are unstable.
● No income-NFTs don’t provide income potential, only price appreciation. You can generate some income but only through staking NFTs or leasing out the rights.
● Scams and frauds-Blockchain may be secure, but that doesn’t mean it’s immune to fraudsters. Cases exist of artists who have had works sold as NFTs unbeknownst to them.
● Not eco-friendly- Ethereum requires large amounts of computational power and uses an energy-intensive operations. This has been the topic of discussion regarding long-term environmental effects.
Conclusion
To conclude, NFTs offer many advantages and disadvantages but the choice to invest or sell depends on what you’re looking for. If you’re looking for security, they can be useful but if looking for income, then it’s better to invest in stocks or bonds.
Alternatively, start trading with Binance - one of the safest cryptocurrency exchange platforms.
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