NFTs are one of the most recently introduced forms of tokenized digital assets that exist in the crypto market.
They are considered the digital imprints of popular sections of art, culture, and modern existence which makes them quite valuable as a collector’s item as well as a digital value storage entity.
In this article let us look into what NFTs are, what investing in them looks like, and what their advantages and disadvantages are.
What Are NFTs?
Non-fungible tokens or NFTs can be any form of a tokenized asset like videos, images, memes, or any other piece of art that is recorded in the blockchain ledger.
NFT assets are unique in their single ownership value due to the fact that the details of their owners are encrypted and stored in a ledger in the blockchain, thus giving them their irreplaceable, non-fungible nature.
Everyone must have seen recreations and copies of a particular NFT but if you look at what gives them their value it is the certificate of ownership that is possessed by just the owner of that particular NFT.
NFTs are tradable and can be exchanged for digital assets like cryptocurrencies or other NFTs if not they can also be sold for money.
Now let us look at some of the Pros and Cons of Investing in NFTs as a digital asset.
What are the potential pros and cons of Investing in NFTs?
Investing in NFTs can have the following benefits and disadvantages.
Pros
- Broader Reach
- NFTs are much more easily accessible and are made available to a wider reach of people to be bought, sold, or traded. They can be easily bought and held by a person in their NFT wallet or any other compatible file management system.
- Stronger Proof of Ownership
- An NFT holder gets their name registered against the NFT that they hold and these details are stored in a ledger that is protected by the encrypted blockchain network. This makes the proof of ownership documents easy to access and verifiable by the owner.
- Wider Portfolio Reach
- An NFT owner can increase the reach and quality of their investment portfolio by investing in NFTs to add to the variety of digital assets that they hold.
- The Flexibility of Transference
- Their existence in the digital world without any backing from any middlemen can be utilized to use it in the future as a tool for managing data and records associated with them.
Now, let us look at some of the Disadvantages NFTs have in the next section.
Cons
- Increased Chances of Scams and Fraud
NFT markets are quite common and NFTs are plenty in number. The legitimacy of these markets and the NFT are oftentimes things that people forget to verify, thus resulting in NFT scams.
The ability that people have to make a print of an NFT is often times misused by scammers in double selling an NFT to multiple parties at the same time. This can cause clashes about the real ownership of the NFT.
- Lack of Legal Regulation
- The sale of an NFT does not limit the duplication and transferability of the right that people have to use it for their own purposes. This becomes a problem as these can let others make claims of ownership and its reproduction over the real owner without facing legal consequences for their actions.
- Security concerns
- A lot of the NFT marketplaces are self-managed. The complication of the procedure involved in locking, unlocking, securing, and trading with NFTs can be prone to human errors or other technical glitches.
- Derivation of value
- NFTs can be valued based on the current relevance, backing personality, rarity, and other factors that build the value of the NFT. The loss of value or credibility to any of these aspects can cause the devaluation of the associated NFTs.
These are a few of the disadvantages that NFTs carry in relation to other digital assets.
The Bottom Line
By looking at the list of advantages and disadvantages that NFT ownership brings we can conclude that an investor must closely examine if they are willing to take the risks associated with buying NFTs by looking at the disadvantages of doing so while simultaneously considering the potential for their investment by looking at the advantages that NFT ownership brings.
