Cryptocurrencies like bitcoin and dogecoin have been making headlines recently, and it’s easy to understand why. However, just when you think you’ve got a handle on these concepts, a brand new crypto asset emerges.
While the crypto space has been exploding, it has made room for several other innovative concepts to come out of their shell. One such concept that has revolutionized the world to its core is Non-Fungible Tokens or NFTs.
Astonishment has gripped the art world as millions of NFTs have been sold on online platforms. But art has just been the start of the NFT revolution.
In essence, NFTs have introduced a new asset class that is digital, decentralized, and very easy to monetize.
It is natural that with the growing prominence of NFTs, many people have started exploring this space, wanting to buy their own unique assets.
What is an NFT?
A non-fungible token (NFT) is a digital asset that exists with certain unique properties. These assets have a digital presence engraved in a decentralized ledger called a “blockchain.” The Blockchain ledger maintains record of the information of the asset in an immutable way. The information recorded includes the creation of asset, transfer, ownership, value, and all the characteristics that define the uniqueness of the asset.
NFTs are a relatively new class of cryptographic intangible assets that take the shape of any type of digital artwork or even physical assets, whether it be a picture, video clip, GIF, or audio file. Thus, the blockchain network effectively creates a digital market for every asset. Although NFTs have been around since 2016, they have recently become the talk of the town due to their popularity.
Even things like old cars, property, and sports accessories are being monetized easily by representing them with NFTs.
The NFT frenzy is everywhere
NFTs have seen a surge in popularity due to a handful of incidents, one of which is the sale of a collage by artist Beeple for $69 million, making it the most expensive NFT to date and one of the most costly art transactions ever.
Moreover, NFT platforms have been used by superstars like LeBron James, Grimes, Kings of Leon, and others to offer unique material to fans for far less money than this one NFT transaction represents.
In India, Bollywood stars including Amitabh Bachchan and Salman Khan have entered the NFT space.
What to consider before buying NFTs?
While NFTs are amazing, buying an NFT requires substantial knowledge. Having technical understanding is not essential for everyone as NFT is just an asset class but it does require some level of understanding of this space to make sure your NFT journey is safe.
Lately, NFTs have been treated as an investment class too as the value of NFTs is growing every day. With the world shifting towards digitalization and the fourth industrial revolution, investing in NFTs might become a necessity in the near future.
But even if it does not, understanding the investment opportunities in this space can open new doors.
There are a few things to consider before investing in NFTs as a beginner. Let’s understand each of them:
The right place
Buying the NFTs from the right place is as important as the activity itself. Platforms like Opensea, rarible, and Mintable are some of the popular platforms that have proved their authenticity over time. However, buying an NFT on a new platform should be done with caution.
For instance, if the platform is using a centralized database rather than a decentralized database, it means that the NFT is under the control of the platform.
Therefore, the platform can delete, modify, or do anything with the NFT because all the user gets is ownership of a hash but the actual asset is in possession of the platform.
Digital wear and tear
NFTs are prone to fading in value with time. Artworks made of physical materials are subject to deterioration over time due to light damage, which can cause dullness, paint cracking, or deformation. The reason for this is that museums spend millions of dollars every year creating the finest possible atmosphere for their artwork.
Digitally, NFTs do not have the same level of security. Even if a piece of digital art is preserved throughout time, it will continue to have impacts. Images, movies, GIFs, and other digital information marketed as NFTs may degrade with time due to a variety of factors, including pixelation, fading, skippable content, or improving standards of media and quality.
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For instance, if you created a video 10 years ago which was of 720p resolution, little did you know that 4k will become a reality and your video will not have the same value after 10 years.
Investing in NFTs or NFT companies, as well as devoting time and money to the development of NFTs, has long-term consequences. If you buy crypto art now, it may not be in the same condition in a few years as it was when you acquired it.
Change in trends
NFTs have exploded in popularity in the last few years, but it’s impossible to say whether or not this is a long-term trend. Due to the current high demand for NFTs and digital assets, many customers believe that this is just the beginning of the industry’s expansion.
However, it appears that NFTs are primarily attracting the attention of those who have already engaged in the crypto-asset sector. Although some celebrities have participated in NFT sales, the ultimate test of success will be whether or not non-celebrities go above and beyond to establish a presence in the digital community.
Traditional art collectors and venture capitalists are already incorporating digital asset investments into their portfolios, so it's safe to assume that the NFT frenzy will last longer than expected.
If NFTs turn out to be a fad, investing heavily might result in significant losses.
Possibility of theft
While hacking blockchains is almost impossible and tampering with ledgers is extremely uncommon, NFT theft is not entirely ruled out. Not only are ledgers and blockchains susceptible to disruption, but the prospect of counterfeit artwork or other kinds of assets is also quite real.
Derek Laufman, an artist, recently spoke out on Twitter about the ease with which consumers might be duped on the NFT platform. He asserts that this is contrary to the platform’s whole attraction, as blockchains are designed to incorporate authenticated artists’ works.
Before purchasing NFTs, it is critical to evaluate the risks associated with unadvertised blockchain ledgers.
Final thoughts: Are NFTs worth the Investment?
With the emergence of many marketplaces and innovative use cases such as intellectual property with NFTs, it is evident that NFTs are here to stay. Many secondary markets are now providing NFTs with better utility.
CryptoPunks and Bored Apes could be just the tip of the iceberg. NFTs have a lot more potential that can be uncovered over time. It is only the beginning of a revolution and everyone wants to be a part of it.
However, it should be remembered that NFT is a young industry right now. Buying an NFT should not be an impulsive decision but should rather be done after complete research and understanding of the space.