Are NFTs a good investment?
Are NFTs worth buying? This is a question many crypto investors ask themselves. Almost everyone has heard about the huge profits made by some lucky investors who invested in certain NFTs at the right time. However, the risks of such investments are also big. In this article, we'll answer the question, "Are NFTs a good investment?" and provide you with the information you need to decide whether or not you should invest in them.
What is an NFT?
Non-fungible tokens (NFTs) are digital tokens stored on a blockchain. Each one contains unique identification codes and metadata that distinguish them from each other. Because of their uniqueness, they are used as digital certificates representing unique objects, both digital and real-world.
How does an NFT work?
To create NFTs, specific token standards are used that allow unique identifiers to be assigned to each individual token. Such tokens have a number of characteristics that differentiate them from traditional fungible tokens. You can read more about how NFTs work in one of our previous articles.
Are NFTs a good investment?
Why invest in NFTs? Before answering this question, one important point needs to be clarified. The fact is that the very expression "invest in NFTs" is somewhat incorrect. The reason is that NFTs themselves are not assets. They're merely cryptographic certificates that certify the authenticity of the underlying assets they represent. NFTs are thus a way of investing in these underlying assets rather than an object of investment in themselves. As such, the phrase "invest in NFTs" essentially means "invest in unique assets represented by NFTs". And, without a doubt, NFTs as an investment method have their advantages and disadvantages.
Why are NFTs a good investment?
So, what are the attractions of investing in NFTs?
- Ease of investing. Anyone can invest in tokenised assets. The transfer of NFT ownership is quick and efficient.
- Ease of sale. Just as NFTs are easy to invest in, they can just as easily and quickly be sold. That is, of course, if there's a buyer.
- Security. NFTs are stored in a blockchain, which gives them a high level of security. They're very difficult to steal or tamper with. And they will persist as long as the blockchain in which they are stored exists.
- Little to no intermediaries. Investing in NFTs tends to involve fewer intermediaries than in the case of more traditional investment methods, and commissions are noticeably lower.
Why are NFTs not a good investment?
However, NFTs as an investment method have many pitfalls.
- Misinformation about the essence of NFTs. As mentioned above, there's a common misconception that NFTs are an asset class when, in fact, they're nothing more than digital certificates of ownership. This misconception, coupled with hype, leads to the prices of many assets represented by NFTs being unreasonably inflated.
- Lack of legal regulation. NFTs and ownership of them aren't yet comprehensively regulated by law.
- Risk of fraud. There is no guarantee that the creator of the NFT actually owns the asset represented by this NFT and has the right to sell it.
Are NFTs a good long-term investment?
The truth is that nobody knows for sure. The NFT market is still very young and fuelled by hype. The future of NFTs as an investment method will largely depend on legal regulation, as the lack of regulation is one of the main obstacles to NFT adoption.
Are NFTs worth it?
Are NFTs worth investing in? That depends. As a new and unregulated investment vehicle, NFTs carry increased risks worth bearing in mind. In any case, remember that when you invest in an NFT, you're actually investing in the asset that the NFT represents. If that asset has good growth potential, then investing in it by buying its NFT may be a good idea. But if you don't really know how promising the particular asset whose NFT you are buying is, then it's not investing but gambling, and it makes sense to look at it that way. In addition, an important question is the purpose of your investment. If you're investing to earn a passive income or as a way to save for retirement, NFTs in their current state are hardly a good choice.
In any case, always do your own research and don't forget about risk management.
What NFTs to invest in?
The NFT market is currently dominated by digital art and collectables. However, these are not the only types of assets that NFTs can represent. In fact, they can represent almost any unique asset: real estate, antiques, objects of art, musical works, photographs, etc. And if NFT adoption expands, so will the choice of assets represented by them. So, choosing an NFT to invest in is entirely dependent on your investment strategy and personal preferences.
Ways to invest in NFT
If, after reading the above, your answer to the question "Should I invest in NFTs" is "Yes", then the next step is to find the right investment method for you. The easiest way is to register on one of the NFT marketplaces such as OpenSea, Rarible, Mintable, Foundation, etc. To register on these platforms, you'll need to connect your cryptocurrency wallet. Another option is to invest in virtual real estate of metaverses such as Decentraland and The Sandbox.