29 November 2023
The Cryptocurrency world can be a bit intimidating and complex to apprehend; the more you dive into this space, there is always a new asset creating a shock wave. One such buzz that is growing like a rising star in the Cryptocurrency spectrum are NFTs - Non-fungible tokens. NFTs are digital artwork assets sold on marketplaces and making millions of dollars. The highlight of the news was when Beeple sold the most expensive NFT at around $69 million, and this is just the tip of the NFTs iceberg.
NFTs have been around since 2016, but recently it has become the trending topic of conversation on various platforms. On the other hand, digital content creators are receiving recognition like never before, whereas many celebrities and brands are also participating in this booming industry.
NFTs are relatively new in the Crypto market, but given their hype, it seems that they are here to stay for a pretty good time. And just like other investment approaches, this too requires thorough background research and study. The NFTs craze in the market can be overwhelming since there are tons of information available on various platforms of Crypto, Blockchain, Finance, Investments, etc. But before you start to research, planning, and strategizing on NFTs investment, here are a few things you should consider.
In this blog, we are going to discuss 6 Things You Should Know Before Investing In NFTs:
1. Effect on the Climate
Dealing with technology means you are also participating in the environmental effects. A single piece of Crypto artwork is responsible for over tons of greenhouse gas emissions. NFTs model works on Blockchain; thus the mining process creates a major impact on the environment. Blockchain technology continues to face criticism and backlash for its enormous electricity consumption. Popular NFT platform - Ethereum, creates a large amount of carbon footprint. For instance, a blockchain transaction through Ethereum causes as much electricity consumption as the entire country of Libya, and this is just not the case with one platform but almost all of them. Thus, Blockchain use has a harmful impact on environmental conditions, but if you are determined to participate in NFT, you could look for environmentally conscious NFTs platforms.
Also Read, Everything You Need To Know About NFT
2. The Digital Ware
A physical piece of art is susceptible to wear over time; for instance, a painting with age continues to deteriorate because of environmental factors. It may fade, distort, lose flexibility, turn brittle, and so forth. Hence, the reason why art galleries or museums spend millions of dollars to create an effective environment for the paintings to live. Although this may not be the case for digital artwork, such as images, GIFs, videos, music, however, it thus has concerns over long-run implications such as pixelation, skipping content, fading images, technological effect on audio such as tempo, bass, background, and so forth.
3. The Changing Trends
We all are aware that as much as Cryptocurrencies are volatile so are the trends. Anything that is trending today can be a fallen star tomorrow. NFTs currently are one of the hottest Crypto trends, but it is still in its early stage to determine whether they will stay in the long run. It is only obvious for any new asset to trend amongst the people who are already a part of the Cryptocurrency world. A true sign of success is when there is a growing presence of non-Crypto investors or people in the Crypto community. It can then be stated that NFTs are hitting off and creating a buzz off their ground and has a potential chance for the long haul.
4. Long Term Implications
Investing in digital artwork can be tricky since anyone can create NFTs, and even if a digital artwork piece is unique and scarce, it does not mean that it guarantees value. There are no guidelines or framework on the worth of GIFs, tweets, or any digital piece. You cannot be sure whether the value of the piece during the time of buying would be higher in the future. It would depend on potential perspectives and how much are they willing to pay or will there be any buyers at all.
So the digital NFT artwork that you bought today may not look as much as pristine in the future.
5. Threat To NFTs
One of the key features of Blockchain is its security since they are as good as impossible to hack and very unlikely to be tampered with. The NFT platform is still threatened with various possibilities like an impersonation of the digital artwork, scamming into buying counterfeit digital art, fraud, plagiarism, duplicity, foul-play, market crash, checking the off-chain storage, and so forth.
The other threat to NFT security are Crypto wallets; hence you should check whether the platform provides two-factor authentication or multi-factor authentication. It is always much safer to store Cryptocurrency in cold wallets or hardware wallets than hot wallets.
NFTs are based on Blockchain and Cryptocurrency, which at present is not regulated by any authority; thus this itself acts as a risk.
6. Choosing the NFT
Choose a Blockchain system that is known and reputed, less complicated, hassle-free, and user-friendly. You should compare and look at the following factors before choosing the platform such as the gas fees, royalty programs, resale royalties, copyrights, taxes, commission and transaction charges, smart contract terms, standardization, etc. You could use platforms like WAX, OpenSea, Rarible, Nifty Gateway, SuperRare, and many more.
NFTs can turn out to be a great ROI, but it is paramount to consider that they are relatively new to judge the performance from its history. You should evaluate and verify the provenance of the art before investing in NFTs to make sure that it is authentic.
Disclaimer: The author’s views and opinions are for informational purposes only and do not constitute financial, investment, or other advice.