Non-fungible tokens (NFTs), are something you may have heard of. What does “invest in NFTs” really mean? And what are the pros/cons? It is a smart idea to learn about any asset type before you begin investing in it.
NFTs themselves are not assets, so “investing” in them is a misleading term. Non-fungible tokens, which use blockchain technology to digitally identify ownership, make an NFT more like a car’s title than the car itself. You wouldn’t buy a car based on the title it comes with, but it is not smart to invest in an asset simply because it’s been tokenized as an NFT.
However, this doesn’t make investing in tokenized asset investments a bad idea. If you can find an asset that interests you and have the funds to buy it, you might want to do so. You may be able to enjoy NFTs if tokenization is possible. NFT investing is not without risks.
Continue reading to find out the pros and con’s of investing in NFTs.
Pros
NFTs can be invested by anyone.
Blockchain secures NFT ownership
Chance to learn more about Blockchain Technology
Cons
NFTs are not considered an asset class
NFT generation consumes a lot of energy.
May be required to have Ether (ETH).
There are pros to investing in NFTs
Many reasons investors might want to invest in assets that have been tokenized into NFTs are numerous. NFTs have many benefits:
NFTs can be invested by anyone: Tokenized assets are available to everyone. Tokenized assets that are part of an NFT can be easily and more efficiently transferred to other people all over the globe.
NFT ownership is protected by blockchain technology: Blockchain technology can digitally identify ownership to make it more secure for investors. Blockchain tech can also make assets’ ownership transparent.
Blockchain technology offers investors the opportunity to gain more knowledge and diversify their portfolios by allocating small amounts to tokenized assets.
Cons of Investing in NFTs
Investors should be cautious about investing in tokenized assets. NFT investing comes with some disadvantages.
NFTs are not an asset class: NFTs are commonly–and erroneously–regarded as an asset class rather than a technological way to indicate ownership. A general misinformation campaign and the hype around NFTs could cause tokenized assets’ values to become volatile and exaggerated.
NFT generation is extremely energy-intensive. Most NFTs are supported by Ethereum blockchain. This uses an energy intensive operating protocol called proofof work. NFT transactions consume about the same amount of electricity as an average home for around a day-and-a-half.
It may be necessary to have Ether(ETH): As most NFT sales are made on Ethereum, Ether is the native currency of the Ethereum blockchain. To purchase an NFT, it is often necessary to have Ether (ETH). NFT buyers who want to purchase NFTs with fiat currency like the U.S. Dollar may have limited options.
The Bottom Line
NFTs may have their merits and drawbacks, but it is not wise to invest in any asset simply because it has been tokenized. It doesn’t matter if an asset’s owner is identified by a blockchain, investing remains fundamentally sound. The best thing you can do as an investor is identify the quality assets you would like to own.
Why do people invest in NFTs?
NFTs can be bought by investors for many different reasons. Some investors are interested in owning the underlying assets, while others may view the NFT tokenization as a valuable asset. NFTs can also be used to invest in blockchain technology.
Are NFTs a good option?
An NFT token is not an incentive to invest in an asset. NFTs in and of themselves are not investments. Make sure to fully understand the value the underlying asset you are purchasing before you purchase an NFT.
How do I invest in NFTs
NFT tokenized assets can be bought through most NFT marketplaces and cryptocurrency exchanges. OpenSea is one example of an NFT marketplace that uses Ethereum. You may need Ether (ETH), to purchase an NFT.
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