Should you invest in NFTs?
You may have considered investing in non-fungible tokens (NFTs) if you’ve heard of them. But what does it mean to “invest in NFTs” and what are the pros and cons? It’s a good idea to learn about it before you invest in any asset class.
To begin with, “investing in NFTs” is a misnomer because NFTs are not an asset class in and of themselves. Non-fungible tokens (NFTs) use blockchain technology to digitally symbolize ownership, making them more analogous to a car title than the vehicle itself. It’s not a good idea to acquire an asset just because it’s been tokenized into an NFT, just like you wouldn’t buy a car for the paper title that comes with it.
That doesn’t rule out the possibility of investing in tokenized assets. If you find an asset that appeals to you and you have the necessary funds, you should consider purchasing it. If the asset is tokenized, you can certainly make use of the additional benefits that come with NFTs. However, be aware of the hazards associated with NFT investing.
The Pros and Cons of NFTs
Advantages – There are numerous reasons why investors might wish to purchase assets that have been tokenized into NFTs. Investing in NFTs has a number of advantages.
- Anyone can invest in NFTs: Tokenized assets can be purchased by anyone. Asset ownership that has been tokenized into an NFT can be transferred more easily and efficiently between persons all over the world.
- A blockchain protects NFT ownership: The use of blockchain technology to digitally signify ownership can increase the security of an investor’s asset ownership. Blockchain technology can also make asset ownership more transparent.
- Investors can learn more about blockchain technology while diversifying their portfolios by devoting a small amount to tokenized assets.
Disadvantages – Many investors have legitimate concerns about investing in tokenized assets. The following are some of the drawbacks of NFT investing:
- NFTs are not an asset class: NFTs are often mistakenly thought of as an asset class rather than a technological means of indicating ownership. The value of tokenized assets can fluctuate due to general ignorance and enthusiasm around NFTs.
- Most NFTs are now supported by the Ethereum blockchain, which uses an energy-intensive operational procedure called proof of work to generate them. A single NFT transaction consumes enough energy to power a typical home for nearly a day and a half.
- Because most NFT purchases take place on the Ethereum platform, having the blockchain’s native currency, Ether, is frequently required to purchase an NFT. Investors who want to acquire NFTs using fiat currency, such as the US dollar, may have restricted possibilities.
The bottom line
To summarise, NFTs offer advantages and disadvantages, but investing in any asset solely because it is tokenized is definitely a bad idea. Whether an asset’s ownership is shown by a blockchain or not, the principles of investment remain the same. As an investor, your best move is to identify high-quality assets that you want to own and then do whatever it takes to get them.