What are NFTs
An NFT (Non-Fungible Token) represents digital objects like art, music, game objects and films. Usually, NFTs are purchased and traded online, with cryptocurrency as payment. In addition, NFTs are typically encoded by underlying software like crypto and stored on the blockchain. The blockchain is a distributed public ledger that records transactions, making it possible to trade crypto.
Over the last six years, NFTs have been increasingly popular as a means of buying and selling digital artwork, reaching a total market value of over 150 million US dollars by 2017. NFTs are supposed to be one-of-a-kind and create digital scarcity, and this is also what separates them from many other digital assets, which can be endless in quantity.
Where do I buy NFTs?
To build an NFT collection, you’ll first need to obtain a wallet that allows you to store your digital assets. Depending on the currencies available for your NFT marketplace, it might be necessary to acquire cryptocurrency to pay for the NFT. Luckily, investors can also store cryptocurrencies in a digital wallet. Some platforms allow you to pay by credit card but require you to store your NFT in a digital wallet. When considering alternative ways to buy, sell and store NFTs, one should always be aware that a platform might charge fees, taking a portion of your transaction.
What are the advantages and disadvantages of buying NFTs?
There are numerous benefits to investing in NFTs. Like other alternative investments, NFTs present an excellent opportunity for diversification. Moreover, anyone can invest in these assets. In addition, tokenized assets are easily transferable between people worldwide.
The blockchain technology, also referred to as a ledger, protects your ownership and increases the security of your items. Opportunity arises by investing in innovative technology and learning more about blockchain technology. Investors can do this by devoting a small amount to tokenized assets. As a result, they may learn more about blockchain technology while diversifying their portfolios. In addition, blockchain technology has the potential to make the ownership of assets more transparent.
Regardless of all the advantages of tokenized assets, they are by no means considered an asset class, and many investors remain skeptical of the new technology for good reasons.
Investing in NFTs has several known drawbacks. One is that investors seem to incorrectly categorize NFTs as an asset class, which may lead to a general misunderstanding of the future and expectations of NFTs. These misunderstandings in the market could cause higher valuations that can be considered inflated and erratic.
Important to note is that most NFTs run on the Ethereum blockchain, which has an energy-intensive operational mechanism known as proof of work. As a result, a single NFT transaction consumes the same amount of power as the average home for around a day and a half.
NFTs offer advantages and disadvantages, but investing in any asset only because it is tokenized seems like a horrible decision. However, whether a blockchain shows an asset’s ownership, the investment principles remain the same. As an investor, you should be able to do your research accordingly and delve deeper into the world of NFTs to find the investments that offer you the best returns.