Are you thinking of investing in NFTs? Then, learn about the pros and cons of non-fungible tokens.
A non-fungible token is a new invention inspired by blockchain technology, the same platform that runs cryptocurrencies. People use NFTs to create verifiable virtual ownership of unique and rare physical and digital assets. Currently, the critical applications of NFTs include digital art, games, music, videos, event tickets, and other collectibles.
NFTs have also found uses in credentialing, facilitating the digital authentication of people’s identities and property rights in real estate. Experts believe NFTs use cases will continually expand with the advancements in blockchain technology. Nevertheless, successful NFT investing requires you first to understand its unique pros and cons. Having a reputable software like bitcoin trader that will help you to make better decisions in trading is a huge advantage.
Pros of Non-Fungible Tokens
There are many reasons why non-fungible tokens have increasingly attracted artists, content developers, collectors, and investors worldwide. Here are the key benefits of investing in NFTs.
Anyone Can Invest in NFTs
Unlike the traditional assets subjected to various restrictions, non-fungible tokens are created, sold, bought, and stored on decentralized blockchain networks. The blockchain is an open-source platform where anyone can join to create, sell and buy NFTs. That makes it much easier to transfer the tokenized assets among many people worldwide. However, it is essential to remember that non-fungible tokens cannot be traded or exchanged for other valuables on a crypto auto trading system like cryptocurrencies.
Security is perhaps, the main reason NFTs are becoming an attractive investment option for global investors. People create non-fungible tokens on the blockchain that assigns unique identifiers to each item. The technology also permanently validates the records, preventing counterfeits and fraud cases. Instead of intermediaries, the blockchain uses smart contracts to facilitate seamless and secure asset transfers. The agreement outlines the precise conditions that the buyer and seller must meet before the expedition of ownership transfer, thereby protecting the interests of both parties in transactions.
Robust Use Cases
Various ways exist for individuals and companies to leverage NFTs for profits and business growth. For instance, artists, musicians, and other content creators can use NFTs to maximize their revenue streams by eliminating intermediaries. Manufacturing companies can also tokenize some products and services to reduce supply chain inefficiencies.
Apart from the direct incomes generated from the sales of tokenized assets, creators can also develop other unique consumer product offerings for value addition. NFTs also offer users more significant opportunities to learn more about blockchain technology.
Cons of Non-Fungible Tokens
Non-fungible tokens also have some challenges and potential pitfalls despite their numerous benefits. The following are the main cons of NFTs to keep in mind.
NFTs are Not an Asset Class
Most people often confuse NFTs with crypto, assuming they are also an independent class. However, non-fungible tokens are a technology for determining an asset’s authenticity and ownership. Every NFT has unique properties that make it distinctive from the others. Experts warn the widespread misinformation and hype about non-fungible tokens can quickly inflate or deflate the values of tokenized assets.
Creating NFTs is Highly Energy Intensive
Most NFTs operate on the Ethereum blockchain, which uses an energy-intensive operating protocol known as proof of work. Statistics show a single NFT transaction can consume as much electricity as an average household for about one and a half days. Besides, purchasing the Ethereum blockchain-based NFTs would also require one to own the network’s native currency, Ethereum. Investors may also use fiat currencies such as the USD to purchase NFTs, but the options are pretty limited.
Overall, NFTs are convenient and lucrative investments for individuals and companies. However, understanding the pros and cons of NFTs and investing fundamentals is critical to making informed investment decisions.