NFTs have been grabbing the headlines over recent years now with staggering amounts of money being invested. Now let’s get you up to speed with the numbers.
As of the time of writing, the most expensive NFTs sold for a jaw-dropping $91.8 million on the Nifty gateway. The second on the list is none other than Beeple’s artwork, “the first of 5000 days” which was also sold for $69.4 million in February 2021.
This goes without saying, that there is a potential to hit it big in the NFTs industry. But does trading or creating NFTs mean you will rack up a lot of cash? Maybe or maybe not.
In this article we will help you place the pros and cons of NFTs side by side on a weighing balance, so you can see which outweighs the other for you.
You will get all the insider scoops in the world of NFTs so you can make an informed decision.
What are NFTs?
NFTs, or Non-Fungible Tokens, are unique digital assets that are verified and stored on a blockchain, typically the Ethereum blockchain. Each NFT token represents a single digital asset, such as a piece of art, a video clip, an image, or audio with a unique identification code attached to it.
They are different from cryptocurrencies like Bitcoin or Ethereum which are fungible, meaning each token is of the same value as any other token.
While NFTs, on the other hand, are non-fungible, which means each token is one-of-a-kind and cannot be exchanged or traded for another token of the same equivalent.
Here comes the tricky part, then how are you going to sell NFTs anyway if they can’t be reproduced? When you sell an NFT you are giving the other person a tokenized proof of ownership, just like the paperwork of a house but not the house itself.
The blockchain technology used to create NFTs provides a secure and transparent way of verifying ownership and provenance of digital assets.
This means that NFTs allow creators to sell and distribute their work in a way that provides transparency and ensures that their work is not duplicated or counterfeited.
NFTs have gained a lot of traction in recent years, particularly in the art world, where they are being used to create and sell art as NFTs.
Pros of NFTs
The NFTs marketplace has a handful of opportunities for digital artists, and businesses alike.
Here are several reasons why you should invest in NFTs:
1. It empowers artists
One positive of NFTs is that they empower artists to take control of their work and sell it directly to buyers without the need for intermediaries.
In traditional art sales, artists often have to rely on galleries, auction houses, and other middlemen to sell their work, taking a significant amount of commission to the detriment of the artist.
NFTs allow artists to sell their work directly to collectors and fans, cutting out the middlemen and giving artists more control over their work.
2. Proof of ownership and authenticity
NFTs provide a way for artists to prove ownership and authenticity of their digital creations.
The blockchain technology used in NFTs ensures that the ownership of the asset is tracked and verified, making it difficult for others to claim ownership or create copies without permission. This provides peace of mind for both the artist and the buyer.
3. A new revenue stream for digital content creators
NFTs provide a new revenue stream for creators, enabling them to sell their digital creations to a global audience. This is particularly beneficial for digital artists, who previously struggled to monetize their work in the same way that traditional artists could.
Now, with NFTs, digital artists can sell their work for significant sums, with some pieces selling for millions of dollars.
4. Potential for increased value over time
NFTs have the potential to increase in value over time, just like traditional art. As more people become interested in a particular artist or piece of work, the value of the NFT can rise. This can be a significant benefit for artists who can see their work appreciate over time.
NFTs can be programmed with smart contracts that dictate how they can be used and shared. This feature can allow creators to set rules around how their works can be displayed, copied, or modified, and can help ensure that their works are used by their wishes.
6. New markets
NFTs have the potential to create new markets for digital assets and to expand the definition of what can be considered art or collectables. This could help to bring new artists and creators into the spotlight and create new opportunities for investors and collectors to discover and acquire unique works.
7. Passive income
NFTs can be programmed to include a royalty mechanism that allows creators to continue to earn money every time their digital asset is sold or resold in the secondary market.
In short, it is a means of passive income for digital creators, unlike physical items in which the creator only gets a one-time payment. That being said, a digital content creator could earn a 10% commission on future sales of their NFTs.
NFTs can provide a high level of transparency and accountability in the art world by allowing collectors, investors, and other stakeholders to easily track the history and ownership of a particular artwork or digital asset. This can help to reduce fraud and ensure that works are sold at fair market value.
9. Viable investment
NFTs are completely different from traditional investments like stocks, bonds, or shares where you must have huge capital and it takes a lot of processes or paperwork to complete.
Here anyone with a good knowledge of cryptocurrency and NFTs can invest and reap big bags of rewards
The NFTs market provides a profitable investment opportunity for creators and buyers alike. There are a handful of platforms like Opensea, and Cryptopunks where people can create, trade NFTs and hold them till they gain value over time.
Cons of NFTs
There is always a flip side to everything, so let’s look at the disadvantages of investing in NFTs:
1. Environmental impact
One of the biggest concerns about NFTs is their environmental impact. NFTs are created and stored on a blockchain, which requires a significant amount of energy to operate. The primary blockchain of NFTs, Ethereum is very energy intensive as a single transaction could consume as much as 77Kwh.
According to some reports, the carbon emissions of an NFTs transaction are equivalent to that of the average monthly electricity consumption of an individual in Europe.
2. Potential for fraud
NFTs made a big hit between 2020 and 2021 as the trade volume skyrocketed but it’s still a relatively new technology that could be exploited by scammers.
Just as cryptocurrency and NFTs have diversified the economy and made people millionaires overnight, scams and hacks have also increased over time.
In February 2022 alone Opensea users were victims of phishing scams worth $1.7 million. Also, hackers made away with $ 2.2 million from renowned NFT collector Todd Cramer.
The decentralized nature of the blockchain makes it easy for scammers or hackers to disappear with huge funds without a trace. There have already been instances of NFT scams, where people bought NFTs only for them to vanish in their wallets or lose complete value.
Another issue with NFTs is accessibility. To buy, sell, or create an NFT, users have to know how cryptocurrencies and NFTs work. This limits the audience of NFTs to those who have a background in cryptocurrency, which can be a barrier to entry for many creators.
NFTs just like cryptocurrencies are highly volatile and the price can fly from $200 to a few pennies in a short time. This is why holding a collection of NFTs and hoping it could make you millions later may not be a good idea.
These digital assets thrive on trends and if no one is interested in an NFT, you might find it difficult to sell it or either sell it at a loss.
The value of an NFT is simply the amount the other person is willing to pay, and this can leave you in a precarious situation if you went to great lengths to create or buy it.
5. Intellectual Property Issues
NFTs are often used to sell digital artwork or other types of creative content. However, there is a lack of clarity concerning the intellectual property rights and ownership of NFTs.
You can buy NFTs for a significant amount only for the creator to produce more tokens and sell them off in the NFT marketplace. There is also some risk of copyright infringement, which can lead to legal issues for buyers and sellers.
6. High Fees
Another significant drawback of NFTs is the high fees associated with their creation and sale. Transaction fees for NFTs can be several times higher than for traditional cryptocurrency transactions.
This means that creators and buyers have to pay significant fees for the privilege of owning an NFT.
7. Market Saturation
Finally, there is a risk of market saturation with NFTs. As more creators enter the market and create NFTs, there is a risk that supply will outstrip demand, leading to lower prices and reduced interest in the assets.
I believe that you’ve been armed with the pros and cons of NFTs so that you can make the right decision.
NFTs are a relatively new technology but are already making waves in the cryptocurrency industry. They are just like any other investment with risks, liabilities, and potential for profits.
If you’re already sold on NFTs, it is advisable to do some digging to know if the token is worth your time and investment. If you decide to be a creator, try to find out if a pool of buyers is interested in your proposed NFTs.
Felix is a seasoned tech content writer who helps tech businesses break into new markets and reach a wider audience with high-quality writing solutions that generate leads and converts.