Should You Invest in NFTs?
NFTs or Non-fungible Tokens are slowly changing the way we envision the ways to prove ownership and authority. While for creators, NFTs offer a solution to reserve the copyrights of their original work, for some companies and organizations, NFTs are a way to improve the exclusivity of their collections and make them even harder to own. Take the example of the collection of The KISS NFT which includes 10,000 pieces of photos of the artwork. Take another example of the NFT tickets of the Coachella Music and Arts festival that introduced an NFT collection of 10 tickets offering various perks to the owner. However, when talking about investing in NFTs, the question of whether to do it or not arises in the minds of almost all investors. So, here we are helping you clear the dilemma of should you invest in NFTs or not.
Advantages of Investing in NFTs
1. Accessible to All
Just like cryptocurrencies, investing in NFTs is accessible to all. All the buyer needs to have is enough Ether in their account in order to buy their chosen NFT from a marketplace. In addition, since the transfer of ownership occurs on the blockchain, the entire process is very quick and smooth.
2. Safe and secured ownership
As blockchain technology with smart contracts govern the complete process of creating, minting, buying, and selling the NFTs, investments, and ownership is very secure. There are very less to almost no chances of thefts of NFT assets.
3. Diversification of the portfolio
Being an extension of crypto assets, investing in NFTs can help you diversify your portfolio. However, being very new in the market, the prices of NFTs are more prone to facing fluctuations and drops in prices. Therefore, the investors must carefully choose the NFTs that they want to invest in, keeping in mind the utility and uniqueness of the NFT.
4. Potential to learn more about blockchain
For a person who feels extremely fascinated by blockchain technology, NFTs offer a further scope to learn about the technology. The investors can do so while diversifying their portfolio among crypto-assets and investing their money in it.
Disadvantages of Investing in NFTs
1. Process of investing is a bit complication
You may be aware that most of the NFTs present in the world are governed by the Ethereum blockchain. Therefore, an investor requires Ether to buy or sell NFTs on most marketplaces. This can make the process of investing in NFTs more complicated for someone who doesn’t own Ether.
2. Not eco-friendly
Since Ethereum blockchain uses the Proof of Work consensus algorithm, NFTsare not sustainable and require a lot of energy to be minted and then transferred through the chain of owners.
Being very new to the world of crypto and blockchain, NFTs are highly volatile. It is because the prices are governed by numerous factors such as use cases, rarity, seller authority, the marketplace, etc.
4. Not a real asset class
Though some people may consider investing in NFTs thinking that they are a new asset class, they are not. NFTs propose a technological way of proving the ownership of an asset, nothing besides that. However, the buzz around NFTs makes their prices fluctuate and become inflated at times.
Are NFTs a Good Investment?
Considering the pros and cons of investing in NFTs, it is too early to comment on whether or not you should invest in NFTs. If we look at the patterns carved by cryptocurrencies from the time of their inception till now, we can clearly observe that they have grown in value by over 50,000%. Predicting a similar growth pattern for NFTs, we can say that NFTs may be a big thing in the near future. However, similar to cryptocurrencies, there are meaningful as well as valueless NFT projects in the market. While NFTs may make profitable investment assets, the investors will have to take the advantages, disadvantages as well as several other factors into account before picking a particular NFT project for investments.
What to Look for While Buying NFTs?
Whether the NFTs that you have invested in are going to reap profits or not, depends upon how valuable your NFT is. Now how can you know if the NFT is worth it or not? By considering the six factors given below while deciding on what NFTs to invest in.
1. The credibility of the Seller
The marketplace from which you are going to buy the NFT must have a solid foundation and popularity among the investors as well as the NFT projects. Stay away from marketplaces that are too complicated to navigate or present very few details about the NFT collections on their platform. Make sure you ask yourself questions like what you are going to buy, how you will buy it, and why you should buy it. A marketplace that fails to offer you the answers to any of these questions is a strict NO.
2. The Utility of the NFT project
Secondly, the utility of the NFT project is one of the most important things to consider while buying an NFT. Look for NFTs having both digital and real-world value, unless it’s an art-based NFT where the art itself is valuable. For example, the NFTs of the famous Coachella festival have a lot of real-world utility as it provides the owner of the NFT ticket with several exclusive benefits such as front-row seats, early access to the art collectibles, and so on.
3. Rarity Distribution
You should always look for the rarity distribution of the NFT. How rare an NFT is, determines the value and future scope for NFT, especially if you are going to invest in NFT art. Usually, there are three types of rarity distributions, super rare, rare, and ordinary NFTs. Super rare NFTs have a rarity distribution of less than 3%. Rare NFTs have a rarity distribution of 5-10%. NFTs with a rare distribution of more than 85% are known as ordinary NFTs.
4. Future Prospects for the NFT
Always consider the future prospects for the NFT while buying it. Whether the seller aims to keep the trade going on around the NFT or if they want the buyer to hold it for dear life. In case the seller wishes for the NFT to keep changing owners, look for the future utility that the seller plans to introduce in the NFT. What does the future vision of the NFT look like? Make sure that you are convinced enough about the bright future of the NFT before you go on buying it.
5. Community of the NFT Project
The community of the NFT project tells you about its popularity and how much people are willing to believe and hence, buy the NFT. An NFT project with a very large community makes it easier for you to readily find the buyers in case you decide on selling the NFT in the future. So, you don’t have to be stuck with something that you are no longer interested in.
6. Team and Growth Map
Since the process of minting NFTs on a blockchain is no rocket science and anyone with a bare knowledge can do it, it is important for you as an investor to choose the NFTs having a reliable team of creators behind them. Make sure that the team has a strategic plan for making advancements in the NFT project and that they are dedicated to bringing life to their vision.
How to Invest in NFTs?
You can invest in NFTs simply by following the four steps given below.
Select the NFT
Firstly, you need to select the NFT that you want to buy. Also, each type of NFT has its own marketplace. For example, it is not necessary that the marketplace selling the digital art NFTs will be selling music NFTs as well. So, you need to select the NFT that you wish to buy and the marketplace where you can buy it.
Add Funds to Your Wallet
Secondly, each marketplace has its own payment methods/wallets that they support. Depending on that, you will have to fund your wallet with the required cryptocurrencies. In addition to this, your wallet is the place where the NFT gets credited by the marketplace.
Connect Your Wallet to the Marketplace
Make the payment
The last step is to make the payment for the NFT that you want to buy. After the successful payment of the NFT, your NFT will be credited to your crypto wallet. To ensure the safety of your wallet and the assets stored in it, it is good to disconnect the wallet from the marketplace.
Non-fungible tokens can be good investments if the investors choose the NFT projects carefully, based on the utility and future potential of the project. Since, there are strong chances of NFTs occupying a significant space in finance, gaming, real estate, and several other industries, it is recommended for investors to allocate 5% of their crypto portfolio to NFT projects.