NFT’s has left a huge mark on the world, everybody is talking about it, people are getting rich, artists and creators are making insane amounts of money and here we are in 2022, where NFT’s have possibly reached it’s peak.
However, NFT’s or aka Non-Fungible Tokens aren’t fully explored yet. It’s like this newearly stages of Web 2.0 when people where just discovering the internet. Today, NFT’s are bringing the new Web 3.0 into the world and with the Metaverse, there’s lots of exciting stuff that’s going to happen in the near future.
Having said that, today, in this article we are going to look at the pros and cons of NFT’s.
What are NFT’s or Non-Fungible Tokens?
A non-fungible token (NFT) is a digital asset that has proof of ownership and authenticity stored in the blockchain network.
A Non-Fungible Token (NFT) is a type of blockchain cryptocurrency that is defined by its uniqueness and by the fact that it cannot be mutually exchanged with other NFT Tokens. This is a very interesting concept.
In essence, NFTs are blockchain-based digital artwork assets that are offered to investors or anyone. They can include any type of art that may be expressed digitally, such as music, video, photos, memes, or a mix of media.
You might think of it as a customised digital fingerprint for each NFT asset, with the value of every project being unique. Then we’ll look at the “token” side of things, which pertains to proof of ownership for the NFT asset.
The Non-fungible part of NFTs is that the blockchain verifies that the asset is a genuine, unique item that can’t be copied, or duplicated.
The NFT creator sells the item on a blockchain platform. The new owner obtains possession of the thing via a smart contract if it is bought. In the exceptional case, the item appreciates in value. The owner may attempt to re-sell the NFT for a profit.
The original artist might also include a royalty agreement with the NFT so that whenever the work is sold, they are paid an additional royalty fee from the sale.
When you buy an NFT, you get a token or proof of ownership that is stored on the blockchain, making it easily verifiable by anybody who searches it up. As a result, owning the genuine NFT rather than a photo has significant value when it comes time to sell that NFT or take advantage of its real-world benefits.
Pros of NFT’s or Non-Fungible Tokens
- NFTs provide a verifiable record of authenticity, ownership history and proof of ownership that is recorded on the blockchain.
- Smart contracts enhance the efficiency of NFTs by cutting out intermediaries and simplifying procedures.
- NFTs can’t be altered or replaced in any way once they’ve been verified on the blockchain. Intrinsic value transforms into an actual, extrinsic value as a result of authenticity.
- In the world of digital art, NFTs actually help artists make more money in a industry that has not been particularly kind to them previously. The artist benefits if the value of his or her work rises.
- They’ve created a new market that has the potential for big massive growth and gains.
- Depending on what kind of NFT projects are you investing in, certain NFTs may provide you with real-world benefits such as high-end events, organizations, or clubs. These club benefits are sometimes really valuable and offer tons of perks for the investors.
- NFT’s allow artists to sell directly to collectors, who then pay them a percentage when the work is resold.
- NFTs may diversify your financial portfolio as the economy and firms prepare for what comes next in a post-pandemic world.
- NFTs provide benevolent collectors with a simple method to support the artistic scene while also providing a one-of-a-kind asset.
Cons of NFT’s or Non-Fungible Tokens
- The previous few years have seen a slew of security breaches, particularly from hackers who believed NFTs were not “real” investments. Many exchanges continue to rely on antiquated or ineffective security systems.
- NFTs are an illiquid and speculative bet. Because it is a new asset and marketplace, there is currently no historical data to study.
- Although it is possible to create a new blockchain from scratch, doing so would take far more time and resources. The creation of NFTs, like the execution of transactions, requires a significant amount of energy. Some experts are concerned that the development of an ever-increasing number of NFTs might exacerbate environmental
- NFTs are not good for the environment. The consequences of producing NFTs, or all types of cryptocurrency, can have a big long-term negative impact on our planet.
- NFTs is entirely based on aesthetics and sentiments. It’s impossible to determine its value as a long-term investment, so it’s purely speculation right now.
- Ownership of an original NFT does not imply that the holder has control over its distribution or duplication across platforms. Ownership simply means they have possession of the real “original.” They can’t prevent “prints” from being produced merely because they own the authentic “original.”
- It’s a highly speculative investment. The value of digital art, like other types of art, is subjective and based on what someone is willing to pay for it. This is the “one-of-a-kind” aspect of a NFT, which may be considered both an advantage or a disadvantage .
How to Look for Good NFT Projects?
The first step in identifying a good, solid NFT project to invest in is looking for one with a founder or founders who are open, transparent and actively promote their project, whether that’s through their social media channels, YouTube videos, or podcasts and partnerships with other brands.
Look for founders with large followings on social media as that should mean that their project will likely be widely supported and promoted, making it less likely to fail or worse, have it be withdrawn at a very early stage.
The next thing to consider is the actual art piece or file which is being sold.
Judging art can be a very subjective thing so this can be much harder to gauge but it’s worth considering the NFT’s wider appeal beyond your own.
If you intend to sell this at a later date it’s worth taking into account whether other people may find the NFT attractive or desirable so make sure you look at a wide selection to see what’s out there.
Some NFT projects are also desirable based on whether or not they hold some kind of cultural or historical significance.
For example, some NFTs may be the first of their kind in a specific art genre or on a specific blockchain. In these cases, this feature may make them intrinsically valuable to collectors and, therefore, highly desirable.
A lot of NFT projects have a community associated with them. This may include social media channels such as Twitter or Instagram but can also extend to chat groups on Discord or Telegram. However, be sure to look carefully at the community’s engagement and make sure you choose one that is welcoming and friendly, not one with a high degree of negativity, toxicity or one which talks about exiting the project in what is known as a ‘pump and dump.’
These projects should be avoided as they are almost certainly going to fail and leave honest investors out of pocket.
Also, look out for any schemes which insist on granting you access or membership by asking you to recruit other members to a project. These are known as ‘pyramid schemes’ and rely on artificially high numbers of members which ultimately doesn’t translate to high engagement or interest beyond making a profit for those few members at the top of the pyramid.
If a project is genuine and has a truly engaged community, the project will draw in members naturally through marketing and word of mouth.
Larger NFT projects which could potentially release thousands of NFTs may need a roadmap of some description. This is essentially a marketing tool used to pitch to investors and the community alike as to the project’s aims, timescales for delivery and overall vision.
‘SMART Goals’ is a term used to describe the key characteristics of any roadmap and the acronym stands for specific, measurable, actionable, realistic and timebound. If all of these areas are met, potential investors are more likely to see this project as trustworthy and will be more likely to get behind it. A roadmap should be public so that anyone can read it and get a good understanding of the aims of the project.
It should explain the utility of any assets and how project founders intend to create value for their NFTs, whether it’s physical in nature such as a conference, venue or some kind of merchandise or whether it’s digital in the form of exclusive content, access to a Discord server or perhaps even a payout in the form of a yield in that ecosystem’s token.
Another thing to consider is the number of unique wallets holding NFTs from a certain project.
There are certain online tools which you can use to discover this information and this will tell you how evenly distributed amongst the community these particular NFTs are.
A roughly even distribution indicates a fair allocation which reduces the risk of someone dumping their stake and causing the price to plummet. Seeing the number of NFTs in circulation is also very useful in determining the rarity and process of generation of these NFTs and comparing that with the asking price.
Generating a new NFT collection, or minting, will naturally dilute the price of any previous collections. As a result, be weary of any project which either has too many minting stages which doesn’t bring any additional value to the collection or a project which has only had one or two minting stages but has failed to gain any traction in the marketplace.
Both of these scenarios can indicate a project whose NFTs are unlikely to be of any value and worth staying away from.
A project with very high minting costs should also be approached with caution. These fees have risen markedly over the past year or so so are somewhat unavoidable although some ecosystems such as the Ethereum network are taking steps to reduce these by moving from a proof-of-work model to a proof-of-stake system and removing a portion of the tokens from the network by ‘burning’ them, thereby stabilising their currency somewhat.
Look for projects with high liquidity in their ecosystem as well.
This means that these NFTs are being traded regularly at volume which indicates a high degree of desirability from buyers so should you wish to sell, you will be able to do so with relative ease and without having to sell at a discount a loss.
At the end of the day, doing your own research is crucial in finding the right NFT project to invest in. There are some hugely successful projects out there but some failures too. It is a relatively new marketplace with the potential for high rewards but with that comes with a high degree of risk too. Be careful out there and happy trading!