NFT stands for Non-Fungible Tokens. They are unique digital assets that can be stored and sold at a higher value to an interested buyer or collector. NFTs are also based on blockchain technology. They could be digital arts, videos, audio, and tweets. The literal meaning of non-fungible is that it is unique and cannot be replaced by something else.
NFT was launched on the Ethereum blockchain in 2015 and as of the first quarter of 2021, its monetary value is two billion.
Why Do People Like NFTs?
There are a lot of reasons that make people go for NFTs. These reasons depend on what you use NFTs for. Artists go for NFTs for reasons different from that of a collector or an investor. People like NFTs for the following reasons:
- Security
You are guaranteed a secure and transparent translation when you trade NFTs. They function as immutable digital signatures which give users the necessary confidence to trade them. NFTs are based on blockchain technology and the feature of secure transactions available on blockchain platforms is also available to NFTs.
2. Authenticity
NFTs are unique digital assets that confer their creator with undisputed ownership to these unique digital assets.
3. Accessibility
For collectors, it is especially useful because you do not need to hang all your art collections on the wall for display. NFTs’ digital collection has made it possible to view your collection on your smartphone. You can enjoy a 2D digital experience or the more advanced 3D immersive art experience.
- Revenue and Royalties
NFTs solve the problem of revenue and royalty collection for your work. The NFT technology allows you to encode your royalty into your NFT allowing you to get a percentage of the proceeds if your NFT is sold or resold. This solves a lot of problems and you can see why artists will want to use it.
- Composability
NFTs are flexible enough to be thought to interact with each other like lego pieces. This allows creators to launch new NFTs that can leverage and build on top of the success of other NFTs. NFTs’ composability is what makes an NFT project be thought of as a module of a much larger, interconnected ecosystem.
Do They Work Into a Wealth Plan? And How?
NFTs are a way of investing and making a lot of money, just like the way digital currencies (i.e. bitcoin, crypto) have made a lot of investors smile at the bank. NFTs also promise the same return on investments for artists, speculators, and collectors. Business-minded people can also cash in on the investment promise of NFTs. For a risk-taker investor, it offers a unique, high-stakes opportunity to make huge profits. You can open a digital wallet and store your NFTs, identify an NFT you wish to buy on platforms like Opensa.io or Rarible and buy with the right cryptocurrency. From then on, you must wait for it to appreciate. The value of an NFT is dependent on how much someone else is willing to pay for it.
This is something you can include in your financial and investment plan, although it is high risk because you are at the mercy of the buyer, when it pays off, you will definitely get your money’s worth. It is a better fit for your long-term investments. Think of it as buying and holding digital currencies.
Risks Of NFTs
There are some inherent risks of NFTs which include, but aren’t limited to:
- Defining Ownership Rights
There are terms and conditions that govern each NFT before buying them and it is important to familiarize yourself with these. NFTs are unique digital assets that do not change after selling. This raises issues of what rights transfers to the buyer and what rights remain with the creator. While a buyer purchases and owns an NFT, it does not necessarily equate to the buyer owning the underlying asset. This means the buyer may not enjoy the copyright which remains with the creator of the NFT.
- Loss or Damage to The Physical Asset
An NFT and the underlying asset are separate assets. The NFT contains the information about its link to the underlying asset and the creator’s title to the NFT. Where the underlying asset becomes damaged or lost, it renders the NFT worthless.
- Unclear Regulatory Framework
The global market is still trying to figure out the appropriate umbrella regulatory framework for cryptocurrency. NFTs are also going through the same process because they are relatively new digital assets that gained prominence during the pandemic. The uncertain regulatory framework may leave investors exposed to all kinds of risks.
- Fraud
Investing in NFTs may be tricky even though it is based on blockchain technology. The anonymity of blockchain technology makes NFTs prone to fraud.
Pros of NFTs
- It is a form of revenue stream for artists, investors, and collectors.
- NFTs cannot be changed or replaced. The intrinsic value of authenticity translates to an extrinsic value in sales.
- It supports the artistic community.
Cons of NFTs
- Prone to theft from hackers.
- Ownership does not necessarily translate into the control of its distribution or duplication across different platforms.
- High risk as they tend to be volatile and illiquid.
The Bottom Line
NFT has enjoyed increased adoption in 2021 and are a new concept that meets the needs of creators, users, and collectors of digital and non-digital objects. NFTs have proven to be a step forward on tools that deal with assets and the authenticity of such assets. All indications are pointing towards the fact that NFTs are the future, and they are here to stay.
