Are Non-Fungible Tokens (NFTs) a Safe Investment?

By Irene Kimutu
12 Min Read

For NFTs, they have remained a popular subject among investors. Contrary to cryptocurrencies like Bitcoin, NFTs rely on blockchain technology to confirm the possession of a particular item. The growing attraction to NFTs has raised questions about their influence and the concept of owning digital assets.

NFTs are distinctive digital assets that represent ownership of specific content or creation. As their popularity continues to grow, they have proved their successfulness in investing. This is because they eliminate middlemen in the trade, allowing customers to buy directly from the vendor.

Knowledge of NFTs

NFTs are distinctive digital assets that cannot be interchanged, unlike tokens like  Bitcoin or Ethereum. Also with their decentralized marketplace, Uniqueness and Security makes it a great investment option.

Their being “non-fungible”, implies the individuality of the tokens. This is because they have unique characteristics and identification due to blockchain technology. Also, they have been seen transforming the art field by enabling artists to manifest their creations. Some of the prominent platforms where artists showcase their NFT art include Rarible, Open Sea, and Async Art among others.

For detailed information and a better understanding of NFTs, we recommend you read this article

How To Start Investing In NFTs

Investing in Non-Fungible Tokens can be an exciting adventure that allows one to dive into the exploding world of digital ownership. It is advisable to understand what they are and how they work. Let’s look at these guides to help us know how to get started with Non-Fungible Tokens investments.

1. First thing before investing in them, it would be good to take a look at credible sources and platforms for a better knowledge of NFTs. Here are some credible platforms and sources where you can find valuable information about NFTs.

(i). Educational platforms– Some educational platforms like Udemy offer a variety of courses on NFTs and blockchain.

(ii). Podcasts-One can also read some podcasts like the Nifty Show which really focuses on NFTs and their impacts.

(iii). YouTube channels– Some YouTube channels like Coin Bureau really have a variety of cryptocurrency topics and NFTs included.

2. Choose a Blockchain platform

NFTs are built on blockchain networks like Ethereum. Thus, choosing a blockchain platform enables one to purchase tokens there. Also, choose a blockchain that aligns correctly with your preferences.

This article by droom droom, explains the top NFTs Blockchain in detail

3. Create a Wallet for Securing your Assets

For one to hold or sell NFTs, they will require a wallet suitable to the blockchain one chose. Some examples of well-known wallets include Metamask and Trust Wallets.

We recommend reading this article, to help you understand more about Metamask wallet and its effort in crypto management

a.Fund your wallets: You have to first fund your wallets with the crypto that is associated with the suitable blockchain that you chose. Once the wallets are ready, Send Ethereum-based NFTs to the address you obtained. This is because the Ethereum blockchain ensures compatibility thus making the transfer secure.

b.Purchase the NFT from your preferred marketplace: These NFTs marketplaces are online platforms to buy and sell them Some of the common marketplaces include Open Sea and Rarible among others.

By reading this article, it will help you know these types of NFTs marketplaces and their differences

c.Bidding or buying of the NFT

When you have certainly acquired the best NFT of your choice, you can either buy or offer it. This will depend on the marketplace you choose. Alternatively, one can continue to hold their NFTs as they watch their value evolve over time.

Check out here for better strategies on how to sell your NFT

d.Link your NFT with your wallet

Consider linking your NFT to your personal wallet after you have acquired it. This can be through transferring it from the marketplace to ensure one has complete control over it. Also NFTs on the ETH blockchain from all of your associated wallet addresses are available for viewing at your discretion.

e.Deciding on the exit strategy

It is mportant to know all pros and cons of cryptocurrencies before entering into the crypto market. But along with the strong enter strategy, one should know when and how to exit the crypto market. This will necessarily depend on whether one chooses to invest for long-term or short-term gains.

Are NFTs a Good Investment?

Advantages of investing in NFTs

1. Ownership and Scarcity

One of the most important advantages associated with NFTs is their ability to grant ownership of items. For example, the artwork is tokenized using NFTs thus forbidding duplication of work.

2. Transparency

The NFT blockchain technology guarantees a transparent and rigid record of ownership. This is because whenever it is sold or bought, they ensure the transaction is recorded on the blockchain. This transparency provides buyers with a well-verified history of origin and ownership thus reducing forgery issues.

3. Diversification

Apart from art, NFTs have been seen advancing into the gaming and entertainment world. This is where it enables players to be able to own and also trade in-game items as unique tokens. For entertainment, they have been advantaged in such a way that they are able to release exclusive music and videos to their fans directly.

4. Supporting creators

This is where fans are able to reward their favorite creators for their content. The musicians and content creators, tokenize their creations and thus are able to receive the support and rewards from their supporters.

5. They generate efficiency

They achieve this with (smart) contracts. Smart contracts streamline processes and eliminate intermediaries. Whenever a Non Fungible Token is created, there is the production of smart contracts to help in defining its properties and rules.

Disadvantages of Investing in NFTs

Though being said, they do have their challenges. They include:

a.Environmental concerns encompassing them- Most NFTs are supported by blockchain networks. They rely on high energy-intensive which operates on proof of work protocols.

These blockchain networks have a high impact on the environment since they contribute a lot to energy consumption and carbon emissions.

b. Possibly fraudulent– When it comes to defrauding, NFT space is new and this makes it lack regulations hence exposing its investors to these scam risks. To reduce this, it is advisable to use a valid marketplace to help reduce the chances of your NFTs being stolen.

c. Fluctuation in prices- NFTs prices are determined by market trends and social media hype. This makes them very volatile in terms of their value thus possessing a risk to the investors. Also, it is a digital asset that is run on the blockchain, which makes the future value of NFTs remain uncertain.

To get to learn about volatility in the market and factors affecting price swings, this article by droom droom got you covered

Top NFT Platforms to Investigate

There are many NFT marketplaces where one can trade their assets. Choosing the right one to use might be a bit challenging. Many of them have a particular specialization or speciality.

A marketplace is needed to buy, sell or create an NFT, but many marketplaces have different features and options. Some of the best platforms include:

1. Open Sea– This is one of the largest NFT marketplaces founded in the year 2017. It supports a wide range of digital assets i.e. art, music, and others over many blockchains. It is the best for minting new NFTs.

2. Mintable- One of the easiest platforms to use as it supports the minting of NFTs for all creators. It is user-friendly and empowers creators to engage in NFT transactions.

3. Super Rare

This is a peer-to-peer marketplace that allows the buying and selling of digital artwork. In this platform, transactions are made using the native cryptocurrency which is Ether. It includes art, videos, and 3D images.

What Separates Non-fungible Tokens from Fungible Tokens?

These two tokens are well-defined categories of digital assets which are fundamental to the blockchain ecosystem. The two hold different characteristics.

The Fungible tokens are similar to one another but for the Non-fungible, they are unique digital assets that cannot be interchanged. This sets them apart from other tokens and makes them suitable for representing distinctive items like digital art and collectibles.

To understand the use of NFTs in the field of Arts, we recommend reading this article

The Non-fungibles are indivisible, this means they cannot be divided into smaller units like the Fungible tokens. 

The NFT’s value is variable, meaning their value is influenced by some factors like demand and rarity amid the fungible whose value is equal.

Bottom Line

NFTs’ possibilities of allowing one to own digital assets without being replicated give them a valuable addition to the investment sector. It is advisable to approach and invest in these NFTs cautiously because of the risks and speculative nature of new and undefined markets. 

However, successful NFT investing requires a healthy perspective that considers both assurance and uncertainty. Embracing these possibilities while maintaining a vigilant eye on the risks can pave the way for a rewarding journey through NFT investments.