A Beginner’s Guide to Risk and Return
Non-fungible tokens (NFTs) are a unique class of cryptocurrency assets that enable owners to demonstrate their ownership of both physical and digital assets, the latter being the most important. Investing in NFTs is a misnomer because NFTs are not really an asset class on their own. Blockchain technology is used by NFTs to represent ownership digitally, making an NFT more akin to the title of a car than the actual vehicle. Plots of virtual land in games such as The Sandbox and Decentraland, and even cartoon images of monkeys are examples of these intangibles.
What are NFTs and how do they work?
Non-fungible tokens, or NFTs, are typically produced using the same type of coding as cryptocurrencies. These cryptographic assets are based on blockchain technology, to put it simply. They cannot be traded or exchanged in the same way as other cryptographic assets. Similar to Ethereum or Bitcoin. The term “Non-Transferable” (NFT) clearly indicates that due to its unique characteristics, it cannot be changed or replaced. Both fiat money and cryptocurrencies can be traded or exchanged for each other because they are both fungible.
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NFTs use blockchain technology to operate. Due to its unique design, each NFT has the potential for a variety of applications. To digitally represent tangible assets such as real estate and art, a digital asset management platform is the best option.
The steps involved in investing in NFTs:
- Select the NFT you want to buy
- Create a compatible cryptocurrency wallet
- Fund your wallet with digital currency
- Connect your wallet to an NFT marketplace
- Buy an NFT
- Confirm the NFT transfer to your digital wallet
How to buy or sell NFTs
As a buyer, you will require a digital wallet to store an NFT. The second assumption should come as no surprise: cryptocurrency will be required. The most popular cryptocurrency among NFT providers is Ethereum (ETH). Either ETH or BTC can be transferred from any cryptocurrency exchange or purchased directly from the site offering NFT.
The following are some examples of online stores that sell NFTs:
Rare:
One of the most popular platforms to buy NFTs is this one. It is a free market where buyers and sellers can buy and sell NFTs.
Foundation:
Similar to a community where publishing artwork requires invitations from other artists or creators. The exclusivity can be compared to the clubhouse’s brand new audio-based social media platform.
OpenSea.io:
All that is required to get started with this peer-to-peer platform is to create an account. It is possible to browse through different art form categories before making a decision.
Other websites offer the opportunity to participate in the NFT market. SuperRare, Nifty Gateway, VIV3, BakerySwap, Axie Marketplace and NFT ShowRoom are among the sites that also sell NFTs. India also has some of these platforms.
There are two methods of marketing NFTs. You have an NFT, which is one way. An NFT can also be marked by the person who sells it. Through online marketplaces such as OpenSea, SolSea, etc., one can create NFTs. One can list the NFT on any of the websites for sale after minting it.
The benefits of investing in NFTs
NFTs are open to all investors
Everyone has access to make investments in tokenized assets. When assets are tokenized into an NFT, ownership can be transferred between individuals more efficiently and easily from one place to another.
A blockchain is used to protect NFT ownership
The digital representation of ownership through blockchain technology can increase the security of an investor’s ownership of a given asset. In addition, blockchain technology can increase the transparency of ownership of assets.
It is a chance to gain more knowledge about blockchain technology
By investing a small amount in tokenized assets, investors can diversify their portfolios and increase their understanding of blockchain technology.
Disadvantages of Investing in NFTs
Asset classes do not include NFTs
NFTs are often and mistakenly thought of as an asset class rather than a technological way to indicate ownership. The hype and general misunderstanding of NFTs can make tokenized asset values inflated and volatile.
Energy is used a lot during NFT generation
The Ethereum blockchain, which uses an energy-intensive operating protocol, currently supports the majority of NFTs. The amount of electricity used by a typical home for one NFT transaction is used for about two days.
You may need to own Ethereum (ETH)
Since the maximum NFT sales take place on the Ethereum platform, Ether (ETH), the cryptocurrency used by the blockchain, is often required to purchase an NFT. There may be few options available to investors looking to purchase NFTs with fiat currency such as US dollars.
Rights to intellectual property
When buyers are confident that they are making a legitimate purchase, NFT ownership is beneficial. However, buying NFTs from disreputable sellers and markets increases the possibility of buying copies that have been misrepresented as originals. Due diligence must be done by buyers to ensure that the seller actually owns the NFT they are buying.
NFTs: Are they a wise investment?
The value of NFTs largely depends on the particular use case, so this is a question that is still up for debate. When NFTs are used to represent ownership of a piece of art or a collectible video game, for example, they can make strong investment cases. Other than that, it is hard to say for sure whether NFTs are a good investment or not.
The lack of regulatory clarity around NFTs is a significant barrier to widespread adoption. Assessing and mitigating risk when buying or selling NFTs is challenging because there are no rules that buyers and sellers must adhere to when conducting transactions. But in the coming years, investing in NFTs can be the best course of action with proper market knowledge.
Also Read: Best NFT Marketplaces: Where to Make and Sell NFTs in 2023
The content presented may include the author’s personal opinion and is subject to market conditions. Do market research before investing in cryptocurrencies. The author or publication has no responsibility for your personal financial loss.
