Should You Invest in NFTs?
The term Non-fungible tokens or NFTs has been exploding all over the internet lately. Each one of us has been surprised by the size, ferocity, and speed by which the NFT industry is expanding. The number of wallets purchasing NFTs, the number of transactions of NFTs, and the prices of many digital artists skyrocketed as the hype of NFTs kept escalating over time.
To give you a quick recap, Non-fungible tokens or NFTs are a type of digital tokens that are verified and stored using blockchain technology and define ownership of real-world items like music, gif, video clips, memes, digital paintings, and so forth. They are usually traded using cryptocurrency on NFT-specific marketplaces such as OpenSea and Rarible. In technical terms, an NFTs is a chunk of data that is owned by an address and the person who has the password to that address owns that chunk of data. This piece of data can also be further bought and sold to other addresses.
NFTs are not a new phenomenon. The first-ever NFT ‘Quantum’ was minted by Kevin McCoy in 2014 which is now on sale for $7 million. But the history of NFTs hype dates back to 2017 when NFTs moved into public awareness before exploding into mainstream adoption in 2021. It all started when American studio Larvalabs created a collection of 10,000 crypto kitties that quickly went viral in 2017.
Fast forward to 2021, NFTs have steered their way into the mainstream. Headlines featuring people making a big fortune through the NFTs are driving more people to invest in the NFTs. Consequently, the NFT world is moving fast and numerous NFT marketplaces are emerging every day as more people intend to invest in them.
Just like any other novel phenomenon or trend, NFTs have been labeled as a ‘bubble’ too. But the way we are transitioning from a physical world to a digital world, NFTs do not seem like a fleeting trend anymore. Rather, as the indistinct concept of the metaverse has been snowballing into vivid reality, the NFTs are emerging as a lucrative investment opportunity. Here’s why we should consider investing in the NFTs!
NFTs – the Future of Investments
Gone are the days when people were skeptical about and thought twice before investing in a digital item instead of stocks and real estate. It is not that investing in stocks, bonds, real estate, etc has become old school. But as we are transitioning into the digital world, people have begun to switch from the conventional ways of investing and adapt to the novel practice of investing in digital assets.
We are in a process of an exodus from a purely physical world to an increasingly immersive and synthetic digital world where we spend a considerable amount of our conscious time. The desire of owning a status symbol in this online world is not surprising anymore. The NFT hype, now emerging as an investment opportunity, is also partially due to lots of celebrities jumping on the bandwagon, giving it credibility.
The NFT trading volume during the third quarter of 2021 surged to $10.7 billion – a 704% gain from the previous quarter. Moreover, the NFT market is about to get bigger as the cryptocurrency exchange Coinbase and auction house Sotheby’s both announced their plans to launch their own marketplace for NFTs in October 2021.
Moreover, Nike just acquired the virtual shoe company RTFKT that makes NFTs and sneakers for the metaverse. Such big and renowned organizations stepping into the NFT market will definitely expand the user base in the near future.
Profitability and Revenue
There are numerous reasons why NFTs have gained all the attention of the investors. But the most alluring one lies in their potential for profitability. Let us look at the example of this rare Cryptopunk 7532 aka Covid Alien that was sold for just 8 Ether (worth $1463) back in 2017. In 2021, the same pixelated Cryptopunk made headlines after selling for more than $11.7 million in Sotheby’s auction!
The opportunity to make a big fortune is driving more people to invest in the NFTs and honestly, they are intrigued for a reason! People have made a substantial amount of money in the NFT market, flipping and trading their digital assets online.
For instance, look into the case of Jaiden Stipp, a 15-year-old who initially made 20 ETH (over $30,000) by selling his artwork – a digital illustration of a waving astronaut-like cartoon. A few months later, his NFT was traded for nearly $60,000! Ever since, Stipp has become a blue-chip artist, selling his digital art and making enough money to help his parents pay off their house and cars.
The younger generation specifically is more pumped up about the NFTs as there are not many investment options for them. With their early jobs paying them peanuts, they cannot afford to buy some property, a house, or consider investing in stocks as the stock market is often considered a guessing game. So why not invest your money into a ‘digital lottery’ and see if you can make a million dollars overnight? You could be making the next big headlines, who knows!
Moreover, independent artists around the world have largely contributed to the NFT hype as NFTs have provided them with new revenue streams. The provable scarcity and authenticity of NFTs have given the artists control over their artwork and follow it through its complete lifecycle. As everything is tracked on the blockchain, a royalty shall be paid back to the original creator when a secondary sale happens. This is something that does not happen in the physical art markets.
Convenience is another reason why more people are inclined towards investing in NFTs. The NFT world is free from any geographical boundaries – you could be anywhere in the world and sell an NFT to people from any corner of the world. True that most artists are not selling NFTs worth millions of dollars. But particularly during the pandemic when people are being laid off from their jobs, NFTs enable them with an opportunity to make enough money to make their ends meet (have that extra income) by selling their work on NFT marketplaces. The case of Lana Denina, a 24-year-old, serves as the best example here who made over $300,000 in 10 months selling NFTs.
Additionally, the NFT world opens you up to new audiences from around the world. There is a massive collector base of artists that strictly collect digital art and not physical paintings anymore.
Proof of Authenticity
The underlying blockchain technology allows collectors to have a more accurate proof of authenticity and originality while providing artists more control over their work through its lifecycle. Each token on the blockchain has its own transaction log and verifiable metadata through which history of ownership could be proved.
The blockchain is a whole list of transactions – a database, and the records on the blockchain can be trusted as they are very difficult to be tampered with. This gives your token verifiable authenticity and uniqueness, a must-have feature for any collectibles market as it sets you free from worrying about forgeries – the utmost concern of the artists. You can also track the information about the production of a particular piece. The number of prints that exist of an artwork is almost impossible to verify in the physical world, but the blockchain makes it possible.
Some Concerns regarding the NFTS
There is still a tremendous amount of friction in the NFT world. People lack digital literacy and do not fully understand the idea of holding private keys, or how to get a metamask wallet, how to engage with this world, etc.
In recent months, security concerns have also surfaced after numerous reports of NFT thefts and scams made headlines, which is fair to a certain degree – it is hard to name a technology that anyone can guarantee to be fully secure.
But the onus of keeping your digital assets safe and secure away from the menace of hackers is ultimately on you as an investor. Your digital assets can be secure if you take the right precautions while making a purchase:
- While purchasing an item, make sure that you are backing up your private keys.
- Make sure that you store your NFTs in a secure wallet.
- Make a purchase using uncompromised devices and use secure passwords.
We are just at the tip of the iceberg! You must be reading about NFTs everywhere every day, thinking that you might be too late to step into the NFT world especially as a creator or an artist as the markets seem to be saturated already. But this is certainly not the case – NFTs are still in their infancy.
We are in the initial stages of mass adoption and this is the time you get in early and own the stuff that is undervalued yet. Make some affordable bets now to position yourself early. We have a long way to go and you will get handsome ROI down the road!