The technology of Blockchain has enabled a wonderful new kind of investment using cryptocurrency. It has contributed towards another remarkably popular investment which took off in 2021 known as non-fungible tokens or the NFTs.
Are you looking forward to making this kind of investment? Do you want to further expand your investment portfolio with this option? Then, you must also know how to invest in it because this type of investment also involves some amount of risk in it.
However, do not worry. Here, we have put together a few tips that will you guide you about how to invest in the NFTs. Check it out.
A digital asset that will represent a real-world asset is an non-fungible token or NFT. This is basically a digital asset that is one of a kind and cannot be exchanged for any other asset of the same worth. It does not have any recognized price in the market.
For instance, you can call a plot of land a non-fungible asset. The plot of land is situated in one area and cannot be reproduced. That is why it does not have a recognized price in the market and cannot be exchanged for equal value.
On the other hand, a dollar bill can be produced in huge amounts. You will be able to exchange a dollar bill for another where each of the bills will retain the same value.
Digital assets like memes, tweets, videos, music, GIFs, online art, virtual collectibles, and video game data like virtual avatars, skins, and in-game items, etc., are all represented by NFT.
Usually, all digital creations are available in unlimited quantities which make these fungible assets. Anything which is online can be copied as well as shared.
This is generally fixed by NFTs when they create scarcity and designate the digital creation as ‘original’. If you have the NFT of a digital asset, it means you have the original one. For instance, when you purchase the NFT of a meme, then you are the owner of the meme.
However, please note that this is a new kind of investment technique and there might be different rules and regulations to follow with respect to profit models and copyrights. NFTs might be treated in the same manner as cryptocurrency for legal reasons.
NFTs make use of the blockchain technology just like the cryptocurrencies. Most of the NFTs are related to Ether, Ethereum’s cryptocurrency. Whenever you purchase an NFT, the transaction gets registered on the computer networks and an access code is given to the owner.
Also, the NFTs have a unique digital signature. This is why it cannot be exchanged for any other asset like other cryptocurrencies.
In case you have an NFT, you should understand that people will still notice and even copy the digital asset. Everything that is available on the internet can be duplicated easily. For example, if you have a digital picture, anyone can easily download it or take a screenshot of the same to post it anywhere they want online.
These people usually invest in NFTs for flaunting. They hold much passion for this kind of investment and want to enjoy being official owners of the NFT. Some NFTs are also created by celebrities who might also run auctions for their fans. After all, it is not very different from selling autographs.
This is the reason why NFTs are often considered to be slightly dubious. Most of the NFTs cannot offer a cash flow like the stocks and there is not any proof that indicate these will grow in value like other investment properties.
Majority of the investors purchase the NFTs based on speculations. They feel that the NFT will be of greater value one day and that is why they buy it and hold it until they can sell it off at a greater price. It is certainly not a safe or a strategy that is rewarding.
But if you think that the NFT will appreciate in value, it might also be appropriate for your greater risk investment portfolio.
There is no intrinsic value of NFT. Their value is only as much as people want to pay for these. The NFT’s worth is not dependent on the shareholder dividends, annual profit margins, and projected growth of a company unlike a stock.
Some of the NFTs have been sold for millions of dollars but for these too, there is no solid guarantee that these have a high value. The value of the NFTs does not increase in the same manner as real estate does.
NFTs are popular for the sale of digital art. The artwork of these digital artists are sold online and get royalties when the NFT is bought by a new owner. It is not clear though whether the digital art will appreciate more than a GIF or a meme.
You must remember that NFTs can be a little cheeky. For instance, the toilet manufacturer Charmin created an NFT for “non-fungible toilet paper”. This might suggest, for some investors, that NFTs are like any other short-lived trend as opposed a long-term, legitimate investment.
NFTs are easy investments. Here are a few steps that you can follow:
When you buy an NFT, you have to decide what you want to do with it. If you sell it, you can list it in the marketplace for a certain amount. Prior to even attempting to upload an NFT to any marketplace, you must ensure that it supports the blockchain that is the foundation of building NFT.
After this, you can list it at a decided price or even choose to go for a buyer auction. When your NFT sells, the marketplace will help you transfer the asset between you and the buyer, following which the crypto funds will be deposited to your digital wallet.
You should always weigh the potential pros and cons of this kind of an asset before making an investment. The NFT value has increased to a great extent in the recent past and has successfully created a buzz in the investing community.
Historically, the physical collectibles have been proved to be reliable when it comes to their value appreciation and many even think that the market will show similar behavior for digital art.
When an asset is used or resold via smart contract technology, creators and artists also get their share of fair payment.
On the contrary, NFTs are static assets which cannot generate an income independently. The value of these assets is subjective and witnesses solid fluctuations depending on the demand of the buyers. For example, the GIF on Nyan Cat was produced and sold as a non-fungible token.
But no one can be sure of its cultural relevance 25-30 years later. This is the kind of risk that NFT users have to face. Some assets and NFTs based on the blockchain technology also draw negative attention owing to their environmental consequences as a significant amount of energy is spent on creating and verifying these transactions.
Before investing in this kind of a digital asset, you should ask yourself if NFTs are the right investment for you. Why are you making this investment? If you are thinking of earning a passive income or make some savings for retirement, then NFTs are not the suitable investment for you owing to their high volatility, causing wild fluctuations in their value. These might not appreciate over time and also do not generate recording dividends or interest. It is better to invest in Exchange traded funds or EFTs, index or mutual funds, and rental properties.
NFTs are investments with high risk. There are some investor portfolios of low or medium risk which can be safe and even help you get stable dividends.
They can invest in high-risk investments like NFTs when they have created a diversified portfolio. In this way, if they lose money on this kind of an investment, their losses can be compensated by the other investments. You can consider using this strategy for such successful ventures.