When you hear the term blockchain, you’ll probably think of cryptocurrencies like Bitcoin (BTC), Litecoin (LTC), and Ethereum (ETH).
But there’s much more to blockchain tech than just cryptocurrencies. NFTs or non-fungible tokens for example have been slowly but surely making an appearance.
What are NFTs?
NFTs actually do have some similarities with cryptos. For example, both of these tokens are powered by blockchain technology.
But that’s where the similarities end…
Rather than being used to transfer funds, NFTs function as a certificate of ownership for assets such as images, music, and video.
Because of this NFTs have found their niche amongst artists looking to monetize their work. These tokens are typically used as a symbol of ownership and are oftentimes traded between fans of an artist.
Also, the usage of NFTs in art has given rise to digital art collectors and speculators hoping to trade NFTs like crypto.
To some the idea of paying money for images that can be shared online is outright absurd. But others have argued in turn that NFTs offer something much more than just the image… And that is the satisfaction that comes with ownership.
You can check out the Top 11 Crypto Art Marketplaces and Platforms available in this article from Tezro.
Investing in NFTs
Just like how the top 1% invest in artwork, NFTs are regularly traded by speculators looking to turn a quick buck.
Given that Twitter-founder, Jack Dorsey sold the NFT of his first tweet for $2.9 million, it’s easy to see why some punters are keen on the NFT market.
But buyer beware… While potentially profitable, there are various pitfalls to investing in NFTs. So before you start collecting digital art, why not take a look at what we have to share with you here:
- Digital art is intangible
Despite what the enthusiasts say, assets linked to an NFT are all intangible. That is to say – they only exist in the digital realm.
While you may have bought a digital painting from an artist, you’ll never be able to hang it in your home or office. In fact, everyone else will be able to also download it and view it for themselves for free.
The difference is that because you hold the NFT, you are the owner of that image. To some, it’s perfectly fine because – hey, I have enough money to splurge on something that doesn’t even exist.
But to somebody else, that just sounds insane.
- The market could be in a bubble
The crypto bull-run of 2020 and 2021 saw investors eagerly flooding the market as they desperately sought to get aboard the crypto train.
Because of this, a sort of mania for all things crypto has set in amongst investors… And it simply looks like NFTs are just the next big thing to plough money into.
Despite the various high-profile transactions, there is a dark side to all of this. Given the subjective nature of the assets linked to NFTs, price valuations are liable to collapse with little-to-no warning.
Given how slowly NFTs are transacted, it can be difficult to spot a market crash before the bubble actually bursts.
- NFTs are not liquid
As NFTs are typically linked to niche assets, it may sometimes take days or even months to set up a deal with a willing buyer.
As the market is highly illiquid, an investor in dire need for cash may be forced to settle for a lower asking price… Or even worse, be trapped in a situation where it is impossible to liquidate said asset.
So if you’re looking to start investing in NFTs, be prepared to have a cash reserve ready in case you’re not able to liquidate your portfolio.
NFTs can be a profitable investment if you’re both lucky and know what you’re doing. However, you should always take precautions to protect your capital when investing.