Is NFT good for investment?
There is a lot of mixed reception to this new technology of non-fungible tokens (NFTs). While many do bring up a lot of benefits, but just as many criticize the technology for financial and ethical reasons. Today, let’s talk about NFTs and whether or not it’s worth your investment
What are NFTs?
A non-fungible token (NFT) is digital data stored in a ledger. This data is representative of a specific form of media, be it a book, artwork, song, or video. An NFT does not mean ownership over the product itself. It only means that you own that specific piece of artwork as if it were something you physically owned. Only now, it’s all in digital space. It does not mean the copyright of the work belongs to you. The copyright is still owned by the creator. An NFT only dictates that you have the right to own that piece of media.
Despite being a relatively new technology, there is a lot of hype over NFTs and some NFTs have managed to sell for millions of dollars. However, they are a high-risk investment. The marketplace for NFTs, as mentioned before, is new and therefore lacking in authority, security and stability. There is no guarantee that NFTs will exist decades from now, or if they will even exist by next week.
NFT marketplaces such as SuperRare and OpenSea have provided some platforms for NFTs. Art collectors can possibly use this as a new way to find art and claim ownership of the specific work. However, the instability of the market just makes it a risky investment regardless of where you purchase it.
NFTs’ biggest risk as an investor is that you can lose an NFT entirely, and there would be no way to recover it. Unlike stocks, which you can hold onto regardless of the market’s state, NFTs are digital and therefore are open to attacks, poor storage or just losing access altogether for a random reason. Millions of dollars can be potentially lost over something totally out of your control, and much easier than with other investments. This can make having NFTs part of your retirement contributions a bit of an issue.
NFTs rely on blockchains, which record the digital image permanently and associates it with the buyer. It’s essentially a certificate of ownership. The image itself cannot be changed or edited. You essentially only have a link to the original image, wherever it may reside. If this URL breaks, or the server where the image is stored gets compromised, then you can say goodbye to your investment. Technologies, such as IPFS (InterPlanetary File System), a peer-to-peer network software, is slowly improving to make this security better.
On a platform like the Internet, there have been many arguments that there are better ways to support artists online. Platforms such as Patreon or Ko-fi come to mind. These platforms do not require the potentially large environmental impact which NFTs bring to the world. The criticism of the worth of NFTs is directly tied to its cost, so as it increases, more energy is consumed, and therefore becomes a bigger ecological concern.
Additionally, the lack of management on the NFT market means several people can just make claims of ownership over artwork that the “creators” never actually created. Instead, some people may just scam potential buyers of an NFT that it’s a “unique” piece. There are also very few official laws with regards to NFTs as of the writing of this article. These ethical concerns may affect people’s decisions to invest in NFT. In turn, this can lower its value.
What Can You Do?
Simply put, make sure you download and backup your NFT yourself. Many investors do not download NFTs they buy and this should be changed as a practice if you decide to take the risk on NFTs. Much like how you should store your physical paintings properly, it’s important to keep your NFTs secure as well.
Is NFT a Bubble About to Pop?
NFTs are considered a bubble by many market experts. The relative newness, infamously high purchases hyping up the platform, and rush of newbies looking to make a profit have all the telltale signs of a bubble. While the technology will likely stay around for a while more, a lot of work needs to be done to address the ethical and practical concerns for the platform.
Should You Invest?
There is certainly a market for NFTs, and the potential profit may outweigh the risks for a lot of investors. However, if you do invest, make sure to take into account all the risks associated with NFTs and do your due research on the ecological impacts they can have on the environment. In addition, there are also a lot of potential scams in the NFT market as authenticity in the digital world is difficult to gauge. Keep the risks in mind if you do decide to invest in NFT, as while the rewards are potentially high, there is also a high risk of losing it all.
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