6 Factors To Consider Before Investing In NFTs

Mining cryptocurrency has been the new tech kid on the block for a while now, and is almost trendy among younger and older investors alike. Non-fungible tokens (NFTs) are undoubtedly trendy, especially amongst tech enthusiasts and investors. NFTs are unique digital assets that are not interchangeable, unlike currencies and crypto. You can think of them as computer files with proof of ownership and authenticity.

Many NFTs are essentially worthless, but some have gone on to be worth several hundred and thousands and even millions of dollars. A recent survey revealed that less than a quarter of American adults are familiar with NFTs. However, this did not stop the Collins Dictionary from crowning “NFTs” as its 2021 Word of the Year. Below are six factors to consider before investing in NFTs.

Buying them is more challenging than it should be 

crypto money

Besides being sceptical about NFTs, many potential investors shy away from buying them because they assume it is complex to buy them – and they are right. Indeed, there are thousands of NFTs for sale, but buying one hasn’t always been the easiest of processes for aspiring collectors.

The buying process typically requires you to first buy cryptocurrency, like Ethereum or Bitcoin, for your purchase. For that, you would first need to open an account on your preferred cryptocurrency exchange available in your location. Fortunately, this is a step you can learn more about in this helpful crypto for beginners article.

Then, you must verify your identity, fund your cryptocurrency wallet, and buy the crypto you need. You would also need to download and set up a browser wallet and transfer your crypto to that wallet. You can only head to any reputable NFT marketplace like Rarible and Open Sea after this transfer to buy your preferred NFT.

However, a few companies allow you to directly acquire NFTs with your debit card, just like ordering clothes online. Similarly, Coinbase, one of the world’s leading crypto exchanges, has launched its NFT marketplaces. Coinbase has partnered with Mastercard to make the entire process of acquiring NFTs as stress-free as possible for cryptocurrency newbies.

Huge profit potential

The main reason why more people are acquiring NFTs is undoubtedly to make more money after reselling them. NFT trading is quite popular and profitable, so it is no surprise that many experts widely consider it one of the best ways to make money in the Metaverse. For instance, CryptoPunks was basically free when it was launched in 2017.

However, all 10,000 Cryptopunks are currently worth hundreds of thousands of dollars since they belong to one of the first NFT collections on the Ethereum Blockchain. Similarly,  Bored Ape Yacht Club was worth $300 a piece when it launched in 2021.

Today, you will need at least $200,000 to acquire anything in this collection. Although it is challenging to tell whether another NFT collection will be valuable in the future, there is always an opportunity to purchase low and sell high. As such, NFTs have huge profit potential, making them a go-to for several short-term investors.

They aren’t always .JPEG files

NFT artwork

Many people think of digital art collectables when NFTs are mentioned. This popular conception of NFTs is accurate and understandable, given that NFTs are frequently portrayed as digital art. However, there’s more to NFTs than simply images. They can be anything digital, including music, sports cards, ebooks, videos, and memes. NFTs can also represent ownership of an access key or identity card. In video games, you can find them as in-game items like swords, avatars, and skins that gamers can use, buy, or sell. An NFT can even be a tweet; Twitter CEO Jack Dorsey recently sold the first ever tweet as an NFT for a whopping $2.9 million.

Blockchain is everything with NFTs

A key reason for the soaring popularity of NFTs is the technology behind them: blockchain. This technology is the same that powers cryptocurrencies. Essentially, all NFTs are virtual tokens that “live” on the blockchain. The blockchain is a decentralized network that everyone can access, eliminating the need for a central authority to govern or facilitate transactions. The most common NFT network as of now is Ethereum, making NFTs Ethereum-based tokens. If you own an NFT, any individual worldwide can see that token on the blockchain and verify your ownership. 

Similarly, they can see the original creator of the NFT, ensuring authenticity and reducing scams. Furthermore, NFTs are powered by smart contracts, programs, or codes stored on blockchains that run immediately after predetermined conditions are met. These smart contracts automatically pay royalties to the original artist. Therefore, artists get instant royalty payments anytime their NFT is sold on the secondary market. 

NFTs are bad for the environment

leather wallet with crypto

A recent study revealed that six in ten Americans are concerned or alarmed about climate change. Indeed, people are becoming more eco-conscious, reflected in every aspect of their daily lives. Consequently, it is critical to note that NFTs are, for the most part, bad for the environment. Indeed, individual crypto pieces are somewhat responsible for the tons of carbon dioxide emissions created by the cryptos used to purchase and sell them.

Many NFTs trade on Ethereum, which means every transaction relies on mining to confirm trades and transactions. Significant energy is used in this mining, and it is understandable why many concerned about their role in carbon emissions will not find it worth investing in. A great way to reduce NFTs’ environmental impact is to utilize green energy resources for mining instead of relying on the traditional grid.

NFTs have incredible real-world utility

There is no denying the huge profit potential of NFTs, but it may surprise you that they are not all about money. Several NFTs have incredibly useful utility to their owners. For instance, Flyfish Club is the world’s first exclusive private dining club where membership is bought as an NFT.

If you own one of FlyFish Club’s 3,000 NFTs, you enjoy unlimited access to a fine-dining establishment and various social and culinary experiences in New York City. Many NFT collections have their utility, and experts estimate they will continue to increase as NFTs become more popular.

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