Opinion: There's Been a Lot of Hype Surrounding NFTs Lately, but Are They Actually a Good Investment?!

Daniella Cressman

Disclaimer: This information is accurate and true to the best of my knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

The World Wide Web has been a gathering place for many, especially since the pandemic started: We're buying groceries and downloading all sorts of apps to keep ourselves occupied.

There are even some enticing investments at our fingertips, NFTs being one of them.

WHAT ARE NFTs?

NFTs, also known as non-fungible tokens, are simply a unit of data that is stored on a blockchain.

"A quick snapshot of how to think about an NFT (non-fungible token): At a high level, it is a unit of data stored on a blockchain…in layman's terms an NFT is a mechanism of buying a digital asset such as artwork, music or other collectibles that is authenticated as being the 'one and only' and provides proof of ownership." —Betsy Atkins (3-time CEO, serial entrepreneur, and cofounder of Technology, CBG, and Energy Companies)

What sets this particular asset apart is its rarity: You can exchange one bitcoin for another bitcoin, for instance, but that is not the case when it comes to NFTs.

"NFTs are blockchain-based assets, distinguished from other blockchain-based assets—like, say, cryptocurrencies—in that they cannot be substituted or exchanged for similar items. Where one Bitcoin can be swapped for another Bitcoin, or an equivalent sum in Ether, or Bitcoin Cash, each plot of land in Decentraland is unique. Like real land, some plots are centrally-located in the universe, some are nearer to roads, some are larger and some smaller. Other examples of NFTs are artwork, unique in-game items for video games, and web domains."
—Cathy Hackl (Top Web3 & Metaverse Strategist, Keynote Speaker, author, and Media Personality)

So there you have it: NFTs are merely tokens that indicate ownership of a specific digital product.

WHAT ARE NFTs CURRENTLY USED FOR?

NFTs are used for all sorts of products, digital art being one of the most popular. In fact, many consider digital art NFTs to be collectibles.

Scarcity drives the demand for NFTs.

"Since time immemorial items were traded between two parties according to who needed what. If a goat herder had lots of goats but not enough furniture, they might trade a goat for some furniture, or some furniture yet-to-be-built. The goat had value to the hungry, the furniture to the minimally-furnished. Thus, items held value according to scarcity and need, or supply and demand." —Cathy Hackl (Top Web3 & Metaverse Strategist, Keynote Speaker, author, and Media Personality)

NFTs can be attached to all sorts of digital items:

  • Art
  • GIFs
  • Historic audio recordings
  • Spectacular YouTube videos
  • ETC.

NFTs are unique and non-reproducible, and they are meant to be, so, naturally, this drives demand: We all want what we can't have, right?!

That's only human.

"NFTs are, by their nature, unique and non-reproducible (think: Estate 331). That swings the supply-demand curve far towards one direction." —Cathy Hackl (Top Web3 & Metaverse Strategist, Keynote Speaker, author, and Media Personality)

As an investor, it's important to weigh the pros and cons of this digital asset: NFTs are irreproducible because, after a certain number of transactions have occurred on the blockchain, it's impossible to modify an old one.

"What, then, gives NFTs their irreproducibility? What's stopping anyone from simply pirating Decentraland and recreating Estate 331—bit for bit—to sell a second time over? Or, for that matter, what's stopping Decentraland's developers from doing the very same thing?
These are important questions for anyone looking to invest in NFTs. If you're going to drop $80,000 or $3,000,000 on such a thing, you'll need a good way of ensuring that someone can't come along and steal it, or destroy it. This is where the blockchain comes in. Blockchains are, in their purest form, lists….after a certain number of new transactions have occurred, it becomes near-impossible to modify an old one." —Cathy Hackl (Top Web3 & Metaverse Strategist, Keynote Speaker, author, and Media Personality)

WHAT ARE NFTs GOING TO BE USED FOR IN THE FUTURE?

There is a lot of talk swirling around about what NFTs are going to be used for in the future. While there are no guarantees, per say, there is a strong possibility that they will be applied to, well, almost everything.

"NFTs are currently attached to eccentric digital art but the possibilities for them are endless. NFTs can be used to purchase digital land and for next-generation music ownership, licensing, and publishing. It is also speculated that the chances that NFTs could be used to access special sales or limited-edition products is high." —Intel Bites (Leader in Global FinTech Recruitment)

NFTS WILL LIKELY BECOME MORE ENVIRONMENTALLY FRIENDLY

Honestly, the planet is suffering, animals are increasingly becoming endangered—then extinct—and we are facing a myriad of issues as a society due to climate change.

Unfortunately, Ethereum currently consumes large amounts of energy.

Many are looking forward to Ethereum 2.0 which will likely be a lot more environmentally friendly than Ethereum: Right now, the energy use is through the roof, which has deeply upset many conservationists.

"While Ethereum consumes large amounts of energy, it is preparing to release Ethereum 2.0, which is said to fix many of these issues. Others are working on better alternatives as well. There must be more research done on the platforms we use and how they operate. Proof of Work (POW) and a subsequent update called Proof of Stake are two extensively used blockchain methods (POS). It is said that POS consumes significantly less energy than POW, demonstrating that Blockchain is still a nascent technology with many kinks to smooth out."
Intel Bites (Leader in Global FinTech Recruitment)

It's one thing to have innovative assets that can potentially be quite profitable; it's another to have these assets use up excessive energy during the climate crisis.

This shift will likely be a welcome one.

NFTS COULD BE YOUR TICKET TO EXCLUSIVE PERKS

Quite a few celebrities have invested in NFTs, which arguably increased their popularity, so these digital assets could become your ticket to access exclusive perks and events.

"NFT tickets serve as access credentials for your events and can provide exclusive perks. These assets can be sold, generating new revenue streams for the community and yourself. In a ticketing system, event organizers can mint the required number of NFT tickets on their choice of a blockchain platform. They can code the NFTs to set a sale price or run the sale as an auction where people can start the bidding process for the ticket. Customers then purchase NFT tickets and keep them in their wallets that can be accessed from their mobile devices. Once they visit the event, they produce NFTs." —Intel Bites (Leaders in Global FinTech Recruitment)

Now, owning NFTs could be your ticket to meeting your favorite celebrity or joining a Yacht Club!

There have already been some innovative NFT ticketing strategies implemented:

  • Kings of Leon sold NFTs that entitled buyers to lifetime front row seats at their live concerts!
  • WarnerMedia's DC Comics gave out comic book NFTs along with tickets to their DC FanDome event.

Honestly, NFTs can be attached to almost anything.

ARE NFTS JUST HYPE OR ARE THEY A GENUINELY GOOD INVESTMENT?

Candidly, NFTs can be highly profitable.

People are earning hundreds of thousands of dollars from only one asset—sometimes—but here's the kicker—They're an extremely high-risk, high-reward investment, so you could experience major wins or major losses.

Of course, a lot of the folks who tell the news stories surrounding NFTs want you to buy them, so they are very selective about who's story they choose to tell.

Plenty of people lose a painful amount of money thanks to NFTs; we just don't tend to hear about them.

"Many people try to trade NFTs to make a profit. The stories of profitable NFT trading are more widely reported than people whose NFT collections are reduced in market value. There are no guarantees that your investment in NFTs will be profitable, though many people are hoping this is the case. NFT collections are a form of gambling to some people. NFT market values can be just as volatile as the underlying cryptocurrency. Information online could be more of a rumor than the hard financial metrics you might find from a public company's annual report."
—JD Morris (Managing Member of SPVs and Vice Chair of Red Hook Capital)

A lot of investors will simply sell their NFTs immediately, or at least attempt to, but, if you're savvy about your strategy, there are actually ways to earn consistent passive income from these digital assets by doing the following:

  • Renting them out.
  • Setting terms that impose royalty fees whenever they change hands on the secondary market.
  • Staking your NFTs.
  • Providing liquidity and receiving NFTs in return so that you can establish your position in a given liquidity pool.
  • Adopting NFT-powered yield farming.

These are not common methods, but that's arguably exactly why you should be using them right now!

With any investment, it's important to read the rave reviews as well as the critics' misgivings.

In short, NFTs are an excellent investment if you are willing to risk a lot for the chance to win big, knowing that there's a strong possibility of losing a very large sum of money.

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Canadian-American author writing about local politics, personal finance, & dining in Albuquerque.

Albuquerque, NM
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