NFTs is the latest voguish term in the blockchain industry; an internet user would rarely use media platforms without coming across the word.
The NFT rave didn’t just catch up with everyday internet users; celebrities like Eminem used a Bored Ape Yacht Club picture as his profile picture on Twitter.
However, as people want to learn how to buy NFTs, they often forget or are adamant about knowing the opportunities this technology presents and the downsides of NFTs. Even for other businesses, it is a dumb move to invest in something you don’t know the pluses and minuses.
So without wasting time, let’s explore the operation pattern of NFTs, the fundamentals of what they are, and the benefits and liabilities of these digital assets.
How NFTs Work
Although more people are jumping on the bandwagon of NFT investors, some still don’t know how it operates on blockchain technology.
NFTs are not only pictured as many people have known them to be; they can come from music, videos, text, and even tweets, as in the case of Jack Dorsey, the founder of Twitter.
Non-fungible tokens are irreplaceable by another item and function as proof that an individual owns an asset. They are unlike fiat currency; you can’t replace a Bored Ape Yacht Club NFT with a CryptoPunks NFT.
This digital asset has its existence in blockchain technology, just like cryptocurrencies, but they are not similar to each other.
Concerning NFT’s existence on the blockchain, most NFTs operate on the Ethereum blockchain; few others function on Solana and Cardano blockchains.
With this knowledge about NFTs, what about their practical applications of NFTs in the real world and the challenges they face? Let’s look at the liabilities created by NFTs and the benefits that come with them.
Pros of NFTs
#1. Diversification Of Portfolio
Diversification of a portfolio is a critical skill blockchain investor’s need; after all, you can’t keep all your eggs in one basket.
Having NFTs in your investment portfolio can easily make one a millionaire, but just like other investments, an NFT without a potential use case can lead to a loss of money.
NFT investment is also a way to prepare for the future of blockchain technology, the Web 3, and the whole concept of giving power and ownership back to internet users.
#2. Verification Of Ownership Is Transparent
The built-in property of blockchain technology is that information stored on this digital ledger is transparent and verifiable.
With its existence on the blockchain, NFTs inherit these properties; information about an NFT is open for people to trace and verify.
For digital creators, it helps to easily prove that you are the owner of an asset, even if another person creates counterfeit copies of your NFT. This way, the piracy of digital works is reduced; even if a person tries to create a copy of a Bored Ape Yacht Club NFT, it does not make them the original owner.
#3. Money Making Potentials
The feasibility of making money with NFTs is probably the best-known reason why many people are going nuts about non-fungible tokens. Everyone in the hierarchy wants to get their share of the monetary benefits of the creator’s mother lode.
From the developers of NFT projects to the community members, the possibility of making money with NFTs is high; this is a significant reason for the NFT rave.
The owners of NFTs earn royalties whenever their art is sold or resold, while the NFT influencers earn from NFTs by either buying or partaking in paid tasks. There are NFT giveaways, NFT airdrops, and play-to-earn games where NFT enthusiasts can earn and trade their NFTs.
Earning money with NFTs, of course, is achievable when you are investing or part of the right project. There have been cases where investors and community members lost out after being involved in the “wrong” NFT project.
#4. Safe From Alteration
NFTs operate on blockchain technology, and just as the technology on which they exist is safe, it is almost impossible to alter NFT data.
The digital ledger of transactions, known as the blockchain, stores NFT information in a way that it is shared among a Peer-To-Peer network. The information here is traceable, transparent, and safe from being altered, manipulated, or deleted.
Hypothetically, data of NFT stored on the blockchain is prevented from manipulation because of the chain-of-ownership and authenticity of the blockchain.
Unlike the stock market, NFT’s authenticity and scarcity are fostered by the technology on which it exists, the blockchain.
Cons of NFTs
#1. NFT Technology May Be Harmful to the Environment
The blockchain, the technology on which the existence of NFTs is guaranteed, causes environmental problems.
Mining of NFTs and cryptocurrencies occur in the blockchain, and carbon emissions from mining are very detrimental to the environment.
From speculation, it is estimated that the carbon emissions from blockchain activities may exceed those in London in years to come. Carbon emissions from blockchain activities can be prevented if the energy source used to power the activities on the blockchain is changed to green energy.
In the crypto or stock market, it is pretty easy for a trader to sell off their portfolio according to their plan or emergency.
It is quite different in an NFT market scenario; the NFT industry is still in its early stages and, despite the hype, has still not been adopted worldwide. The industry still has a long way to go, both in its real-world application and the ability for NFTs to stand the test of time.
In an emergency, it can be hard to find a buyer or seller to trade your NFTs because they are still illiquid.
The reach of NFTs has ballooned beyond the crypto scene; many internet users are now interested in how they can benefit from this industry.
Why the rave about investing in NFTs goes on, it is equally essential to learn the fundamentals of these digital assets, the opportunities they present, and their downsides.
While NFTs present opportunities to make money and show proof of ownership, the technology they operate on can be harmful to the environment, and they are illiquid.
- I'm a professional digital marketer with over 7 years of experience in the field. I create well researched content related to finance, cryptocurrency, stocks, forex and metaverse related articles.
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