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Non-fungible tokens or NFTs are unique digital assets based on blockchain technology representing digital asset ownership. These digital assets represent ownership of real-world objects such as artwork, video clips, video games, music files, and more.

NFTs are currently among the most sought-after digital assets. In the last couple of years, NFTs have become very popular. Their novelty, ease of creating, and appeal as collector’s items contribute to this popularity. 

There was an explosion of interest toward NFTs beginning in 2021 when several digital artworks and memes were auctioned and sold for hundreds of thousands to millions of dollars. NFT based video games like Axie Infinity are like mainstream games, while more startup and established developers are launching their NFT-based game titles.

With all the attention and curiosity that NFTs evoke, we will examine the benefits and potential downsides of investing in NFTs. 

Advantages of NFTs

Digitally Licensed: Clear authenticity and ownership 

The most apparent benefit of NFTs is their potential to make markets more efficient. 

Since NFTs exist on the blockchain, there are clear ownership records for all of them. All NFTs stored on the blockchain have separate records of authenticity and chain of ownership, theoretically preventing them from being mishandled and stolen. NFTs have an advantage over real-world collectibles. Users can use the blockchain to verify their authenticity or trace them back to their original creator.

Artists can also use NFT to digitize their work to add individual copyrights. NFTs are developed in the NFT Marketplace. The creator uploads a digital file and determines if it is a unique item. NFTs are unique digital assets that cannot be easily duplicated or copied indefinitely.

Digitalized Assets are leading to more ‘moolah’ :

Converting digital items into digital assets has led to new avenues of making more profits in a shorter span. This conversion and selling of digitalized NFTs are also called monetization. Below are some of the examples of NFT sales making big news :

  • ‘Beeple,’ a.k.a Michael Joseph Winkelmann, made around USD 70miilion by selling “Everydays—The First 5000 Days.” 
  • Many memes have been sold for millions of dollars as NFTs. The most famous are ‘Charlie Bit My Finger- viral video clip, ‘the Disaster Girl meme,’ and the popular Doge meme.
  • ‘Mars House’ – a digital form of 3D house model created by Kristy fetched USD half a million for her.

Fundraiser Solution : 

The NFT coin can allow people to tokenize and auction off digital creations such as films and literature, digital collectibles, other digital content, and documents such as contracts and patents. 

The entire NFT craze is tokenization, a solution for digital content creators and artists. This tokenization also includes music producers and software developers licensing their creations and turning them into digital assets.

When these digital assets are auctioned, they turn out to be an excellent source to raise funds.

An alternative investment option

Since these NFTs are unique, when such unique items become scarce, they always lead to supply limitations, increasing their digital asset value.

This scarcity is created by tokenization.

Uniqueness leads to scarcity, scarcity leads to a higher asset value, and higher value leads to individuals adding this asset to their collection in their investible basket. NFTs are frequently traded and invested.

NFT – ‘CtryptoPunk#3100’ was acquired for approx USD 2,000 in 2017 and sold for USD 7.5 million in 2021. RoI of ~3750%

Disadvantages of NFTs

Is NFT another form of ‘Bubble?”

As mentioned above, NFTs have various advantages such as an alternative investment, high profitability, etc. Yet sections of people believe that this could lead to over-speculation and become a bubble, which happened with dot-com in 2000. 

Maybe it’s too early to conclude on this. For now, we would need to wait and watch before any conclusion. 

Non-environmental friendly

One of the critical and concerning disadvantages of NFT is the impact on the environment. The underlying technology to create and trade NFTs is blockchain, i.e., cryptocurrencies are an essential ingredient in NFTs. The mining of cryptocurrencies consumes a humongous amount of energy. To draw some parallels and estimate, Finland has a population of approx. 5.5 million consume less electricity annually than what is consumed by Bitcoin mining which is approx. ~90terawatt-hours. 

This much consumption also leads to e-waster. Bitcoin generates approximately 24 kilotons of waste. 

To conclude, there are both sides to this new form of asset. As we progress, we hope the disadvantages could be managed better to make this a go-to asset for an artist or investor.

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