Understanding NFT: Is It a Right Investment For You?

September 2, 2022

Living in this tech-savvy world means keeping oneself engaged with infographics, memes, artworks, and digital assets. The primary purpose behind the growing prevalence of these things is to generate awareness, entertain oneself, or simply gain some information. But what is this digital asset thing, and who creates these things? The simple answer is a non-fungible token commonly known as NFT.

NFTs have been around since 2017, and people worldwide are somehow involved in this comprehensive mechanism. The recent years have been a charm for NFT users as there have been some accurate attention-grabbing headlines on this subject. This automatically fuels the popularity of NFT, garnering more investment than it ever did before. So continue reading to get a better understanding of NFT.

What Are Non-Fungible Tokens or NFTs?

Fungibility literally translates to any asset or item you can exchange or trade with an item of a similar nature. On the contrary, non-fungible assets tokens are digitized assets, and you can track their ownership using blockchain technology. Thus, you can define them as a certificate that stands as evidence of you owning a particular asset. This can be anything from postcards, virtual real estate, paintings, videos, etc.

One cannot equate or replicate NFT with a similar asset since every NFT is unique. For example, suppose you give your friend a ticket to a baseball game, and they hand you over a ticket to a movie. Does that equate in any way?

NFT has the same story because one cannot exchange or trade NFTs with an asset of similar value. Why? Because each NFT has its rarity and uniqueness, making it almost impossible to find different NFTs of similar value.

What Is Fueling The Popularity Of NFTs?

Many factors aid in enhancing the popularity of NFTs in this modern age. Many even refer to them as the Ethereum Tokens based on ERC-721. Some of the prevalent reasons fueling the popularity of NFTs include:

• Indivisibility: Unlike Bitcoins and other similar cryptocurrencies, one cannot divide NFTs. This means there is no way you can divide your NFTs into smaller denominations and distribute them.

• Blockchain: Blockchain technology is a big hit in this digitized environment. All NFTs are stored on blockchains for unmatched security. One cannot destroy, remove, or even replicate your NFTs.

• Seamless Tracking: It can be hard to keep track of all your digital assets. This is not a concern with NFTs as blockchain technology eliminates the need for third-party verification, and one can track the real owner with no hassle whatsoever.

• Limited Supply: The factor that has the most significant impact on the values of your NFTs is their supply and demand. Developers can create only a finite number of NFTs, helping limit their supply and regulate the value.

• Non-Transferability: One can transfer or actualize fungible assets such as Ethereum, Bitcoins, or other digital assets. Different NFTs yield different values, so you cannot exchange or transfer them at any cost.

Distinct Characteristics Of NFTs

Many characteristics set NFTs apart from other digital assets currently available in the market. Some of these characteristics include:

• Indestructibility: Security is one of the primary defining aspects of NFTs. Since they are managed and stored using blockchain technology, there is no way one can destroy or remove them.

• Uniqueness: NFTs are not very different from true authentic art as blockchain technology helps it maintain its distinct identity at all costs. You can even distinguish between an authentic and replicated NFT with ease.

• Rarity: NFTs are like gold or diamonds with a limited supply and hence high value. This contributes greatly towards enhancing the rarity of these tokens and regulating their values, keeping them all-time high no matter what.

• Non-Interoperable: Thanks to the standard ERC-721, there is no way you can interoperate your NFTs. This means the information stored in NFTs can neither be used nor exchanged.

• Indivisibility: NFTs are not your average digital assets, as their non-fungible nature makes it impossible to divide them into smaller denominations. This means your conventional digital asset will yield the same value when transferred, but that is not the case with NFTs.

Conclusion: Should You Invest In NFTs?

NFTs are high stake investments, and they can yield some significant returns for you as an investor. However, things are not that easy in the real world because gaining significant returns on your NFTs can only happen on rare occasions. This certainly makes NFTs an appealing prospect for a risk-taking investor.

Yet if you still want to try your luck, you can get started by simply creating a digital wallet to store your NFTs. You will then need to find an NFT of your choice and purchase it only after evaluating all the factors and characteristics associated with the specific NFT.

After that, you simply wait and watch as the demands and value of NFTs fluctuate in the market. So make sure to study the NFT market thoroughly before leaving your investment at the mercy of the market. Yet, it would be safe to say that NFTs are an excellent long-term investment, provided you have sufficient knowledge on the subject.