If you’re about to delve into NFTs, you’re probably asking “are NFTs a good investment?’Millions of dollars are being poured into non-fungible tokens (NFTs) by investors. However, there are some significant risks associated with them that an investor may be unaware of.
The craze for non-fungible tokens (NFTs) is quickly capturing the attention of investors. Beeple’s NFT collage Everydays: The First 5000 Days sold for an eye-popping $69.3 million last month, while Twitter founder Jack Dorsey’s NFT of the first-ever tweet was auctioned for a cool $2.9 million.
However, NFTs can be a high-risk investment in general. You can join the Bitcoin X app to benefit from one of the most secure and safe trading apps available today
Lark Mason, president of the Appraiser’s Association of America warned that “Many (art) collectors love the hunt but don’t take time to think about how they will unwind their collection when they downsize, change interests, or simply need some extra cash. The unknown is what NFT is likely to still exist in a month, year, or ten years. How will advances in technology change the market and what regulatory issues may arise? There are many unknowns in this market.”
Technical Challenges With Investing in NFTs
However, perhaps an even more serious concern with NFTs is losing the entire investment – literally.
A stock’s value can fall and wipe out all of your gains, but you can still hold on to it and hope for better days. When using NFTs, an investor can literally see their digital asset vanish into cyberspace if it is not properly stored, or they can lose access to their multi-million dollar digital image.
An NFT, via the blockchain, records who created the digital image, the buyer, and any subsequent buyers in perpetuity. It functions as a certificate of ownership and can store a small amount of data on the token. Because it is usually too expensive to store the digital image on the token, the data on the token will point to where the digital image, or file, is stored. The NFT, on the other hand, serves as a permanent certificate of ownership, and the image cannot be changed or copied, making it unique.
And just as IT professional Jonty Wareing warns in a Twitter thread “IPFS only serves files as long as a node in the IPFS network – intentionally – keeps hosting it. Which means when the startup who sold you the NFT goes bust, the files will probably vanish from IPFS too,”
How to Optimize Risk as an NFT Investor
“When you buy a digital product, NFT or otherwise, you should download it. If you didn’t download it and other people stopped hosting it for you, then it is understandable that the thing is lost. I think platforms should do a better job of communicating this to customers. Apparently, most people who buy NFT artwork are not downloading them.”
Entriken went on to say that he created a project to demonstrate how to make an NFT. His project, which is cited in the ERC-721 standard, for example, highlights the need to commit to keeping the website online when setting up an NFT and discusses considerations that must be made if government officials threaten to take down a website in response to a Digital Millennium Copyright Act (DMCA) claim.
“These are things buyers should learn about before they buy, rather than after something bad happens. These issues do not make NFTs investments questionable. If you buy a fine wine, you should expect to store it properly. If you buy an NFT, you should download your media. And any reputable dealer should educate you on these things before you buy.”
According to Entriken, one of the benefits of investing in an NFT, assuming the digital asset creator acts ethically, is that the buyer is assured of the authenticity of what they are purchasing and the limited quantity available.
Scammers, on the other hand, have jumped on the bandwagon, creating bogus digital images that they claim were created by famous artists and then selling them to unsuspecting buyers.
Is the NFT Bubble a Myth?
Meanwhile, the frenzy over NFTs has been compared to the internet bubble. Not just by market analysts.
Among them is Mike Winkelmann, aka Beeple.
“I do think there is a bubble,” Beeple said in a CoinDesk TV interview last month following the record-breaking, $69.3-million sale of his work last month. “And if it’s not a bubble now, I do believe it will probably be a bubble at some point because there are just so many people rushing into the space.”
He compares the current hype characterizing NFTs to the internet bubble of the late 90s. In his words:
“Everyone was super, super hyped about it, but it didn’t kill the internet when the bubble popped. It just wiped out all of the crap. I honestly think that’s what’s going to happen with this. It will take all the things that are hype and not real [NFT] projects and those will go to zero. But it’s not going to kill this technology.”
In conclusion, you should understand that NFTs are incredibly volatile and any investments you make with them should fit your personal risk tolerance. Kindly drop your thoughts and suggestions on NFTs in the comments section below. They are highly valued. Thanks for your time!