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The most obvious benefits of NFTs

It can be hard to grasp the complexities of investment, especially considering the many different asset classes, tax-advantaged vehicles, and fund structures that are available. Add in unimaginable circumstances such as a global pandemic and negative interest rates, and the complexity grows by a factor of ten.
It doesn’t stop there. It’s not finished. New technologies like mobile payments, peer-to–peer lending platforms, and robo-advisors have been changing the way we do business and manage our finances and invest.

This post concerns blockchain-based databases. In particular, I’ll be focusing on tokens which aren’t transferable. In this moment you’re probably scratching your heads. What in the world is a non-fungible token?

Fungible vs. Non-Fungible Assets

Let’s begin by defining”fungible.. It is possible to trade a fungible asset for another of the same value and type. For example, a U.S. dollar bill is in fungibility. It can be exchanged for another and both will get the same value. It’s the same with a cryptocurrency, like Bitcoin. One Bitcoin is worth the exact same amount as another.

A non-fungible asset, on the other hand is distinct. It is irreplaceable, unique and indestructible. Examples include diamonds and original works of art. Each of these assets is unique and cannot be duplicated. Each diamond is unique in its cut, color and size. Like the fingerprint of a human There aren’t any two diamonds identical.

You could be able to argue that no asset is truly intangible. In the end, a few of dollar bills are sure to show some obvious physical differences , like scratches on the corners, ink staining or dates for different series. This is certainly the case and highlights how important it is to focus on the use value of an asset, not its technical features when determining whether it’s either fungible or not.

What Are Non-Fungible Tokens?

This brings us to the subject of this article: tokens that are not fungible (NFTs). NFTs are digital representations that represent assets that were created with blockchain technology. Every NFT is identified by a unique code that identifies it and prevents its replication. Each NFT can also be extended meaning it can be coupled with another NFT to create an entirely unique third NFT.

Did you have any idea?

Nowadays, the majority of NFTs belong to the Ethereum blockchain, which runs the cryptocurrency Ethereum. NFTs are distinct from cryptocurrency due to the fact that their identification codes also contain other details, such as metadata on the digital asset.

Anything that is able to be converted to digital format is able to be used to make NFTs. The majority of the excitement in the space involves the storage and selling of digital art and sports memorabilia, but any static image or video clip, or text could be converted into digital and possibly monetized. In actual fact, Jack Dorsey, the creator of Twitter, recently digitized his first ever tweet. A simple message “just getting my twitter up and running,” sold for nearly $3 million.

While it might seem like a trivial matter, NFTs can have significant business implications. NFTs have been utilized to make it easier for complex real estate and private equity transactions, and are changing the way vendors and buyers interact across the art market. We’ll explore these concepts in greater detail, and will examine the pros and cons with NFTs.

The pros of non-fungible tokens

NFTs Foster Marketplace Efficiency

NFTs can improve market efficiency. This is their most obvious advantage. The conversion of a physical asset into digital assets could improve efficiency, reduce intermediaries and boost supply chains. Also, it improves security.

A prime example is the development of NFTs in different parts of the art world. Artists can now communicate directly with their audience through NFTs. This removes the necessity to employ expensive agents or make complicated transactions. The digitization of artwork makes authentication easier and cuts costs.

However, NFTs can be used for more than just marketplaces. They could eventually develop into a viable method to manage and control sensitive data and records for both individuals and organisations.

Consider our use of physical passports that must be issued at each entry or exit point. By converting them into distinct NFTs, we could greatly streamline the management of travel as well as identify individuals. The savings, both in both time and money, could be significant.
They can be used to re-divide ownership of physical Assets

It’s difficult to divide ownership of valuable assets such as artwork or fine jewelry. It is much easier to divide a digitized version of a building among multiple owners than a physical one. This is also true for precious jewelry and rare bottles of wine.
Digitization may boost liquidity and prices for specific assets, which could result in increased liquidity. It can improve the design of financial portfolios, which allows for more diversification as well as precise positioning.

The Blockchain Technology Behind NFTs is extremely secure

Blockchain technology is employed to make NFTs. This is a method to record information that is difficult for hackers to comprehend change, modify, or delete. Blockchains are basically an electronic ledger which records transactions and then distributed to all the participants in a peer to peer network.

The blockchain is a repository for all NFTs with distinct records of authenticity. Additionally, they have a chain-of-ownership that protects against theft and misuse. When data is added to the chain, it is unable to be deleted or changed. This ensures that each NFT’s authenticity and scarcity remain intact, which creates a level of trust we’re not used to seeing in many markets.

NFTs Are a great way to add diversification for an investment portfolio

NFTs are not like traditional investments like stocks and bonds. As discussed above, they have distinctive qualities and offer benefits we are only just getting to understand and appreciate. But, owning a home isn’t completely risk-free.
We’ll discuss the risk in the following section. The NFT risk profile is not like other asset classes. It is possible to improve the effectiveness of your portfolio investment by including NFTs. This means you will get more of a balance of return and risk.

Pros and Cons of Non-Fungible Tokens

NFTs are not liquid and volatile.

The market for NFTs that is relatively young, isn’t very liquid. The market for NFTs isn’t very well-understood, and there are very limited buyers and sellers. NFTs are usually hard to trade, especially in times of crisis. It also means NFT prices can be highly fluctuating.
The income is not generated by NFTs

In contrast to dividend-paying stocks, yield-generating bonds and interest-bearing real estate, NFTs do not provide their owners with any potential for income. Like antiques, and many other collectibles the gains associated with NFT investments are based solely on the price of appreciation, which is not something you should count on.

NFTs are a way to sustain fraud

While the integrity of blockchains is indisputable, fraud can be perpetrated by NFTs. Many artists reported that they didn’t know that their work was being sold as NFTs via online marketplaces.

This is in direct contradiction to the goal of NFTs that are utilized to facilitate the sale of art. The main benefit of the NFT is that it authenticates the physical work of art with a unique token, assuring the person who owns the token they also have ownership of the original work of art.
If someone makes an electronic version of the original work and then attaches an identifier, it could create a issue. They then put it on a marketplace. There isn’t a link to original work. This token has been linked to a fake reproduction.

NFTs Can Harm the Environment

The process of creating blockchain records requires significant processing power. There is increasing concerns about the potential environmental impact this process has on the environment. According to certain estimates at the present rate, the carbon emissions generated by mining NFTs and cryptocurrencies will exceed those associated with the whole city of London in the near future. NFTs are changing markets across the globe, which minimizes the necessity to travel and maximizes the use of office space. The blockchain community believes they will reduce pollution.

The Future of NFT Investment

NFTs are a fascinating invention and their applications are increasing in the spotlight. The headline-grabbing price tags that are attached to certain NFTs are fueling the fire. However, prudent investors need to tread very lightly when considering buying these securities since NFTs are highly illiquid and unstable.

The purchase of NFTs with the intention of getting triple- or quadruple-digit return on investment is not a good idea. The real benefit of NFTs lies in their potential to transform the way markets operate and help us better manage and control sensitive data. The possibilities are endless here.

You can, however, be a part of the blockchain revolution and even consider NFT ownership as a way to take part. However, please do so in a responsible manner. Do not invest a lot of money in NFTs Instead, look for low-cost options. It is possible to be in a tough spot financially and emotionally.