As in the stock, forex, and crypto markets, where there are benchmarks to evaluate the strength of assets, there are metrics you can use to evaluate the value and potential value of an NFT before investing in it. Four of these metrics are discussed in this article, along with some benefits and risks you should know before investing in an NFT.
NFTs do not provide financial value on their own
NFTs can be very valuable in several ways. Aside from being investment vehicles with high profit potential, they are also used to create identity, community and ownership. Some people buy NFTs to support artists, and often the artists earn more because they benefit directly from their work without intermediaries.
A new form of collectibles, they are digital upgrades for items such as comics, art, posters, sports cards, etc. that attract many to purchase NFTs, not because of any financial gain they expect from them, but because of the other values they offer They have . Sometimes the value could be in the form of exclusive access to events for gaming purposes, and some just buy it for the novelty.
NFTs have also become a profitable technology for investors (although only a few have become rich through NFTs!).
One question you might then ask is how to identify which NFTs have the potential to offer you financial value and which ones you should skip for investment purposes.
4 ways to understand the value of an NFT
Below are four factors to consider when attempting to invest in an NFT.
1. How rare the NFT is
The NFT rarity determines its value. For example, a rare NFT can be a one-of-a-kind digital work of art by an illustrator; Some celebrity-made NFTs also fall into the rare NFT category.
An example of an NFT that falls into this category is a project by Mike Winkelmann (aka Beeple) called Everydays: The First 5000 Days. It is called a “cumulative piece” because it consists of 5,000 images, one for each day since May 2007, 13 years in total. Speak with ArtnetMetakovan and Twobadour, NFT collectors from Singapore, said they bought the piece because they believe it “will one day be a billion dollar piece”.
2. What can the NFT be used for?
This covers how an NFT is used in the physical or digital world. Aside from being unique digital assets, certain non-fungible tokens also serve other purposes. For example, some NFTs give the owner rights and benefits that they would not otherwise have.
The Bored Ape Yacht Club started out as a series of NFT images, but now they are tickets to special events and give rewards to their owners, such as: B. the ability to print new NFTs. Many NFTs are also used in games and are rated differently depending on the function they play.
3. How liquid the NFT is
The ease with which an NFT can be bought or sold within its network relates to its liquidity. Investors like to invest in liquid NFTs (those with significant trading volume) as it reduces the risk of holding them. ERC Standard NFTs are instantly tradable on a variety of exchanges. The ease of trading increases the value of such NFTs.
4. Who owns or is behind the NFT project?
The people and projects behind an NFT can generate speculation that can affect the growth and price of the NFT. Aside from who the creator is, the caliber of the people who have owned a particular NFT also affects its value. For example, NFTs owned by people of high social standing or celebrities typically have high value. In this way we can also say that the price of an NFT can be increased by associating it with a strong brand or celebrity.
5 benefits of investing in NFTs
If you decide to invest in NFTs, you should also be aware of some of the benefits of investing in them.
1. Many possibilities
There are endless possibilities in the NFT field as they can be used for almost any project. In addition, the use cases are also steadily increasing, making the future of NFT promising.
2. Easily accessible and transferrable
Another reason why NFT investing could be a good idea is that it is accessible to everyone; it’s not for a select group of people. It is also easily transferrable from one person or place to another. It can therefore be expected that the technology will continue to gain popularity.
Investing in NFTs offers another way to diversify your portfolio and thereby reduce your overall risk. Even within the NFT space, there are different asset classes that you can invest in. Just make sure you do your research well before committing to any asset.
4. Secured Ownership and Transparency
Ownership of NFT is secured by blockchain technology. This feature also helps to fractionate ownership of assets. It’s easier to split ownership among multiple owners while each having a secure, non-reproducible record of their shares. Blockchain makes all records and transactions transparent, making trading easier and reducing the likelihood of fraud.
5. NFTs are easy to validate
Because all NFT transactions are recorded on a blockchain, the data cannot be altered or tampered with, making NFTs easier to authenticate than physical assets. When you buy an artwork from an online store, you may not know if you are getting the original or a copy. However, when purchasing an NFT, you can check the blockchain to validate the authenticity of the artwork before paying for it.
4 Disadvantages of Investing in NFTs
Investing in NFTs is also not without certain risks. These concerns are issues that could hamper the growth of NFTs in the future.
1. NFTs are not environmentally friendly
Most NFTs are powered by the Ethereum network, which uses the Proof of Work (PoW) consensus method (although Ethereum will transition to Proof of Stake). The PoW consensus process requires a lot of energy to record and confirm transactions. It takes a lot of electricity to imprint a single NFT. Concerns have been raised that this could have a negative impact on the environment.
2. High price volatility
NFTs are very volatile and prices change quickly, making it somewhat difficult to predict the future value of an NFT. You can lose your money if the NFT you bought doesn’t keep its value.
3. NFTs are not popular
NFT technology is still in its infancy and not very liquid. Many people still don’t know what NFTs are, which makes trading difficult as there aren’t that many buyers and sellers. In addition, as you will read below, their association with fraudulent activities damages their image.
4. Fraudulent NFT Activities
NFTs can also be used to conduct fraudulent activities. There is no doubt that the integrity of the blockchain is undeniable. However, there have been cases where real estate has been sold as NFTs without the consent of the actual owners, which goes against the essence of using NFTs to sell real estate. Several other NFT scams have been carried out and this makes it necessary to be cautious when trying to buy an NFT.
Invest with caution
It cannot be overemphasized that there are not only benefits to investing in an NFT, but also risks. You shouldn’t invest in an NFT just because it is an NFT. Rather, you should evaluate it to see if it has the potential to be more valuable in the future.
We understand that the NFT world is growing rapidly and many things are bound to change. With that in mind, you should open your mind to the possibilities while also being cautious in the NFT space.
This article was previously published on Source link