8 Pros and Cons of NFTs: Everything You Need To Know

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Although the NFTs (Non-Fungible Tokens) concept is still new and many people do not understand what they are and how they work, the NFT markets have grown significantly, making about $25 billion in 2021.

Many people, especially artists, are diving into the opportunity to create, store, and sell their works over a blockchain network. Business people are interested in exploiting the platform for different industries, for example, real estate.

A lot of people are excited about the possibilities NFTs could bring and how they would change the world. Whether you’re looking to invest in NFTs or are simply curious, this article will teach you all you need to know about NFTs, such as the pros, the cons, and even how to buy NFTs.

Pros of NFTs

Here are some reasons why NFTs are ideal:

NFTs boost the efficiency of the marketplace

NFTs function by converting physical assets to digital assets through a blockchain network. Buying and selling NFTs are easy and more efficient as there is no need for many processes and time-wasting that would be required for physical transactions.

Traders can easily connect with buyers directly, which eliminates the need for third-party agents that are both costly and time-consuming. The authentication process for sales is also more accessible and more efficient in reducing cost and saving time.

Brings about diversification in users’ portfolio

NFTs are different from physical assets because they have additional features and benefits. Due to the market volatility, investing in NFTs adds diversity to users’ portfolios.

A diversified portfolio reduces the portfolio risks. Investing in different assets and industries reduces the general investment risk.

NFTs help divide asset ownership

Dividing the ownership of digital assets between different parties is easier and more efficient than dividing ownership of physical assets. This applies to varying assets, including arts, real estate, and jewelry.

This makes asset sharing easier, resulting in greater liquidity and higher costs. The ability to effectively divide asset ownership helps owners to build professional portfolios.

High Security

NFTs are created and stored with blockchain technology, a secure means of storing data. The blockchain network holds a secure transaction record accessible to the members on a peer-to-peer network.

All assets have individual records on the blockchain network with a chain of ownership that keeps them from being stolen or mishandled. A single account can only own assets at once, which only changes when a sale is made.

Cons of NFTs

Despite its overwhelming merits, some reasons it doesn’t appeal to some investors. Here are some disadvantages of NFTs:

Volatility

NFTs are very volatile and susceptible to sudden changes. This makes the market unpredictable and very risky. Also, NFT assets are pretty tricky to liquidate owing to the means of transacting.

One major hitch is the fact that people do not have substantial knowledge of how the market works; hence, they are prone to making bad investment decisions that are made worse with the ever-changing market.

Environmental pollution

The blockchain environment is revolutionizing the financial industry in terms of carrying out transactions and trading assets. However, building and designing these environments require a lot of computer energy.

The extensive use of energy results in carbon emissions that harm our environment. If the trend continues, there will be more significant effects on our environment and health in general.

No reliable revenue

Physical assets like market stocks and real estate produce reliable benefits in the form of interest, rents, and other dividends. You can easily keep track of the revenue from physical assets.

Whereas NFTs do not generate reliable revenue, and this is because revenue is dependent on price appreciation. Price appreciation changes with the volatile market and is not reliable.

Possible fraud

The security and trustworthiness of the blockchain network are without question. However, NFTs provide a platform for fraudsters to carry out their activities.

For instance, some artists have found their works on sale as NFTs without their permission, and the same could happen for real estate and other forms of NFTs.

How to buy NFTs

Now that we’ve talked about the pros and cons of NFTs, there is no doubt that it is a great investment opportunity and a significant step towards changing the method of trading assets.

However, knowing how to manage the cons and maximize the pros is essential if you get the best from your NFT investments.

One of the first steps to achieving this is knowing how to buy NFTs. Here is a guide on how to buy NFTs:

Buy Ethereum

The first step in buying NFTs is to buy Ethereum. Most NFTs are built on Ethereum-based networks, making Ethereum the most suitable way of paying for the assets.

However, a crypto exchange account is required to buy Ethereum. Transfer the Ethereum from your crypto exchange account to your crypto wallet.

Connect to your chosen marketplace

There are several NFT marketplaces to choose from, depending on your preference. Once you have selected a marketplace and created an account, you can connect your crypto wallet and start trading.

Buy NFTs

Once you’ve completed the steps above, buying NFTs is a straightforward process. You must submit a bid for an NFT and make payments once your bid is approved.

Some marketplaces function on the highest bidder basis; however, the method of selling and buying NFTs depends on the type of asset and marketplace.

Conclusion

NFTs are a fascinating and promising concept. The popularity continues to grow by the day as the market extends into various industries. With popular collections entering the digital markets like OpenSea every day, it’s no surprise at the amount of minting and trading activity in this budding industry.

And, there’s no reason not to jump on this investment train that could open doors to a new trading world.

However, doing it right helps you mitigate the risks and make wise investments. I hope you find the information in this helpful article for your NFT journey.