Table of Contents
Introduction
If you’ve heard about non-fungible tokens (NFTs), then you might have thought about investing in them. But what does it really mean to invest in NFTs—and what are the pros and cons? It’s a good idea to understand the basics of any asset class before you start investing in it.
Key Takeaways
- Investing in non-fungible tokens (NFTs) themselves isn’t really possible because they instead only digitally signify ownership of the asset.
- Some of the advantages of owning NFTs include easy access, having them secured by a blockchain, and the chance to learn more about blockchain technology with the purchase.
- Disadvantages of NFT investing include paying for something not truly an asset class, energy-intensive creation, potential fraud, and the possible need to own Ether tokens to buy an NFT.
- It’s not well-advised to invest in any digital asset, including NFTs, solely because it’s tokenized.
Pros of Investing In NFTs
Investors have many reasons to want to buy assets that are tokenized into NFTs. Some of the advantages of investing in NFTs include:
- Anyone can invest in NFTs: Investing in tokenized assets is accessible to everyone. Asset ownership that is tokenized into an NFT can more easily and efficiently be transferred among people anywhere in the world.
- NFT ownership is secured by a blockchain: Using blockchain technology to digitally signify ownership can make an investor’s ownership of an asset more secure. Blockchain tech also can make ownership of assets more transparent.
- Opportunity to learn more about blockchain technology: Investors can become more knowledgeable about blockchain, while diversifying their portfolios, by allocating a small sum to tokenized assets.
Cons of Investing In NFTs
Many investors also have valid reasons to be wary of investing in tokenized assets. Some of the disadvantages of NFT investing include:
- NFTs aren’t an asset class: NFTs are commonly—and erroneously—regarded as an asset class rather than a technological way to indicate ownership. General misinformation and the hype surrounding NFTs can cause the values of tokenized assets to be inflated and volatile.
- NFT generation is highly energy-intensive: Most NFTs are currently supported by the Ethereum blockchain, which uses an energy-intensive operating protocol called proof of work (PoW). A single NFT transaction requires as much electricity as the average home for about a day and a half.
- NFTs may perpetuate fraud: A serious problem can occur if someone creates an electronic image of the original NFT artwork, attaches a token to it, then sells it on a virtual marketplace. At that point, your token could be tied to a forged replica.
- You may need to own Ether (ETH): With most NFT sales occurring on the Ethereum platform, owning the blockchain’s native currency, Ether (ETH), is often necessary to purchase an NFT. Investors wishing to buy NFTs with fiat money like the U.S. dollar may have limited options.
Why Do People Invest in NFTs?
Investors buy NFTs for many reasons. Some are keenly interested in owning the underlying asset, while others may perceive value in the asset being tokenized into an NFT. Others may invest in NFTs as a way to learn more about blockchain technology.
Are NFTs a Good Investment?
Investing in an asset just because it’s tokenized into an NFT is not a good idea. NFTs by themselves are not investments, so make sure to understand the value of the underlying asset that you are buying before you purchase the NFT.
How Can I Invest in NFTs?
You can buy assets that have been tokenized into NFTs through any NFT marketplace and some cryptocurrency exchanges. Many NFT marketplaces, such as OpenSea, are hosted on the Ethereum platform and may require you to own Ether (ETH) to buy an NFT.
The Bottom Line
NFTs have pros and cons, but it’s probably a bad idea to invest in any asset just because it’s tokenized. The fundamentals of investing still apply, regardless of whether an asset’s ownership is indicated by a blockchain. Your best move as an investor is to identify quality assets that you’d most like to own, and then do what it takes to acquire them.
