7 Pros And Cons Of NFTs: Everything You Need To Know

The average internet user will probably stumble on many discussions and posts about NFTs on their timeline. 

The sudden rise of NFTs took the digital world by storm, people suddenly got interested in the technology, and investors started investing huge sums into projects. 

Even lukewarm enthusiasts who don’t want to be left behind on the next big thing are learning how to buy NFT. 

While NFTs continue to enjoy the media craze, people are now trying to compare the opportunities this technology brings and the downsides. Does the benefit supersede the disadvantages, or is the NFT craze a temporary thing? 

Let’s dig in and explore what NFTs are, the benefits of the technology, and of course, the challenges they may pose. 

What Are NFTs? 

Non-fungible tokens are the full meaning of the acronym NFTs; the combination ” non-fungible” and “token” represents the whole picture of NFTs. 

Any economic asset replaced by a similar one is fungible; they are not unique, such as the US dollar. However, NFTs are different from this; not only is the ownership easily verifiable, but one NFT can never replace another, no matter the application. 

The “token” in NFTs represents the certificate ownership of this digital asset; in other words, only one user can own an NFT since each has a unique identification code. 

Videos, music, artworks, and anything that can be converted into a digital format is a potential NFT. 

How Do NFTs Work? 

NFTs use blockchain technology to function; despite operating on the blockchain, they are different from cryptocurrencies. 

Currently, most NFTs use the Ethereum blockchain, although some are expanding to Solana and Binance Smart Chain. 

Each time an investor purchases an NFT, the transaction details are recorded on the blockchain, and automatically, a unique access code is given to the owner. 

Even when you own an NFT, other people can view and even copy them; so long as you are still the owner of an NFT, any copy of it is a counterfeit. 

Pros of NFTs 

NFTs Help To Fractionalize Physical Assets 

It is hard to split the ownership of the real estate, artworks, and other physical assets among many people according to the proportion they deserve. 

The creation of NFTs has provided a way for individuals to divide the ownership of physical assets.

For investors, a diversified portfolio is essential; NFTs serve this purpose, leading to more significant liquidity and precise position sizing. 

The NFT Technology Is Safe 

The inherent characteristics of the blockchain are security and immunity to information alterations; it is on this technology NFTs are built. 

With the way information is recorded on the blockchain, censorship, hacking, and alteration of NFT data are almost impossible. 

The digital ledger of transactions aids in the preservation of NFT’s authenticity and scarcity; this keeps the mind of investors at bay since their investment’s data is safe. 

On the investors’ part, if they should leak information like wallet passwords, there is a possibility that these NFTs can be diverted to another address on the blockchain. 

Marketplace Efficiency Is Improved 

Before any NFTs, they were digital artists who created different kinds of digital arts. 

To connect to their audience, they had to pass through many go-betweens; high ticket agents, digital marketers, and influencers. 

This was before NFTs were created; NFTs have eliminated insecurity, clogged supply chains, complex processes, and many intermediaries. 

Digital creators can finally reach out and connect with their audience directly and share their art with them. 

Ownership, Authenticity, And Transferability 

Quite obvious, proof of ownership is a significant characteristic of NFTs; multiple people cannot have one NFT at a time. 

Harbored on the blockchain, NFTs are immune to hackers’ alterations, replacement, and removal. 

They are authentic, and creating a replica of an NFT does not make them original; one NFT can only exist with its unique properties. 

Transfer issues do not limit NFTs; it is effortless to trade NFTs in different markets, including game settings. 

The gaming industry is one of the significant places NFTs are used; they function as in-game items. 

NFTs used as in-game items are not limited to the gaming environment of the games; they can be sold or used elsewhere. 

Economic Opportunities Are Created 

The fragmented nature of the NFT industry provides an economic opportunity for enthusiasts: one doesn’t necessarily need to be a digital artist to earn. 

While the digital creators can earn when they create NFTs, other NFT devotees can also earn for the role they play. 

The creators of NFTs earn even when they sell the ownership rights of the NFT; whenever the NFT is sold or resold, a form of royalties is acquired. 

Cons of NFTs 

Speculative Market And It Is Illiquid

The value of an NFT depends on the hype and the sentimental value it receives from its community. 

Once the hype an NFT collection receives begins to dwindle, the value attached to it seems to go down the drain. 

Despite being the owner of an NFT, one can’t really point out and say if the price of an NFT will climb up in a year or not. 

Despite efforts being made by media outlets and blogs such as NFT News Today, the percentage of people who know about NFTs is still low. Therefore, it may be hard to immediately find a buyer or a seller when trying to trade NFTs; they are a bit illiquid at the moment. 

It Is Used For Fraud

Just as NFTs have attracted investors, cybercriminals are also trying to use illegal means to gain from the industry. 

Hackers clone popular marketplaces to enable them to get the information of unsuspecting users who might think they are in the right place.

Digital creators have complained about how their NFTs have been cloned and sold on different marketplaces by cybercriminals. 

Another fraud is when people who claim to be building an NFT project defraud vast amounts of money from people and then place the project at a standstill. 

Conclusion 

NFTs, since they blew up, have created enormous opportunities for digital creators and community members. 

It has helped digital creators to connect directly to their audience without having to pass through unnecessary intermediaries. 

Ownership and authentication of a digital asset isn’t a problem for non-fungible tokens; blockchain technology makes it easy. 

But there are still pitfalls shared by NFTs; sentiment and hype determine their value, and liquidation isn’t a smooth process. 

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