Non Fungible Tokens (NFTs) or Non fungible tokens art are displaying tremendous growth. The NFT marketplace has witnessed new as well as repeated user interest lately and the prices are rising like never before. For the first time ever, people are seeing digital arts and collectibles, going off for millions of dollars. The important question here is Are NFTs a good investment?. Let’s first take a look at NFT meaning.
Non Fungible Tokens: What’s an NFT?
Non-fungible tokens or NFTs are crypto assets on the blockchain. These assets have different identification codes that separate them from each other. We all know that cryptocurrencies can be traded but NFts cannot be traded or exchanged. This deviates from fungible tokens like cryptocurrencies, which are indistinguishable from each other and, hence, can be utilized as a means for financial transactions.
In other words, Non Fungible Tokens (NFTs) are different or we can say they are unique tokenized digital assets. The important thing to note here is that NFTs aren’t exchangeable 1:1 with each other. For instance, NFTs can be art, collectible cards, services, poems, domains anything. NFTs have unique aspects that set them apart from cryptocurrencies.
Non Fungible Tokens: Are NFTs a good investment?
The NFT Crypto are a particular kind of cryptocurrency token. As mentioned earlier, these tokens are not exchangeable and NFT is different from the other token. There are few solid reasons that why one should invest in NFTs.
One of the major reasons people invest in NFTs is that they can rise in value. They can get huge profits if the value for the NFT becomes extraordinary. For example, the non fungible tokens art have accumulated notable value, in a short period. One such example is CryptoKitties. It enables users to develop unique cyber-cat collectibles on the blockchain. The notable feature is that each digital pet is different from the person creating it and there are no copies. CryptoKitties are non fungible tokens art collectible cats developed on the Ethereum blockchain. They can be purchased and traded using Ethereum.
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Possibly, the most prominent benefit of such non fungible tokens art or NFTs is market performance. The transformation of a physical asset into a digital one sets the path and eliminates go-betweens. NFTs describing physical or virtual artwork on a blockchain excludes the requirement for agents and enables artists to connect directly with their fans.
Non-Fungible Tokens: Are NFTs securities?
Non fungible tokens art or collectibles should arguably not be considered to be securities. (Unnecessary to state, any given NFT would have to be examined on its particular features.) These NFTs are actually polished products whose price is defined at a sale.
For such NFTs to maintain or rise in value, there is no need for third parties to spread managerial exercises that will improve the value of the NFT. As seen by the SEC in its 2019 Framework, “Price appreciation resulting solely from external market forces impacting the supply and demand for an underlying asset generally is not considered ‘profit’ under the Howey test.” In simpler words, NFT is not security just because it can rise in value.
First, we need to study the use case of NFTs. Anyone can design artwork or NFTs. Nevertheless, such artworks of NFTs never rise much in value except they were designed or created by a well-known artist. Then, how does it work? Now, here comes the role of blockchain.
The reason most non fungible tokens art or other NFTs rise in value is because they are utilized in blockchain games and the games become more widespread. The best precedent of this is, of course, CryptoKitties. A blockchain game that enables users to build their own pragmatic or we can say virtual cats.
Non Fungible Tokens: Are NFTs the future?
The important point here to note is that Not every NFT will become worthy. There is a misunderstanding that every NFT will one day become extremely profitable. This is simply not true. Users will sometimes purchase NFTs that are failures, the blockchain game becomes pointless. As mentioned earlier, the benefit of NFTs all depends on its investors. NFTs are profitable if users are looking for a passive investment that they can hodl without much care. In such cases, we can say that NFTs are probably the future. Still, it is too early to say anything right now.