5 Things to Keep in Mind Before Investing in NFTs

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Introduction

Where there’s a will there’s a way, and where there’s an opportunity, investors will look to make money. Recently in the news, you may have been seeing a lot of talk about cryptocurrencies such as bitcoin or dogecoin. But, just as you might be getting a grip on understanding these topics, a new crypto asset is on the scene.

NFTs have been selling on online marketplaces for millions of dollars, which has created a shock in the art world. Like cryptocurrencies, it takes a lot of background information to get a working understanding of exactly how they work. If this is your first time taking a deeper look at NFTs, let’s do a brief overview.

What is an NFT?

An NFT is a non-fungible token, or essentially, a digital asset whose value cannot be expressed in terms of another. So, for example, with a fungible asset, like money, a $100 bill has the same value of two $50 bills, ten $10 bills, and so on. However, with a non-fungible token, these types of exchanges cannot be made. These assets are based on a principle called “blockchain”. Blockchains are global networks of computer users that keep permanent transaction records for every asset bought and sold on the marketplace.

NFTS are relatively new, crypto, intangible assets that take the form of any sort of digital artwork, whether it is an image, video clip, GIF, audio file, or anything in between. So essentially, the blockchain network gives a marketplace to digital art. NFTs have been around since 2016, but lately, NFTs have been the topic of conversation of social media feeds and news platforms everywhere.

There have been a couple of events that have led to this explosion of interest in NFTs, one being the fact that a collage by the artist, Beeple, was sold as the most expensive NFT to date, and the one of the most expensive art transactions period, ringing in at around $69 million. This one NFT transaction does not even begin to scratch the surface of the money that has been exchanged on the NFT marketplace, as celebrities such as LeBron James, Grimes, the band Kings of Leon, and countless others, have been using NFT platforms to sell exclusive content to fans.

Since the presence of NFTs and blockchain do not seem to be disappearing any time soon, it may be worth it to you to think about either selling or buying NFT assets. However, before you do so, there are a few things you should consider.

Here’s a look at the five topics we’re going to cover today:

  1. Global Warming
  2. Electronic Ware
  3. Changing Trends
  4. Digital Art Theft
  5. Other Options
  6. Conclusions

1. Global Warming

When I first saw that a single piece of crypto art is responsible for tons of greenhouse gas emissions, it didn’t make a lot of sense to me. In my mind, a piece of digital art should produce less emissions than a fine art painting, when the needed materials and transportation are considered with a sale or transaction of a physical painting. So, it was a shock to me to find out the huge negative impact NFTs have on the environment.

The part of the NFT process that causes the most damage to the environment is the work of the miners. Miners are responsible for verifying NFT transactions and adding them to the blockchain—they are users located around the globe that essentially try to solve a math problem or puzzle to enable another block to be added to the chain. (This process is called mining.) Once the puzzle is complete, the miner is provided with a “proof of work”. Proof of work is, in general terms, a security system that keeps all transactions secure and tamper-proof.

However, this proof of work comes at a high price. The computers that generate these puzzles and problems for miners to solve intentionally waste so much energy on inefficient means so that it would be less profitable for a hacker to try to interfere with the ledgers. According to The Verge, these blockchain transactions using Ethereum just as much electricity as the entire country of Libya.

Some companies have received so much backlash when it comes to providing NFT trading capabilities that they have stopped giving the option before they even began. The website ArtStation was planning on providing a platform for consumers to artists and consumers to buy and sell digital artwork but received so much criticism about the harmful effects NFTs have on the environment that they decided against it.

Each consumer that buys or sells on the NFT marketplace is responsible for some of these emissions, so, if you do not want to contribute to the inefficient and overuse of energy in these data mining processes, it may not be worth it to you to join in on collecting crypto artwork. It is up to you to decide if the potential monetary profits that can be made with investing in NFTs is morally worth it in the grand scheme of things.

2. Electronic Ware

While it may seem out of reach or too distant in the future, crypto art such as NFTs are prone to wearing over time. Physical pieces of art are susceptible to wear over time through light damage that creates dullness, cracking in the paint, or distortion from transporting the art. This is why museums dedicate millions of dollars to create the best environment for paintings to live in.

NFTs do not yet have the same sort of protection in the digital world. Digital artworks can still experience effects overtime. Images, videos, GIFs and so on sold as NFTs can experience wear from pixilation over time, fading images, skipping content, and other ways of digital ware over time.

If you are considering investing in an NFT or NFT company or spending valuable resources like your time and money to create NFTs, consider the long run implications of doing so. In a few years time, the crypto artwork you bought today might not look in the same pristine condition that it did when you purchased it.

3. Changing Trends

NFTs have quickly gained steam over the past couple of years, and it can be hard to tell if this trend is one that is here to stay. Many consumers have speculated that because of the high demand that exists for NFTs and digital assets today, this is only just the beginning of growth for the industry,

As of now, however, it appears that only people who have been previously invested in the crypto asset world have taken a strong interest in the idea of NFTs. While some celebrities have taken part in NFT sales, a true sign of success will be when outsiders go out of their way to have a presence in the digital community. For example, if more traditional art collectors, venture capitalists or everyday folks incorporate digital asset investments in their portfolios, then we can be more sure of the fact that NFTs will stick around for the long haul, and are more than a craze.

If NFTs do end up being a fad, there is potential for a large profit loss if you choose to go heavy on investing. So, for the investor who sunk $69 million worth of cryptocurrency into Beeple’s work, “The First 5,000 Days”, could experience a major loss in the years to come if the value of crypto assets lose value.

4. Digital Art Theft

While blockchains are nearly impossible to hack and it is very unlikely for ledgers to be tampered with, art theft is not completely out of the question. Not only can ledgers and blockchains be disrupted, but the possibility of impersonated artwork is very real as well.

Artist Derek Laufman spoke out on Twitter about how easy it is for buyers to be scammed on the NFT platform. He claims that this goes against the whole appeal of the platform, as blockchains are supposed to involve verified artists’ works.

Before buying NFTs, it is important to consider the dangers of blockchain ledgers that might not be obviously advertised.

4. Other options

Finally, before pulling the trigger on investing in NFTs, it is crucial to consider all other options you might have for getting involved in the crypto world, or if you do decide to, different options for how to do so. Examples include:

  • Consider simply downloading the files you are interested in. While this piece of advice is not for those interested in turning a profit on NFT transactions, it is for those who simply enjoy having digital art in their possession. Just about any piece of crypto art can be downloaded, just without the token attached to the work. If you’re someone who is thinking about purchasing an NFT because you want a dancing kitten on your home screen, that can be done without any sort of purchase or hassle through a blockchain.
  • Use less complicated blockchain systems to avoid confusion. Blockchains that operate under WAX are more user-friendly options for the common person who is looking to get involved. On more complicated blockchain sites, users have to be able to interpret and write code to be able to complete a transaction.
  • If you are sure about joining the NFT marketplace, then there are a few sites to remember that are more environmentally conscious than traditional NFT trading websites. For example, the NBA’s Top Shot platform operated of the Flow Blockchain model, reducing emissions created for each transaction.

Conclusions

With the sudden craze over NFTs, it can be hard to know what advice to listen to and what to ignore. The most important thing before committing to permanent transactions on a blockchain is to make sure that the purchase fits into your life. The only way to do that is to sit back and consider all angles. In this article, we discussed five main things to consider before engaging in the NFT marketplace, whether you are looking to buy or sell. First, consider the environmental impact blockchains and NFTs have. NFTs are specifically energy inefficient, so if that does not align with your values, it may not be worth investing your resources in. Second, we discussed the possibility of your NFTs having electronic ware over time. Just as a real painting might, digital artwork can experience faded images, or uniquely, pixilation over time, without many ways to prevent it. Third, we mentioned the possibility of NFTs being a fleeting trend. On the track the digital asset industry is on now, it is looking promising that NFTs will be around for years to come. However, if they turn out to be mere fads, this can mean a major loss for all parties involved. Next, we discussed how easily NFTs can be used to scam customers into buying counterfeit art. Finally, we discussed the different ways to go about obtaining digital assets, either via free downloads or different NFT marketplaces. If you are not interested in NFTs for the investment side, they may not be for you, and it could be worth it to simply obtain a free file download of the art that you like. However, if you are interested in investing in NFTs and you don’t necessarily have a technology degree, there are user-friendly websites you can go through, as well as websites that are more environmentally conscious.

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5 Things to Keep in Mind Before Investing in NFTs Non-Fungible Tokens are very attractive for investors, but there's a lot to know about them before committing the money!
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