NFTs Pros & Cons: The Good, the Bad, and the Ugly
Non-fungible tokens (NFTs) are in their biggest spotlight ever at the moment. With all the attention and curiosity they’re arousing, we’ll take a look into the benefits and potential drawbacks of NFT investing.
What NFTs Are
In essence, NFTs are unique digital art assets that are sold to investors on the blockchain. They can include any kind of art that can be rendered in the digital form — music, video, imagery, memes, or a combination of media.
The blockchain verifies that the item is an original, unique item that can’t be duplicated, hence the “non-fungible” part of the term.
The NFT creator places the item up for sale on a blockchain platform. If it’s purchased, the new owner gets possession of the item via a smart contract. In the best-case scenario, the item accrues in value. The owner may try to re-sell the NFT for a profit.
The original artist can even attach a royalty agreement to the NFT so that every time the work changes hands, they receive added compensation.
Advantages of NFTs
There are NFT benefits for both artists and owners.
New Revenue Stream for Artists
NFTs were partially created to help artists earn more money in a digital landscape that hasn’t been particularly kind to them before. If their artwork accrues more value — which it gains when it becomes popular on the internet — the artist realizes gains income.
NFTs can’t be changed or replaced in any way if their authenticity is verified on the blockchain. The intrinsic value of authenticity becomes an actual, extrinsic value, as well.
Smart contracts — the heart and soul of blockchain technology — make automatic executions after certain events possible. For example, if the NFT owner resells it for a profit later and the artist attached a royalty “rider” to the contract, the artist gets compensated immediately.
Pride of Ownership and Support for the Arts
NFTs give benevolent patrons a direct way to support the artistic community and add a unique asset to their collections.
Disadvantages of NFTs
NFTs are hugely popular, but the field is still a work in progress. Some potential pitfalls include:
At the moment, NFT worth is entirely tied to aesthetic and sentimental value. It’s impossible to gauge its worth as a long-term investment, so right now, it’s nothing but speculation.
NFTs Can Be Stolen
NFTs have been the target of a few security breaches, especially from hackers who don’t believe they’re “real” investments. Many exchanges have outdated or inefficient security protocols in place.
Sustainability in Question
Creating and selling NFTs accounts for a lot of power usage, as do blockchain transactions. Some scientists worry that a burgeoning NFT market could cause further harm to a rapidly depleting environment.
Ownership Doesn’t Equal Control
Just because someone owns an original NFT doesn’t mean they can control its distribution or duplication across platforms. Ownership just means they hold the authentic “original” — they can’t stop “prints” from being made.
So how will the NFT market fare in the next few years? Only time will tell!