Non-fungible tokens (NFT) have gained immense popularity among innovative art connoisseurs, collectors, investors, and artists. According to Statista research, NFT users will reach 11.64 million in 2025 and 16.35 million in 2028, with the US remaining the largest market. When comparing the figures for this year on CryptoSlam, we can see that the peak sales volume was in March and amounted to $1.6 billion.
So why Non-Fungible Token (NFT) is in demand: What It Means and How It Works.
The NFT market became better known with the sensational and expensive Axie Infinity and Bored Ape Yacht Club (BAYC) collections. This has led to a dramatic change in the way users perceive digital art and assess its value. Some of the most expensive NFTs include The Merge, which sold for $91 million in 2021; Beeple Everydays, valued at $69 million in 2021; and Clock, which sold for $52 million in 2022.
The success of NFT investing depends on the token chosen, trends in the market, and excitement about a particular trend. Although the market is volatile and difficult to predict, the average earnings of users in 2024 was about $162.10, Statista.
NFTs are similar to cryptocurrencies in that they utilize blockchain. However, an NFT is a user’s legal basis in a certain digital or even real asset like a painting, real estate, or tickets. To start working with such a sphere, it is better to diversify assets into different categories like games, art, music, etc., follow the market movements in the selected segment, do not miss opportunities, and consider volatility and the possibility of fraud in the market.
What is Called NFT
NFTs are unique, indivisible tokens or digital assets stored on a blockchain. Among NFT pros and cons, uniqueness denotes that a second NFT like it does not exist and will not be replicated. It should not be confused with cryptocurrencies that utilize the blockchain. NFTs are non-interchangeable and cannot be exchanged one-to-one. Depending on what is underlying, ownership can range from the right to a digital image to the right to real shares in a company.
Proof of ownership is based on blockchain, meaning the user’s right is immutable, it can be verified at any time to determine who exactly is the owner. Typically, trading platforms require NFT to use the Ethereum blockchain.
NFT provides a digitized certificate of ownership for a particular rarity (from a computer game to real estate).
Is It Worth Investing in NFTs?
For many reasons, NFT investors decide to invest their money in this type of token, among which are:
- The desire to own a certain asset.
- Receiving profits on the possible growth of the rate.
- Long-term prospects.
- Diversification of the portfolio, investing in a new asset type, and cryptocurrencies.
- Opportunity to work with a certain artist musician to support his talent.
- Increase in social status due to owning something rare and unique.
Famous auction houses such as Sotheby’s and Christie’s have shown interest in NFT.
The Totality of Benefits of Purchasing NFT
When investing, you need to analyze the combined pros and cons of nuts.
NFTs have several advantages:
- They are globally available on many online marketplaces. Collectors from all over the world can purchase unique pieces of art without having to be physically present at auction houses. According to OpenSea, prices both go up significantly and down several times a day.
- Blockchain technology serves as a guarantee of the authenticity of the asset and a registry of every transaction associated with a particular token. Smart contracts eliminate the need for legal support, instantly transmitted over the network, without the extra cost as with physical contracts. One of the oldest banks, JPMorgan, has opened a virtual lounge where users can buy virtual land. Over 2023, the price of land has gone from $6,000 to $12,000. Japan’s Sumitomo Mitsui Banking Corporation (SMBC) is exploring an opportunity for NFT-related services.
- If there is insufficient capital, the legal title to the highly valuable asset will be divided into several parts, allowing multiple participants to own a certain share of it. Unique Network has divided ownership of CryptoPunk among more than 56,000 addresses.
- For creative people, musicians, and artists, NFT serves as a guarantee of payment from the use or purchase of their creative product. The band Kings of Leon presented their album “When You See Yourself” with the NFT “Golden Eye” option, the purchase of which gave users front-row seats to the band’s next concerts. Often, sports clubs use NFT to enhance the monetization of their brand and to better connect with fans and athletes.
The market is awaiting the SEC’s decision regarding the definition of NFT. The SEC has not yet highlighted the criteria by which they will be evaluated as a security with the application of the relevant statutory regulations in their realization and payment of taxes on the proceeds.
You can read more about cryptocurrencies in the article: How to Invest in Cryptocurrency.
Easily Proven Ownership
Proving the legitimacy of ownership in the creative world is a complex process. NFT is being used to digitize a physical asset and distribute it globally, and this is driving demand and proving that NFTs are profitable. Ownership is then easily provable, as the blockchain provides the ability to track all changes in ownership. The blockchain functions in such a way that it cannot be broken, and the smart contract cannot be amended. This increases the confidence of buyers because they have proof of the purchase of a certain asset under certain conditions and a guarantee that it is not a copy or fake.
Global Distribution of NFTs
Digitization of a physical asset is one of the pros of NFTs. After all, there is a global distribution of the asset, minimizing the cost of intermediaries and accelerating the delivery of the product to the user. NFT makes it possible to see and trace the process from the creation of the product certification to its realization. In the fight against fraud, it proves the legitimate origin of the product and its final owner, as well as eliminates the moment of theft.
Diversifying Your Investment Portfolio with NFTs
NFT is a unique type of investment as it allows investing capital from digital images to a virtual plot of land. Portfolio diversification comes from investing in different areas of the economy, from art to technology, for example, owning a piece of land in Decentralized or purchasing a digital image of CryptoPunks, which is now worth 184 ETH. Cons of NFTs include price instability and sudden trend changes in the market.
Democratization of the Market
One of the requirements for buying NFT is internet access; anyone can join the online marketplace and sell/buy the desired asset at any time. These technologies democratize the art market, allowing collectors from all over the world to purchase the desired product without being physically present.
The Possibility of Acquiring Part of the Desired Item
NFT has opened up new opportunities for investors in the form of shared ownership of art or collectibles. If bidders do not have sufficient capital, they can purchase a part of the desired object and own it along with the other owners.
Guaranteed Royalty Rights
The rights of artists and musicians are now also protected by the NFT. When buying, selling, or using any digitized product, the original creator will be guaranteed a percentage as royalties. This has served as a kind of incentive for creators to create new products.
Disadvantages of Investing Money in NFT
NFTs offer unique characteristics for trading valuable items, but there are a few drawbacks that investors should consider when investing money.
The market, although it has trading volumes in the several billions, is still fairly new and not stable. NFT prices rise sharply and then fall, making it difficult to analyze and make further predictions.
Also, there is no clear regulation and definition of what NFTs are and whether they are similar to securities to apply the same legislation to them. Different jurisdictions use their own rules and regulations for such innovations but still cannot deal with market manipulation.
An intractable issue for financial regulators is the implementation of AML procedures for transactions.
Storage handling of NFT wallet keys is user-dependent, which sometimes affects the security of storage.
The remote nature of NFT makes it difficult for a user to verify the physical existence of an item. After all, ownership is a record on the blockchain, not an item that can be physically controlled.
One problematic issue is the large amount of power consumed by powerful PCs, which hurts the environment.
Unstable and Unpredictable
The NFT market is very unstable and unpredictable. An investor can suffer heavy losses if the asset falls sharply. It is not a traditional market where you can determine the future trend. Also, the market is limited to a small number of buyers, so it is not always easy to find someone willing to buy a particular NFT.
NFT is Not a Traditional Market for Making Money
This is not a conservative financial market where you can buy stocks or bonds that will later generate interest income. Here, one acquires ownership rights and earns money on changes in the price rate.
Prices Change Dramatically
NFT is an innovation in the market; not everyone can decide to make such an acquisition. Potential buyers are quite few when compared to other markets, so it is not always possible to sell an asset quickly.
The value of a digital asset often correlates with the value of Ether. When Ether drops by a few percent, even leading NFT projects feel a drop in value.
Resource-Intensive Process
NFTs operate on the Ethereum blockchain. Any blockchain is a very resource-intensive process, requiring significant power from hardware and consuming huge amounts of energy to maintain the proof-of-work process.
Risks of Purchasing a Copy
Although blockchain provides transparency, there have been cases of unauthorized participants creating a copy of NFT and selling it on the platform. In this case, it is necessary to investigate all details and verify the authenticity of the asset before buying it.
Regulatory Standards Have not Been Developed
Standards, norms, and rules have not yet been developed for such a market of innovative technologies. It is quite difficult to defend the rights of users in court disputes. Investors remain vulnerable and may face fraud because the market is unregulated.
If regulators impose strict regulations, similar to securities, the value of NFTs may drop sharply.
Needed Alternative Eco-Friendly Sources for Mining
To combat the energy costs of a transaction on the blockchain, have adopted several options: NFT being issued before the actual sale, mining is done on other platforms and then moved to Ethereum, using carbon credits, using alternative greener sources for mining.
Step by Step Scheme of Acquiring NFTs
There are several steps in the purchasing process:
Step 1: Selecting an NFT.
Before buying, it is necessary to familiarize yourself in advance with the category and the degree of rarity of the asset and collect data on the creator of the asset. Monitor the market, identify trends, and learn about upcoming issues.
Step 2. Choose an online marketplace.
Among the largest online marketplaces are OpenSea, Gateway, and Blur.io. To begin with, the user learns the functionality and principles of the system.
Step 3: Set up a digital wallet.
Trading takes place using digital wallets. Among the most common are MetaMask Coinbase Wallet.
Step 4: Buying an NFT.
Before you can use your digital wallet, you need to connect it to the online marketplace. Then select the NFT, confirm the transaction, and transfer the NFT to your digital wallet.
The entire collection will now be in the wallet of the user, who will be able to view and manage the assets.
Security measures for storing digital assets include securely storing digital wallet data, connecting two-factor authentication, and going through the process of updating the digital wallet software.
Summary
NFTs have opened up a new kind of investment, offering unique opportunities in acquiring a desired asset. They offer the legitimacy of equity, ease of acquisition, and global digital distribution, but volatility and fraud risks have also emerged. This is a new volatile market that is just emerging, experiencing ups and downs.
NFTs are more designed to provide ownership of something meaningful than to generate high returns. For investors to get the most out of digital, it is best to analyze market trends and participant preferences in detail before making a final purchase.