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CEOWORLD magazine - Latest - Money and Wealth - What Investors Need To Know About NFTs

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What Investors Need To Know About NFTs

About a week ago, I read that an Indonesian student sold the selfies which he took every day for five years as Non-Fungible Tokens (NFTs). What started as a joke is now worth USD 1 million. It wasn’t the first time I had read about NFTs, and it would surely not be the last. This prompted me to research what these innovative items are all about, and I found that they are increasingly becoming popular investment avenues.

While there is no harm in venturing into the new, it is always advised that caution is exercised. Indeed, the success of cryptocurrencies and the reeling pandemic bolstered the NFT market, which, as a matter of fact, grew by 299 percent in the year 2020 and showed no signs of stopping. But, NFTs are still not straightforward concepts because they are still evolving, unregulated, and volatile. That being said, you may want to invest nevertheless. Here are a few things you should know about NFTs before anything else. 

An Introduction to the World of NFTs

NFTs, as already stated, are called Non-Fungible Tokens. They are digital assets, very much like cryptos, and cannot be valued in terms of another. They operate through a global network of computer servers that record every transaction for every asset called the blockchain. But, what is peculiar to NFTs is that they are in the form of digital artworks.

For any digital artwork, whether as a high-resolution image or a simple audio file, the blockchain will provide you with a virtual marketplace to transact on them. They have recently become very popular on social media; even movie stars and athletes are participating in the NFT marketplace. Note that NFTs are unique in the sense they have verified ownership and cannot be manipulated.

They are not healthy for the environment

You might think that NFTs being digital in nature, should have minimal impact on the environment. I used to think the same until I read about cryptos and their environmental impact. The same is the case with NFTs. Mining, a process many of you might be aware of, is the most harmful aspect of NFTs. All the NFT transactions need to be added to the blockchain, and this is the job of miners, who must generate a security system for the protection of all these transactions.

This process comes at the expense of massive energy that ultimately takes a toll on the environment. Of course, right now. NFTs are a rage, and environmental concerns have been put on the back burner. Still, as an investor, you must keep this in mind as the fact that NFTs are environmentally harmful could affect your economic goals.

Selling NFTs is not necessarily an inexpensive task

You aren’t reading enough if you thought that all you must do is auction your NFTs, and you have your profits. There are several NFT marketplaces, such as Rarible and OpenSea. Access to these marketplaces does not come for free, as they charge quite steep auction and transaction fees. The fees can take up to 5 percent of every sale you make.

Unless your item is being sold off at a good price, you will find this whole thing unsuitable for business. There is no measure of price, so businesses often tend to undersell or oversell their items in the marketplace. Thus, before you decide to invest, make sure you take into account these expenses.

Price volatility is a real thing here

We all know the crypto market is highly volatile, so one can imagine the scenes at an NFT marketplace. There is no way of telling how much a particular NFT would sell. Mostly, it depends upon how much people are willing to pay. I have read news about nonsensical artworks getting sold for a sum you and I would scramble to get our hands on.

Due to this price volatility, investors will have to undertake a rigorous risk assessment. Assess how much you are willing to risk in a particular NFT before you jump on the bandwagon. Pure speculation is what drives the NFT market, and you wouldn’t want to risk everything over this.

 

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CEOWORLD magazine - Latest - Money and Wealth - What Investors Need To Know About NFTs
Ayushi Kushwaha
Ayushi Kushwaha, Staff Writer for the CEOWORLD magazine. She’s spent more than a decade working for various magazines, newspapers, and digital publications and is now a Staff Writer at The CEOWORLD magazine. She writes news stories and executive profiles for the magazine’s print and online editions. Obsessed with unlocking high-impact choices to accelerate meaningful progress, she helps individuals and organizations stand out and get noticed. She can be reached on email ayushi-kushwaha@ceoworld.biz.