Before Investing In NFTs Know About These Risks

Anything can sell as Non-Fungible Tokens, or so they say. Lately, you must be hearing tons about digital artworks being auctioned off for incredible sums. Now, these artworks could be anything as long as they are unique, from detailed digital art production to a mere selfie or caricature. Just like cryptos, these NFTs are traded using blockchain technology, and there is no standard to determine the prices at which any NFT would trade. All in all, NFTs are part of an unregulated space without limits to what can be transacted.

Due to their non-fungible nature, many NFTs have been sold at whopping prices. This has unsurprisingly invited the attention of investors, rookie or seasoned. Yes, NFTs present an opportunity to earn lavishly, but that is never guaranteed. Moreover, there are several running risks with NFTs that every investor should know. Today, our focus will be primarily on those risks. Here are the risks associated with NFTs you should know: 

Dangerous volatility can kill your investments

If you understand how cryptos work, you will quickly understand how these NFTs work. In case you have no idea at all, let me keep it simple. In stock markets, there are standard mechanisms and standards against which listed companies are evaluated and their shares are traded. This means that investors know what and how an asset will be priced at a given time, and therefore, there is low volatility. However, such is not the case with NFTs. These digital assets do not trade against any standard mechanism that can help people to evaluate assets. What could be worth a few pennies might end up getting sold in millions. 

Your NFTs may not be your own after all

Any beginner in NFT should understand the difference between the token that records the ownership on the blockchain and the asset, which is stored separately. You may have tokens of ownership that remain secured on the blockchain, but the asset can be lost. This means that just having tokens will bring you no security when you can’t even have the asset secured. There is an option to store your assets in different decentralized servers, but that is still to catch up. 

NFTs are not foolproof

Blockchains are pretty secure, and it is nearly impossible to break into them. But, mind you, that does not mean that your NFTs are protected from any unscrupulous activities. For instance, anyone can hack into your computer and steal your assets. Nobody would find out who did that because blockchain transactions cannot be reversed and are anonymous. Also, very much like the stock market’s ‘pump and dump,’ there have been instances where persons try to artificially pump the evaluation of an asset through multiple trading among themselves. This can fool investors into thinking that a particular asset is of great value when its actual price would only get you peanuts. 

NFTs are terrible for the environment

NFTs may be easy money at times, but they come at a significant cost. The effects of NFTs on the environment are extreme. Studies have found that mining cryptocurrencies are more harmful than mining copper and coal. Millions of tons of CO2 emissions are associated with mining; with the overwhelming rise in the NFTs trade, the numbers will rise anyway. Due to this, they may end up being an unpopular form of trade in the future. So, invest wisely and consider the long-term goals when you do. 

You may not call NFTs art

When I wrote that anything can be sold as an NFT, I meant it. While an NFT is an artwork, the quality of the artwork is another thing. Critics of the NFT culture argue that there is no quality and ‘feel’ to the artwork produced as NFTs and can hardly pass as real ‘art.’ They are pretentious, lazily created, and without motivation. A random photo would sell for an amount it would never have sold in the human world. So, essentially, your investment may not have any value at all. 

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