Is NFTs worth investing in? 6 factors to consider before you say yes

                                                                       Image Credit: Milad Fakurian on Unsplash

Nonfungible token assets, or NFTs, are digital tokens that constitute real-world ownership of assets. You might have heard of a handful of projects that are trying to make NFTs mainstream, such as CryptoKitties, RarePepe, and CryptoBuck. The idea is that NFTs could become a cheaper and more secure way to invest in real world assets (e.g., collectibles) and digital assets (e.g., cryptocurrencies).NFTs are now at the peak of their popularity in the crypto space. They have been around for about 2 years now, but have a positive momentum that has accelerated in the last few months.

It’s becoming evident that NFTs are here to stay. But, with so many projects emerging in the space, how do you sift through the red-hot projects to find the diamonds in the rough?

Let’s take a look at 6 factors to consider before you say yes to NFTs.

What is a Non-Fungible Token?

Non-fungible tokens (NFTs) represent a new asset class. That’s right — they’re not fungible tokens. Hence, it is a virtual representation of real-world goods such as art, music, in-game items, and films. They're acquired and traded online, often using cryptocurrency, and they're usually created with the same software as most other cryptos.

A fungible token can be used as money and is interchangeable with another identical token. With NFTs, however, each token represents a specific asset and is unique. A specific Pokémon card, for example, could be represented by its own token and be traded on a centralized platform. NFTs are rapidly gaining popularity as a chosen method of purchasing and selling digital artwork. A look backwards from November 2017 to date, a whopping $174 million has been utilized on NFTs transactions in total.

NFTs: A Growing Trend

NFTs first emerged in 2017 as a fun way for crypto enthusiasts to sell their collectibles to other enthusiasts. The hype quickly went viral and crashed the Ethereum network due to sheer traffic.

Fast forward to today and NFTs are no longer just a novelty — they’re here to stay.

In late 2018 and early 2019, the buzz around NFTs reached a fever pitch. Crypto enthusiasts rushed to collect unique digital assets, which fuelled a new asset class and increased demand for NFTs. Gaming was the second most significant emerging trend for NFTs in 2021. NFTs have served as a catalyst in gaming, as block chain technology based earn while you play games that compensate players including in game assets, have set in its first time that gamers are truly the proprietors of their assets. These they could then sell on NFT exchanges for a profit.

The trend for 2022 seems to be the purchasing and selling of fractionalized NFTs of real-world masterpieces by well-known painters, and fractionalized NFTs has allowed investors to invest in strong cryptocurrency assets for a fraction of the price, you can get crypto assets.

Now that the hype has died down, perhaps it’s a good time to evaluate if NFTs are worth it.

Is it worthwhile to invest in NFTs?

NFTs, like any other asset type, have advantages and disadvantages. The value of a collectible depends on the perception of the person who wants it and the purpose for owning it.  There are actually some digital artworks that are not utterly overpriced while there are still some that does. We’ll swiftly assess whether they're worthwhile investments - but remember, we're not financial counsellors, so you should always conduct your own research.

How to evaluate an NFT

Is the Project Worth Investing in?

One of the first questions you should ask yourself is whether the project is worth investing in. Personally, I see two types of projects.

First, there are projects that are interesting from a technology perspective. They may be trying to solve a real problem or offer a novel solution to a problem.

For example, RarePepe is a blockchain-based platform that connects rare Pepe cards with new owners through an auction-style marketplace. It’s a novel approach for a problem no one has ever solved before — even though it seems like a great idea.

The second type of project is a traditional investment. It’s not interesting from a technology perspective, but it’s a product or service that’s trying to gain market share. These projects often have a delayed product that they’re trying to release, so they’re worth investing in.

Is the Token Transferrable?

This may be a red flag for many projects. There are many projects that are trying to make NFTs mainstream, but not all of them are worth it.

We wouldn’t want to invest in a company that doesn’t want us to sell their tokens.

So, how do you know if a project is trying to make its tokens non-transferable?

There are many red flags in this area. First, you want to make sure that the project is trying to make its tokens non-transferable.

Many projects are trying to make their tokens non-transferable, but not all of them are worth it.

Second, the project should have a solid plan to make sure the tokens are not transferrable.

If the project’s plan doesn’t include a way to make the tokens not transferrable, you should run away as far as you can.

How to invest in NFTs

You'll need the following items to establish your own NFT collection. A digital wallet to hold NFTs and cryptocurrencies first. Contingent on what currencies your NFT issuer takes, you'll probably have to buy some cryptocurrency, such as Ether. Credit/debit cards and P2P are available for you to fund your wallet on any of the chosen trading platforms.

Find a Decentralized Exchange or Trading Platform

There are a plethora of decentralized exchanges and trading platforms. It’s a good idea to do your research and find one that suits your needs. Centaurus is an example.

There are centralized exchanges, but they’re often the subject of hacking attacks.

• That’s why it’s best to invest in NFTs through a decentralized exchange or trading platform.

Buy the Token Off the Ground

The first step is to find a reputable trading platform. That platform should allow you to trade the token.

If you want to get into the market early, it’s best to find a trading platform that’s willing to offer the token for sale.

• Once you’ve found a platform that’s willing to offer the token, you can go ahead and buy it off the ground.

 

In terms of size, the most accepted marketplaces for NFTs are: OpenSea, Foundation, and Rarible.

A Way to Invest in Real World Assets

Once you’ve got the hang of investing in NFTs, you may want to invest in real world assets.

There are plenty of platforms that will connect you with investors who want to purchase real world assets such as art, cars, and sports franchises.

You can find these types of platforms on sites like FundYourselfNow.

 The 6 Factors to Consider before Saying Yes to NFTs

Creating a NFT is exciting, but it may also be nerve-wracking. While it may feel like your world is about to end, remember that not everyone feels the same way about NFTs. Do your research, ask questions, and consider the following factors before saying yes to NFTs:

Understand The Basics

It’s understandable if you have never heard of NFTs before. You can’t expect people to know about something they don’t know about! Before you dive into creating an NFT, it’s important to understand the basics and how they relate to crypto wallets.

What is a crypto wallet and why is it so important to NFTs?

A crypto wallet is a digital storage system that allows you to hold, receive, and send cryptocurrencies. It’s a type of hardware or software that stores your private and public keys and acts as a hub between your different digital wallets.

An important distinction to make between a crypto wallet and a digital wallet is that a crypto wallet is specific to cryptocurrencies, while a digital wallet can be used for any type of asset.

Another important thing to understand is that there are several different types of wallets. A hot wallet, for example, is one that’s connected to the internet and can be easily accessed by hackers and is not recommended for long-term storage of large amounts of value. A cold wallet, on the other hand, is one that’s not connected to the internet and is only accessible by your private keys stored in the wallet.

Know What You're Getting Into

If you’re still in the planning phase for your first NFT, you may be wondering what you’re getting into. Keep in mind that NFTs are still in their infancy and the technology and the regulatory framework to back the assets is still being figured out. Because the regulatory framework is still being worked out, there are still a lot of grey areas that need to be addressed to ensure the safe and proper implementation of NFTs.

While many think that NFTs are a crystal-clear concept, the truth is that many questions still need to be answered.

Right now, the most important one is: What are the risks involved in creating and issuing an NFT?

Understand The Risk Involved

The first thing that comes to mind when you think about creating a NFT is the risk involved. After all, NFTs are completely decentralized and decentralized systems are always prone to risks.

There are different ways in which you can mitigate the risks involved in creating NFTs. One way is through the use of a trusted third party.

This could either be a start-up that’s well-established in the asset space or a more established agency that’s been around in the blockchain industry for a while. If you choose to go this route, make sure that you conduct your due diligence and look for a company that’s established and has a good track record.

Take Note of The Laws Guiding NFTs

If you’re new to the world of blockchain and NFTs, it’s easy to get caught up in the excitement of creating your first NFT. However, it’s also important to make sure that you understand the laws related to NFTs and how you can protect your assets.

Certain laws should be taken into consideration when creating an NFT.  Copyright, creative commons and intellectual ownership rights are a few of the legal elements to be factored into consideration.

Consider The Best Approach To Safeguard Your Wallet

If you’re planning on creating a blockchain-based NFT, it’s important to consider the best approach to safeguarding your wallet.

The most common approach is for the company to create a cold wallet that’s stored offline, and then store the keys in a hot wallet.

Another way is to simply store the keys in different software that’s connected to the internet. However, make sure that you perform your due diligence and choose a third party that’s professional and reliable.

Have A Budget In Place

You sure wouldn’t want to be overtly excited that you commit all your funds/income to NFT investment due to the hype on what others have profited from it. Be intentional about your investment and put in funds that you can bear to risk. Remember that in everything diversification is key if risk will be mitigated substantially.

Bottom line

When you’re creating a blockchain-based NFT, there are a number of factors that you should consider before saying yes. Make sure that you understand the risks involved in creating an NFT, take note of the laws guiding NFTs, and have a budget in place to protect your assets.