Looking for reasons to invest in NFT’s, or wondering why not to? With the advent of innovative blockchain technology, there is a myriad of investment options available for investors to choose from. According to Statista, there are about 6,000 types of cryptocurrency available as of 2021. But, unfortunately, most of them are worthless. However, it is estimated that the top 20 cryptocurrencies make up 90% of the cryptocurrency market. The market of digital collectibles is booming, providing investors with some safe investment options.
Nowadays, Non-Fungible Tokens (NFTs) are gaining huge popularity and gradually becoming a preferred way to buy and sell digital artwork. NFTs are unique digital assets that are real-world objects such as music, art, videos, sports cards, digital sneakers and game items. Basically, they encapsulate digital data in the form of a song, tweet, picture or an article. They can be sold and purchased online along with cryptocurrency and encoded the same software as cryptos. Unlike cryptocurrencies, they can’t be used for commercial transactions.
8 Reasons Why You Should Not Invest in NFTs
Every NFT includes unique information that makes it unique from other NFT and verifiable. It makes the creation and circulation of fake collectibles impossible as each item can easily be traced. Non-fungible tokens can’t be replaced with something else and only exist for the owner at a time, as NFTs are unique and contain unique identifying code. Since it is a digital asset, it can only be stored in a cryptocurrency wallet. They are part of the Ethereum blockchain and are created to give you something that can’t be copied.
Many investors have made millions of dollars from NFTs and many are planning to invest in these collectible assets. Approximately $174 million has been spent on non-fungible tokens since 2017. If you are tech-savvy and thinking of investing in NFTs, it is advised to avoid this new asset of the digital era, as it is not a worthwhile investment. If you are wondering why NFTs are not a good option for investment, here are some reasons you should avoid investing in this digital asset.
1. The Unpredictable Nature of the Market
Okay, it is one of the major reasons why you should not invest in NFTs. Since it is an emerging market, nobody can’t guarantee financial market stability. It is in the infancy stage and there are higher chances of growth and solidifying its value. But still, it is risky as we don’t have many facts to figure out their performance. The lack of knowledge is one of the biggest reasons that make NFT investment too risky. Interested investors with money to spare, are advised to invest small amounts just to experiment with NFTs. You can invest in something you better understand and have a long track record of success.
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2. No Real Value
Despite the fact that the cryptocurrency market is growing, and the value of bitcoin has increased up to 180%, still it can’t be said NFTs are a good long-term investment. Currently, NFT’s value lies in resale and how much someone is willing to pay for it. If people lose interest in your non-fungible token and are not willing to pay for it, it will lose its value. It clearly shows that NFTs have no real value.
3. High Risk of Fraud
One of the major benefits of having a non-fungible token is that it allows digital artists to claim ownership of their work. There are many fraud cases reported in which artists made a complaint their work has been tokenized without their permission. Scammers have started using NFTs illegally to make money. They are plagiarizing artists’ original work, building fake websites, increasing the price of the NFTs, and selling it to buyers at higher prices than its real value.
If you’re still wanting to invest in NFTs, carefully check out the NFT exchange and ensure it has security credentials and carries out artist verification. NFT exchanges give the NFT a signature that authenticates it and makes it verifiable. Unfortunately, there is no standard process to verify the ownership of the NFTs.
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4. NFT Theft
Believe it or not, there are high chances of NFT theft. If your password isn’t strong and your NFT exchange is not using two-factor authentication, your NFT can easily get stolen. In case you’ve bought a high-value NFT, it is advised to store it offline, in a secure location, to protect it from hackers.
5. No Permanent Place to Store
Storage is one of the major security concerns when investing in NFTs – and it’s a great reason not to! There is no permanent storage solution for NFTs, making it a shaky choice for investors. Keep in mind there is no blockchain wallet to store your NFTs. You can only store them on a server. And, if you can’t protect your asset, it could get deleted, corrupted, and destroyed. It means that your optimized image, video, artwork, and music that represents your NFT will disappear at some point, you can check some examples here https://skylum.com/luminar/layer-mask.
This is why investing millions of dollars in NFTs is simply not a sensible investment choice when there are a lot of chances of corruption or deletion. As a buyer, it is your right to figure out where your digital asset will be stored and make sure the entity hosting your NFT maintains it properly.
6. Subject to Capital Gains Tax
Investors interested in trading NFTs for profit should be aware that NFTs are subject to capital gains tax. If you invest in NFTs and earn profit through selling or trading, it will be subject to the capital gains tax. There are some common NFT activities that are subject to tax. For instance, selling NFTs for cryptocurrency, trading NFTs for other NFTs, or purchasing an NFT with a fungible cryptocurrency are a few conditions that are subject to the capital gains tax. It is a great idea to carefully consider all the tax implications before making an investment decision to prevent a surprise tax bill when it comes to filing tax returns.
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7. Environmental Impact
Non-fungible tokens and cryptocurrencies have a huge environmental impact that makes them unsustainable. For example, mining cryptocurrencies uses a lot of energy and NFTs are no exception. It’s estimated that 8.7 megawatt-hours of energy were required for NFT minting (the creation of a certificate of authentication in order to sell an NFT). This energy is equivalent to the electricity consumed by the American resident monthly.
A transaction related to a single NFT can result in excessive greenhouse gas emissions that will eventually hurt the environment and accelerate global warming. Putting it differently, an NFT is environmentally disastrous. Several studies have shown that Bitcoin mining consumes 37 million tonnes of CO₂ every year. Many cryptocurrencies are built on proof of work algorithms that are created to make the blockchain more secure. This security system for cryptocurrency can oversee transactions on the system and keep track of all the transactions. This is the main reason behind consuming the high energy intensity.
8. Volatile and Speculative Nature
Many experts advise buyers to keep the volatility and illiquidity in mind before investing in this budding market. There is no standard process to help people price assets. When an NFT is sold out, the owner can retain the copyright and create multiple copies of the asset. The owner can sell fake copies as non-fungible tokens. It truly represents that there is no real value in these digital assets.
Final Thoughts on Investing in NFTs
There is no denying the fact that this type of blockchain technology has many advantages for investors compared to other traditional stocks. Many entrepreneurs are interested in starting a venture in the NFT world and making money online. For instance, you can create an online course, become a broker or create a white label platform. Launching an NFT app is one of the best app ideas that can be used for buying, selling, and minting NFTs.
Instead of looking for reasons to invest in NFT’s, I suggest waiting for future possibilities. If you are interested in investing in NFTs, do your research before making an investment decision. NFTs can be a risky investment, as it is a new type of digital asset with a lack of liquidity, making it a bit challenging for token holders who want to sell their assets. So, it is advised to thoroughly research how blockchain technology works and all the available options to approach these digital assets.