What are NFTs? Why are they Valuable? Advantages and Disadvantages of NFTs 2022

What-are-NFTs-NFT-Artwork
Credit: Lushux

NFTs are a class of digital assets that are taking the internet by storm. If the internet is going crazy over these NFT tokens, then it is worth looking at what they are and why are they valuable.   

This article will enlighten you with a thorough understanding of what NFTs are, how can you benefit from the market, and the downsides to trading them.

What is an NFT Art?

NFT is short for a non-fungible token, which is a digital representation of any asset such as digital pieces, sports collectible sports cards, virtual lands, etc.

So, an NFT art is basically a digital asset that represents different artworks such as music, videos, gifs, games, text, and memes. It provides registration of a specific artwork on a decentralized ledger network.

These NFT tokens are unique, with each of them carrying unique information that makes it different from other similar NFTs but easily verifiable on the blockchain technology.

At present time, NFT arts are becoming very popular, with celebrities and influential personalities joining the trend.

Why are NFT valuable? What is the X-factor that drives their values?

Well the X-factor in the values of NFT is nothing new but traditional forces of demand and supply. Further, they provide verification of the authenticity of any non-fungible digital asset and the thrill of grabbing a piece of digital art drives the value of a specific piece.

The rarity and scarcity of a particular token increase its demand because collectors and investors are willing to spend tons of cash to buy them.

What Do You Get When you Buy an NFT?

This is the biggest question that pops up in everybody’s mind is why are they buying NFTs?

Some investors argue that you buy an item representing the internet sensation at a time, while others claim that you are gaining the property rights to them.

But in general, the truth is that you are neither buying just a piece of digital art nor the copyright to the artwork.

Shocker! Isn’t it? Don’t panic though; because NFT art exists in either visual or audio-visual items so, you are not just buying a piece of digital art.

Hence, if you are buying just a picture or video of a piece of crypto art, it is pointless because anyone can save the image or video for free.

Further, you aren’t buying any copyright to the item. Surprised? Don’t be, not all the NFTs are authentic, some of them are mere reprints of the original piece of art. Just because you have the piece doesn’t imply that it’s unique.

Also, there is no way that you can visually differentiate between an original crypto art and a different version of it.

So, what exactly it is that you are buying?

To clarify, you are buying a code that provides you with property rights to the NFT. So, what you are buying is not a picture or a video but a unique code that identifies you as the rightful owner of digital art even if there are different versions in existence.

In addition, the token has a unique barcode on the blockchain upon which it was made and once it gets into the blockchain, the ownership of the token is public and transparent.

Hence, while purchasing an NFT you are actually buying a certificate of authenticity, a bar code that can prove that you have sole rights to a unique version of a digital art token.

How to make money with NFTs?

Unlike fungible tokens such as bit-coin, Non-fungible tokens can’t be directly exchanged.

The storing of these NFTs is on the emerging blockchain technology that makes the proof of ownership transparent. NFT trading takes place on different marketplaces for example- OpenSea.

Further, there are two primary ways of making money while trading NFTs.

1. The Artists/Creators

NFT creators are at the top of the chain. Without creators, there would be nothing to buy or sell. These artists create NFTs using choice characteristics.

Often conventional artists do not earn more from their works even when the value appreciates, but NFT creators have the option of making money via their crypto art on lifetime re-sales.

Another way creators can make money from non-fungible tokens is by programming royalties into their crypto art. This will allow the creators to obtain a specific percentage of the sales profit on the resale of NFT artwork. The royalties percentage ranges from 2.5% to 15% ensuring that the artist receives part of the interest from sales as long as the NFT exists.

Further, artists get to keep a greater part of the money from the sales of their artwork. Also, they do not need to rely on auction houses and art galleries to sell their digital art since the marketplace serves a global audience.

Since the majority of NFT platforms require creators to spend some money to list their artwork for sale, it is important to make quality digital art that will drive a lot of sales because if not you end up losing money yourself.

2. Collectors/ Traders

Without collectors or buyers, art creators cannot sell their work. This set of individuals in the marketplace keeps up the hype for NFT trading.

Further, these collectors build portfolios of collectibles tokens that they feel that the price will increase in near future. The goal is to make profits from the sales of these NFT tokens that they accumulate.

Traders can get the NFTs they wish to have on the peer-to-peer marketplace, afterward, they can either sell or choose to hold on hoping for prices to go up for a better profit margin.

Often NFT sales go bumper and cause the already existing speculations in the market to go higher than normal. So, let’s see a few of the popular NFT drops.

Also read, Here is how you can Buy and Sell NFTs for Profit

Popular NFT drops

What-are-NFTs-Beeple
Credit: Mike Winklemann Beeple

The 254-year-old auction house Christie’s organized its first digital auction. The auction for a digital art collage made by the artist Mike Winklemann, famously known as Beeple lasted for two weeks.

The digital artwork is a collection of Beeple’s individual crypto art for the first 5,000 days i.e. approximately 13 years of his career as an artist.

After the auction ended, beeple’s artwork was sold for a staggering price of $69 million which indeed puts the artist among the top three most valuable living artists.

Twitter’s co-founder, Jack Dorsey is also listed his first tweets as NFTs for sale on the platform in order to sell tweets. Bids for Dorsey’s tweets hit around $2.5 million.

In addition, the collectible sports card platform, NBA Top Shot is also popular with crazy sales numbers. The NFT marketplace for the sale of NBA highlights known as “Moments” is gathering up good figures for itself.

Since the launch of the peer-to-peer NFT marketplace has observed more than $230 million in sales. In 2021 the pack drop generated a record $1.05 million in revenue.

NFTs: Advantages and Disadvantages

Advantages of NFT

There are different features that make non-fungible tokens appealing to investors and creators. Here are some of them,

Authenticity

Blockchain technology helps in creating a validation that is not present in physical collectibles. Also, it is impossible to create an inauthentic replica of crypto art on the blockchain.

Since the NFT token resides in an immutable and permanent decentralized ledger, the property rights or proof of ownership cannot be changed no matter how many times the crypto collectible is sold.

Easily Transferable

NFTs can easily be transferred to anyone in the world. The peer-to-peer marketplace makes it feasible for buyers and sellers from different parts of the world will meet and conduct trades.

Unique and Limited

The uniqueness of the NFTs is surely one of the lucrative qualities that it has. The degree of scarcity of a particular crypto collectible is one of the major propellants of its value.

Disadvantages of NFTs

While it seems that NFTs have a full package of qualities, there are some disadvantages as well. The disadvantage include

Environmental Impact

The explosion of NFT minting through proof-of-work blockchains like Ethereum has a negative impact on the environment. Large computing power is necessary to operate the underlying blockchain to operate the blockchain beneath where NFTs are built.

Where the plans to stop the Ethereum blockchain from being energy-intensive, currently use more power than the amount required for average household use in a single day.

Indivisible

Unlike fungible tokens, NFTs cannot be divided into smaller units. While this is favorable for some people, especially art collectors, it is unfavorable to others.

Further, it doesn’t consider the inclusion of people who cannot afford to buy the full token and participate in the market. Also, it allows people holding it to inflate the price as much as they wish to.

Highly speculative

The current hype in the NFT market has led some experts to believe that it must just be another speculative bubble that is set to burst when the enthusiasm dies down. If this happens, many people will lose their funds.

Exploitation

The ability to create NFTs at will using free and public self-serving platforms has led many people to exploit some upcoming artists. In addition, it is impossible to detect if the creator of digital art is the actual owner of the artwork.

Future of NFTs

Blockchain is surely changing the future of trade. Further, since the launch of the first set of Ethereum-based NFTs in 2017, the entire digital art marketplace is continuing to show consistent growth.

With over $300 million worth of assets sold, the market is set to disrupt several other industries apart from art because more people are becoming aware of their potential.

Many creators/artists now recognize the benefits of tokenizing their NFT artworks. Hence, it is fair to say that NFTs would become a digital haven for collectors.

Gradually NFTs are reaching a point where they will become the standard for real-world collectibles.

Final take

Even though the NFT market is not yet stable, it is slowly becoming an interesting spin-off of the crypto and blockchain industry. The interest from investors all over the world is taking the NFT trading towards massive adoption.

NFTs surely have the potential to grow but, as usual, we have to be patient and see whether NFTs live up to the hype and also become a significant part of the future of the collectible market. 


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NFTHI does not recommend any kind of Investment in NFTs or NFT trading. All the strategies are merely educational references.

Conduct thorough research before you start with NFTs

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