NFTs: 4 Advantages and Disadvantages
Three letters, one acronym, have become one of the terms that have triggered a sort of new gold rush in recent times. It is NFT, Non Fungible Token, which assigns a digital certificate of authenticity. A non-fungible good is one that cannot be replaced and is not substitutable. The sale of NFT is a new way to make easy money in the online world and there are many artists, influencers, celebrities, companies and organizations jumping on the bandwagon.
What are NFTs?
NFTs are tokens that are non-fungible. In a non-fungible token (NFT), one unit is not equal to another. This type of token is different from traditional digital currencies like Bitcoin, because with Bitcoin, all units have exactly the same value. The popularity of NFTs has grown exponentially in recent months as they can be used to hold proof of ownership or create digital art portfolios such as CryptoKitties, Cyberpunks or Bored Apes. The flip side is that there are currently rather few real-world applications for NFTs;
So developers still have plenty of time to work out or exploit the full potential.
But are NFTs really the future of brands or just hype that is too good to be true?
Recent interest from the world’s biggest brands like Adidas, Lamborghini, Nike and Prada, as well as celebrities like Snoop Dogg, Post Malone and Jimmy Fallon are pushing NFTs further and further towards the mainstream.
Pros & Cons of NFTs
So let’s take a look at the pros and cons of NFTs (non-fungible tokens)
Benefits of NFTs
(1) New revenue stream
NFTs were developed, in part, to help artists make more money in a digital landscape that wasn’t particularly sympathetic to them before. As their artwork gains more value-which happens when it becomes popular on the Internet/circles-the artist earns revenue, even beyond the initial sale through royalties.
NFTs cannot be altered or replaced in any way when their authenticity is stored in the blockchain. The intrinsic value of authenticity also becomes an actual, extrinsic value.
(3) Smart Contracts
Smart contracts – the heart and soul of blockchain technology – enable automatic transactions following specific events. For example, if the NFT owner later resells the NFT for a profit and the artist attaches a licensing “rider” to the contract, the artist immediately receives compensation/royalty.
(4) Pride of ownership and support for creative work/art.
NFTs provide patrons with a direct way to support the artist community and add unique value to their collections.
Each token is unique – it doesn’t matter if you send one to your grandma or a thousand to your best friend. Second, they enable digital scarcity -> digital collectibles. An example of this is CryptoKitties – virtual cats, which are 100% unique and can only be bought or sold by trading them with another token of the same value. Since each cat has its own characteristics, they have intrinsic value.
Disadvantages of NFTs
NFTs enjoy great popularity, but the space is definitely still “work in progress”.
(1) Speculative market
Right now, NFT value is largely tied to aesthetic and sentimental value. It is impossible to assess its value as a long-term investment, so it is largely speculation at the moment.
(2) NFTs can be stolen
NFTs have been the target of some hacker attacks – Many NFT platforms have outdated or ineffective security protocols.
Creating and selling NFTs account for a high percentage of electricity consumption, as do blockchain transactions in general. Some scholars worry that a booming NFT market could do further damage in this regard.
(4) Ownership does not equal control
Just because someone owns an original NFT doesn’t mean they can control its distribution or duplication across platforms. Ownership only means that they own the “original” – but they cannot, for example, prevent the making of printed variants.
Hi, I am Nikesh Mehta, owner and writer of this site. I’m an analytics professional and also love writing on finance and related industry. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at [email protected].