Recently, NFTs have taken the investing world by storm. Everyone and their grandparents are investing in NFTs, but what actually are NFTs? What does investing in an NFT actually mean? And most of all, what adds value to your NFTs?
Let us try to answer some of these questions, starting with what NFTs actually are.
NFT stand for Non-fungible marker. "Non-fungible" in essence expresses that it's one of its kind and can't be switched or substituted with a similar item. A 10 rupee coin, for example, is fungible: swap one for another and you'll get the same item. One of its kind trade cards, on the other hand, cannot be duplicated. You'd get something altogether different if you exchanged it for a similar card- for example, it would be like if you traded a limited edition pokemon card for another limited edition baseball card.
Both value swings and future cash flow affect an NFT's future worth. An appraisal is driven by speculation, which is sometimes the principal driver of price increases. For example, in December 2017, the price of CryptoKitty #18 jumped from 9ETH to 253ETH in just three days. Some may argue that price action based on valuation is bad for NFTs, yet speculation is a natural component of human nature and an integral feature of the current financial system. By finding the right balance, developers can increase the value of NFT and attract more users. Supply scarcity and speculation drive higher prices. Price-performance charts of NFT goods, as well as showcasing NFTs that increase in value, may be used to fuel speculation.
Before someone may purchase anything, it must be obvious who has the authority to sell it, and if they do, ownership must be transferred from the seller to the buyer. NFTs alleviate this difficulty by providing a tangible representation of ownership that both parties can agree on.
People have long opted to collect art in order to preserve their wealth. Psychologists think that the drive to congregate is physiologically ingrained into people. Collectables are becoming more for personal enjoyment. The endowment effect, which states that everything is valued more when a person has it, is one of the psychosocial factors to collect. Digital collectables may now be owned and confirmed because of blockchain technology. While the trend has slowed, businesses are still looking at all the options. They are correct in believing that NFTs can help them improve their marketing strategy. Customers still respect NFTs because they have distinct characteristics.
So we have covered why NFTs are so desirable and how they work as an investment opportunity, but it is very important to understand that NFTs as an asset class or investment opportunity are fairly untested and volatile. And because of the novelty and volatility of the investment space, people investing in NFTs should make sure that they have some sort of a safety net and long term income plans. Investments like Mutual funds, SIPs, and even stocks can work as a good investment opportunity, especially for older investors.
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