What Are NFTs?
NFTs (Non Fungible Tokens) have gained a lot of traction in the past few years. They are simply 'digital media attached to a specific digital token'. To understand NFTs, you need to understand fungibility first. For example, 1 BTC has the same value as 1 BTC so they are fungible. NFTs work the opposite. Unlike other cryptocurrencies, NFTs do not have the same value as one another. The reason for this is that each of these tokens has specific characteristics that make them unique and therefore they could be valuable to someone.
NFTs are so important because you can easily verify the ownership of the asset. The wallet address that holds a particular NFT on a blockchain is the true owner. In this article, we will discuss some of the advantages & disadvantages of Non-fungible Tokens. Let's start!
Pros
- Proof of Ownership: This is especially useful in the case of physical assets, as NFTs can be attached to a specific item and verified by the blockchain. Imagine a car manufacturer who wants to keep track of every single car that they produce on their assembly line and have an immutable record of its history, this is possible thanks to NFTs. In gaming, NFTs can be used to provide ownership of in-game assets to different players.
- Easily Transferable: When you want to transfer an NFT, all you need to do is sign it over from your account to another user’s account. The blockchain makes this process simple by providing a secure database that protects the integrity of the data stored within it and tracks changes made to it as they occur.
- Immutability: NFTs, or non-fungible tokens, are not subject to change. This means that they cannot be modified, changed, or tampered with in any way. They also cannot be lost or stolen because there is only one copy of each NFT on the blockchain network. But hackers and scammers can steal them from you if you are not careful enough. If your keys are with you, then you are good to go.
- Security: NFTs are secure because they are built on the blockchain. This means that there is no central entity controlling them, nor a single entity controlling them, nor a single person or company controlling them. If you transfer an NFT to someone else, that transfer is verified by the blockchain and recorded in it forever. A person can’t just make up a new NFT and start trading it as if it was real
- New Method To Monetize: Non-fungible tokens (NFTs) are a type of digital asset. They can be traded for money and provide royalties to the original creator whenever someone buys or sells them. Digital art sold on Opensea is the best example for this. Now any creator from anywhere in the world can easily sell their art to anyone who wants it, without taking help from any intermediary.
- Multiple Use Cases: Because of their flexibility and versatile properties, NFTs have multiple use cases in different businesses and industries like gaming, digital certification & documentation, art & collectibles, real estate etc.
Cons
- Volatility: NFT market is volatile. That means price swings happen very fast. When the FOMO kicks in, people can screw themselves by buying them a higher price and then see their investment going to zero in no time. NFT trading is a risky play and it's not for everyone. Only some NFTs increase in value overtime depending upon their use cases and demand.
- Illiquidity: Liquidity is not a big problem cryptos because we have liquidity pools that support buying and selling in the market. Major thanks to AMMs. In the case of NFTs, the market is illiquid and forces people to buy or sell at a price point they don't like.
- Potential For Fraud: Although NFTs are secured using [cryptography](, but fraud, scams and hacks are very common in the space. That makes it quite dangerous. It's not a direct con of NFTs but we don't have better tools and security measures in place to avoid them in the NFT space.
- Adoption: To understand how NFTs work and why they are valuable, everyone has to go through a steep learning curve. Young people may get it easily as compared to oldies but that's not enough. It's a new and complex concept that many people are not familiar with.
Hopefully, I have given you some insight into what non-fungible tokens are, how they work, and what their advantages and disadvantages might be. Please share your thoughts and feedback in the comment section below.