Are NFTs a good investment? Should You Invest in NFTs? Explained

Pic Credit: BORED APE YACHT CLUB/SHUTTERSTOCK

NFTs NFTs NFTs.There is no way you haven't heard about NFTs, or nonfungible tokens, unless and until you've spent time in prison. BEEPLE NFT art, for example, was auctioned for $69 million. Former Twitter CEO Jack Dorsey sold his first tweet for 2.9 million dollars as an NFT. 

The Bored Ape Yacht Club, which is essentially an art collection of 10,000 different bored ape photos, is the current NFT buzz. 

Do you have any idea how much these apes would cost you? The starting price for one of these apes is 200 thousand dollars. But don't worry if you're perplexed by this trend and can't understand why people are willing to pay so much money on basic images of bored apes. In this post, I'll start from the beginning and explain what NFTs are. Why are people going crazy over it, why do they have such high value, and should you invest in NFTs?

What are NFTs

So, NFT's basically stands for nonfungible tokens. Fungible is a term that refers to anything that can be swapped out for another of the same type. For example, if I have a ten-dollar note and you have a ten-dollar note, I can exchange them and the amount or value we both have remains the same. 

Both notes are similar and can be used interchangeably. And in the USA, all ten dollars notes are the same; they have the same value, features, and attributes, making them interchangeable and fungible. 

On the other hand, if I talk about the Mona Lisa painting, this artwork is a one-of-a-kind work. It contains unique traits and characteristics that cannot be duplicated, and you cannot just exchange it for another artwork. simply because it is a one-of-a-kind work of art that cannot be replaced. 

Because it has its own attributes and cannot be interchanged or traded with another thing, the Mona Lisa is a nonfungible item. This is what we mean when we say "nonfungible." Anything or good that cannot be replaced by a similar item of the same type. Because they are not replaceable, all great arts, paintings, and sculptures you see around you are non-fungible objects. 

So what does actually an NFT mean?

Non-fungible tokens, or NFTs, are digital assets attached to a blockchain like Ethereum or Solana. And these Ethereum and Solana blockchain platforms are the same ones where you may trade their respective coins. 

Cryptocurrencies like Bitcoin and Ethereum, on the other hand, are fungible. One bitcoin is worth about the same as the other, so you can use them interchangeably. The NFTs, on the other hand, are one-of-a-kind and not interchangeable, which means no two NFTs are the same. 

The Bored Ape Yacht Club, on the other hand, is a collection of 10,000 different Bored Ape digital arts. And each of these digital works of art is an NFT. These apes are all one-of-a-kind, not interchangeable, and thus non-fungible. 

When you buy an NFT, you own the NFT of that digital art or that digital content. You are the sole owner of that unique NFT. And recently, a lot of celebrities like Stephen Curry, Post Malone, Mark Cuban, Jimmy Fallon, bought their own Bored apes, which means that now they're the sole owner of those Bored ape NFT's and that bored ape is a unique NFT and no such other bored ape exists like this one.

Why do NFTs have such high value?

And now the smart people must have one question popping up in their heads. "If these NFT's just simply represented digital content, can I not just simply download it from the internet? I'll just go search for a boring ape image and download it. now I also own it. 

What is the point of owning an NFT" And this is actually a very good question and this question left me wondering too? But before answering this, we have to understand the underlying value of these NFT's. 

Have you ever wondered why all these paintings, fine arts, sculptures, statues are worth so much money? why do people pay so much money for these? why are rich people ready to spend thousands and millions of dollars to own these? Which has a very simple answer, Social prestige.

Because these fine art pieces are unique and widely popular, social prestige is associated with their ownership. And all the people who own such arts are considered as the social elite, considered very high class. 

This social prestige and elitism associated with fine arts is the simple reason why people are willing to pay a fortune to own them. To feel the prestige. And this is one of the reasons why a lot of NFT's which do not hold much of an underlying value or use are sold at high values. 

For example, if I talk about Jack Dorsey's first tweet, it's his first tweet, it's extremely unique associating some prestige and social elitism to it, which is why people value that uniqueness and are willing to pay a high amount for it. 

If I talk about the bored ape yacht club, because so many popular people, influencers, celebrities, entrepreneurs own these apes and NFT's, it has associated prestige and elitism with owning them and that's why their value has increased drastically. 

And the second primary reason why an NFT has so much value is because of its community. A lot of projects are such that are not just merely selling digital art, rather it is an attempt to build a community. Everyone who owns their NFT is a part of their community. 

And such community members get a lot of benefits and privileged access. If we go back to the bored ape yacht club, they're not just simply selling ape digital art, rather they're trying to build a community. 

Recently, they also organized a party and a concert in New York, and only those who were a part of this community were invited i.e. whoever owned a bored ape NFT. And a lot of people value this community membership for social reasons or maybe some personal benefit that they might get from that community. This is why they value such NFT's a lot and are willing to pay a high price for them.

Apart from these, a lot of utility NFT's have been launched i.e. that they have some underlying utility or value. But this utility NFT's phase is extremely new and young and definitely, has a lot of potentials, which we will talk about in some other article.

Should you invest in NFTs?

Finally, let's discuss if you should buy or invest in an NFT as an investor. In the long run, the NFT industry, in my opinion, has a lot of potentials. However, I believe that 99 percent of all NFTs currently in existence will lose their value in the future. 

In the long term, only a small number of valuable NFT's would exist. All of the valuable NFTs, on the other hand, are sold at such a high cost that an average investor like you or me cannot purchase them. Even if we gave all of our money, we would not be able to purchase these NFTs. As a result, I believe that purchasing an NFT at this time is not the best idea.

But I understand that the NFT period is thrilling, and you must be itching to get your hands on one. In that scenario, you can purchase an NFT for experimenting or simply for the excitement of it. In such instances, investing in an NFT as if it were a one-time purchase rather than an investment. 

Invest only a small portion of your portfolio in NFTs. That investment shouldn't have a significant impact on you. So, with that, we've come to the end of this article; I hope you've understood the concept of an NFT at a beginner's level.

Disclaimer: This article is solely for educational purposes. Before investing your money, please do your own due diligence and research and/or talk with a financial professional. I am not a financial advisor and do not have any professional financial qualifications or education. The information/facts provided in this article were gathered from a variety of sources. However, there is always the possibility that the material in this article contains some factual errors or contradictions. I apologize in advance for any inconvenience.