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EducationalJune 28, 2021

Are NFTs Worth Investing?

Shubham Goyal
Product Specialist
June 28, 2021

Non-Fungible Tokens (NFTs) have become exceedingly popular in 2021. And why shouldn’t they? They’re a novel idea! NFTs are digital assets, including art, music, food, etc., that are being sold at millions of dollars right now. Nevertheless, are these tokens worth the hype and investments?

The world’s view is divided on NFTs; some say NFTs will become the new form of investment, while others think their hype and value will fade away. Before we make our projections on whether NFTs are worth investing in, let’s get down to the fundamentals

Difference between Fungible and Non-Fungible

Let’s first understand what fungible items mean – individual units of goods and commodities where each unit is indistinguishable from the other. In simple terms, if I have a dollar or a bitcoin, its value will be the same as the dollar or bitcoin you hold.

A non-fungible item, on the other hand, is distinguishable on all fronts. For example, the Mona Lisa painting is unique and can be told apart based on its originality and value.

What are Non-Fungible Tokens?

Like cryptocurrency is a digital currency, which can be owned by anyone, NFTs are digital assets that are unique and valuable. These digital assets, representing objects like art, music, videos, in-game articles are being bought and sold with digital currencies. The NFTs are similarly encompassing underlying software like any other cryptocurrency.

Even though NFTs have been around since 2014, they are far more mainstream now. Unlike most digital creations, which are infinite in supply, NFTs are limited edition assets unique with identification codes. Anyone can view and download the NFTs online for free, yet many spend millions to own them. If you purchase an NFT, you own the original item, and the digital asset also has built-in authentication, which provides proof of your ownership. It’s like owning an original painting, e.g., The Starry Night by Vincent Van Gogh, while the others own it’s a photocopy or ripped-off versions.

Features of NFTs

These assets exist on blockchain technology, just like cryptocurrencies. NFTs specifically are usually stored on the Ethereum blockchain, while other blockchains can also support them.

Created from digital objects, tangible and intangible items like art, GIFs, videos and sports highlights, collectibles, virtual avatars, video game skins, designer sneakers, music, tweets, and more, the NFTs are just like any physical collector’s items. Collectors store their items on walls, cabinets, etc. NFTs are stored in digital files.

The unique data makes it easy to verify and transfer the tokens between owners transparently along with ownership rights. The creator of the NFT can store specific information like signatures in the NFT’s data. Once they receive the ownership rights, the owners can do the same with their NFTs.

To buy NFTs, you must have a digital wallet that stores cryptocurrencies and NFTs. You also need to own Ether or other cryptocurrencies depending on the currency accepted by your NFT provider.

What is the value of Crypto Art?

Digital art or Crypto Art is the most popular form of NFTs for investment and trade. It is treated equally to physical art; the ownership and authenticity are verifiable via Non-Fungible Tokens. Crypto art is non-reproducible due to NFTs. Since art is scarcely available on the market, it is precious.

Collectors place value on the crypto art based on the pixels. To support the artist, or due to connection to artwork, or simply just bragging rights, collectors are now purchasing crypto art through NFTs. Motion picture art and gifs are also popular purchases in NFTs now. Hence, digital artists are working harder to sell their artwork in NFTs.

How NFT Licensing Technology is furthering the Art Revolution

Thanks to NFTs, digital art creators are now getting creator’s rights that were not available before. A digital artist’s work was traditionally underappreciated and undervalued because anyone could download their art or screenshot it without paying for it. Due to NFT’s ownership rights and licensing technology, now creators have copyrighted their artwork and earn in millions.

Furthermore, through NFT exchange platforms, artists can make their digital art into NFTs without writing the code. In addition, some creators are experimenting with adding specific conditions into their NFTs, like the right to earn commissions on future sales. Hence, digital content creators are furthering the Art Revolution through monetary gains and NFT licensing tech.

So, Should you invest in NFTs?

By now, we are well aware of what NFTs are and how they are transforming the market for digital artists. However, as an investor, are NFTs worth the investment?

Since NFTs have recently become popular, there is no guarantee that their investment will be risk-free. For now, investing in them in small amounts of cryptocurrency will be a wiser option rather than investing in millions. If you have money to spare and enjoy collecting digital assets, then you should go ahead and invest.

Nonetheless, it would help if you also considered how NFT’s value is based on the willingness to buy the asset. So higher the demand, the higher the cost of that particular asset. It means the NFT will be resold for less or more than what you paid for it, or you won’t be able to earn anything if no one wants to buy it.

Just like how stocks are sold for profit, NFTs can be used like that as well. However, they may not give long-term capital gains like stocks and may even be charged a higher collectible tax rate. Cryptocurrencies used to purchase NFT may also be taxed if their value has increased since the time you’ve bought them. As a precautionary measure, always check in with a tax professional before purchasing NFTs. For more information on cryptocurrency, blockchain technology, finance-related tips, and advice, browse through Delta’s Blog.

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