You need to consider the advantages and disadvantages before investing your hard-earned money in digital art or NFT. When you invest in NFT, you are investing, just like when you buy any other piece of art. After all, whether the work is physical or digital, there is a substantial secondary market. So in the following article, we will discuss the pros and cons of NFTs.
Pros and Cons of NFTs
- Growth in value
When you purchase the tokens, just like any other investment, there is always the possibility of your money growing in value. For example, CryptoPunk #3100, was initially sold for $2,127 on July 6, 2017. The artwork’s owner refused to sell it until March 2021, despite receiving several bids.
However, given the more than $7.5 million return on investment they received when they sold, that collector is probably performing backflips.
- Owning something unique
These digital tokens are non-fungible, which means they are 100% unique. NFTs are not replaceable. When you are the owner of a one-of-a-kind piece, whether it’s a piece of furniture, painting, a digital image, audio clip, or another digital asset, it’s a fantastic feeling!
- Smart contract
With one word, “smart contract” is a series of blockchain orders executed without human involvement and meets specific verifiable requirements.
Smart contracts, the crucial part of blockchain technology, allow for automated executions in response to particular conditions. If the NFT owner resells it for a profit and the artist includes royalty “rider” in the contract, the artist will be instantly reimbursed.
- Difficult to define the exact value
One of the problems or disadvantages of NFT is you can not digitalize the physical art.
- Confusing value
NFTs are more confusing assets. When you purchase one of these non-fungibles, you aren’t necessarily buying the copyright.
People may still find copies of the work for which you hold the token on the Internet, and nothing is stopping them from copying and pasting these files into social media, effectively showing off and sharing something for which you may have spent millions of dollars.
Essentially, when you acquire these assets, all you truly own is a record claiming you hold the token backing the original item. “How much value is there in owning an item you don’t truly control?” is the real question here.
- Environmental issues
One of the biggest disadvantages of NFT is it has a considerable effect on the environment. Implementation of these tokens, just like cryptocurrencies, requires a large amount of computing power. The energy consumed by computers and servers and cooling equipment to mine and manage cryptocurrency systems is equivalent to a million transatlantic flights. As a result, increasing the use of NFTs would raise the current energy requirements of blockchain technology.
To read more about Islamic Finance related topics, please click here and visit our academy.
Feel free to sign up for our free stock screening services at Musaffa.com