NFTs: Good Investment or Good Way to Go Bankrupt?

 NFTs: Good Investment or Good Way to Go Bankrupt?

By: Kyle Kaska

NFTs, or non-fungible tokens, have recently become a hot topic of discussion. Whether it be positive or negative, NFTs have occupied an ever-increasing amount of space on the internet. However, what an NFT is is just as hot of a topic. The Forbes Advisor article “What Is An NFT? Non-Fungible Tokens Explained (Links to an external site.)” defines them as “a digital asset that represents real-world objects like art, music, in-game items and videos.” What sets these assets apart from anything else on the internet -- and what makes them valuable -- is the non-fungible aspect, protected by the blockchain. Non-fungible means that one NFT is not worth the same as any other, and so can’t be exchanged like a dollar bill would be. Each NFT is one of one, like diamonds or a painting, and the owner can prove this with the blockchain which tells others that they are the sole owner of the NFT.

The blockchain protects the owner’s investment, acting as a list of records of who has bought what and when. In a video from CNBC titled “Can You Make Money From NFTs (Links to an external site.)?” ClubNFT CEO Jason Bailey states that the blockchain is secure because it is a decentralized system that exists across many different computers, making it nearly impossible to change or interfere with any of the records. Through this blockchain, it is possible to ensure that a buyer is purchasing the original copy of an NFT, as opposed to physical artworks in which the amount of prints or forgeries compromise the value and rarity of the artwork. Furthermore, through the blockchain, artists are able to make profits off of secondary sales, whereas with physical artwork artists often only profit off of the initial sale. These aspects make NFTs a very appealing new market, and with the amount of money being made through them, who wouldn’t want to take their chances.

However, in its current state, NFTs are still highly volatile. While headlines show that NFTs are being bought and sold for millions of dollars, that’s often not the case. Many young people believe that they can purchase an NFT for low and then sell it for much higher a few days later, much like stocks, but don’t succeed because the buyer market isn’t there. Despite it being a multi-billion dollar market with constant growth, as shown in the graph below, the amount of buyers is only in the thousands. In an article from Annuity.org, “From the Experts: 8 Pros and Cons of Non-Fungible Tokens and How They Compare to Traditional Investments, (Links to an external site.)” author Thomas Brock argues that, “Buying [NFTs] with the hope of achieving triple- or quadruple-digit price returns is not advisable. The real value of NFTs lies in their potential to transform the way markets function and enhance the way we manage and control sensitive information.” While NFTs may be profitable for some, they aren’t for everyone, and it certainly isn’t a smart decision to pour all of your money into a market which is constantly changing and may never show you any growth. Regardless of this, it is undeniable that the blockchain has applications in many other fields to protect information as it is incredibly safe and near impossible to falsify.

Although a volatile market, it is undeniable that NFTs are an ever-growing industry. The CNBC video states that the NFT market has shown year to year gains of a staggering 38,000%. The graph included below shows the rate at which the NFT market cap has grown just during the first two months of 2021, reaching a peak in March of 2021 with a market cap of just over $20B. As of right now, nearly a year after these statistics, the current market cap of NFTs is about $31.4B. It is very apparent that the NFT marketplace is continuing to grow, and with major companies like McDonald’s, Taco Bell, and others offering their own NFTs, that marketplace is only going to continue growing. Nonetheless, it still stands that one can not expect a guaranteed return on investing in NFTs, and so if you choose to go out and purchase or mint your own NFT, do so with financially responsible, low-cost investments to avoid bankruptcy at the hands of a poorly drawn monkey JPG.

Works Cited

“Are NFTs a Good Investment?” CNBC, CNBC, 9 Feb. 2022, www.cnbc.com/video/2021/11/28/are-non-fungible-tokens-a-good-investment.html.

Brock, Written By
Thomas J. “8 Pros and Cons of NFTs & How They Compare to Traditional Investments.” Annuity.org, 18 Jan. 2022, www.annuity.org/2022/01/14/from-the-experts-8-pros-and-cons-of-nfts/#:~:text=The most obvious benefit of,pockets of the art world.

Conti, Robyn. “What Is An NFT? Non-Fungible Tokens Explained.” Forbes, Forbes Magazine, 16 Feb. 2022, www.forbes.com/advisor/investing/nft-non-fungible-token/.

Young, Joseph. “NFT Market Rages On: NFTs Market Cap Grow 1,785% In 2021 As Demand Explodes.” Forbes, Forbes Magazine, 10 Dec. 2021, www.forbes.com/sites/youngjoseph/2021/03/29/nft-market-rages-on-nfts-market-cap-grow-1785-in-2021-as-demand-explodes/?sh=56270d477fdc.