Non-Fungible Tokens or NFTs, is a hot topic that everyone is either trying to learn more about or has heard. Literally, in the crypto space or web 3 space one cannot go a day without hearing about it. Even though the NFT space seems saturated, it is still in its early stages. It's fair to say that most people on social media and the world are aware of NFTs but some may not understand, trust, or believe in the investment potential of this space. Hopefully this article will allow one to see the potential of the NFTs space, how to evaluate the NFT project, and how to utilize this space for your advantage.
What is a Non-fungible Token or NFT?
The simplest way to explain an NFT is that it is a unique token created on the blockchain (such as Ethereum Main Network). A blockchain is where digital information is stored in a decentralized network. Decentralized means there is no middlemen or person handling the transfer of the digital assets, in this case the NFT. Centralized is the opposite, think of the bank, you transfer an asset utilizing the bank services in which a person must make this happen. The fact that an NFT is created on the blockchain makes it a unique asset to create, own and profit from. Furthermore, the NFT space has provided the web 3 space with ownership over their digital creations. It is more than just artwork, depending on the project.
Primary Characteristics of NFTs
For an NFT to even be considered as an investment, one should look for these primary characteristics: uniqueness, permanent asset, decentralized network, and programmability. Uniqueness implies that the NFT should not be just multiple pictures with a few changes but has utility involved in it. Utility means that owning the NFT gives you unique access, such as exclusive in real life events (IRLs), discounts on product’s, the ability to gain more assets through ownership of the NFT, and the ability to resale for profits. Permanent asset, since NFTs are created through blockchain technology, it is immutable, unable to change. Once someone creates something on the blockchain it is there forever.
Decentralized, allows for blockchains to transfer a transaction without human interference and depends on the proofing system. The proofing system is how the transfer is approved, this is where the term mining, staking, and peer to peer (P2P) come in to play. Programmability, basically coding systems are needed to create the utility and smart contracts for the NFT. For example, one may want to add exclusive access to their land on the metaverse, once you connect your wallet (with the NFT purchased) you have access.
How Do You Evaluate these Projects?
Besides evaluating if an NFT has those primary characteristics, one should check the social media of said project. First, a project is literally someone who has an idea to create an NFT to be sold through one’s personal minting (initial place of purchase) website. Once all the minting NFTs are sold then a secondary market, like Open Sea, will allow one to resale or auction for a price or flip it. In the NFT space one is bombarded with plenty of information, but you must do your own research on the project. Doing so will prevent a rug pull. Rug pull means, the project makes profits by making promises, which do not happen, you gain no value from owning the NFT.
Researching is checking the social media which will allow you to go to the projects main page, check their road map (plans for the project and why you should buy in), gain access to the discord, telegram, and twitter page. These are important to review because you can see who is behind the project, see if the discord or telegram community is really about the project and new developments of the project. The value of NFTs, ONLY MATTER IF THE COMMUNITY PLACES VALUE!!! Yes, that’s in all caps because it is super important. This determines truly if this NFT was a good buy or not. In addition, the utility is very important, and intellectual property or owning your NFTs metadata (image).
Why Buy an NFT and Advantages
The simple answer is the potential return of investment (ROI). Think if you would have purchase early in Crypto Punks or Bored Ape Yacht Club projects, you probably would be a lot richer. Even though those projects are majorly expensive, there are still projects that you can invest in for an ROI. Another is community, you can be involved in an exclusive community where you can network and grow, just because of your NFT purchase. For example, I am a part of an NFT that provides financial utility such as 30% off taxes for small business when utilizing their services, provides financial knowledge from successful people, and has IRL events. Lastly, growth the ability to grow by coming up with new ideas or listening to people heavily invested in the project or whales. Whales are people who have bought a numerous amount of NFTs within the project. Purchasing good NFT projects provide ROI, community, utility, and growth potential.
Cons of NFT
I spoke about the advantages of purchasing an NFT, but with anything there are disadvantages. The most obvious is a rug pull. Usually, those projects can be celebrity endorsed, hyped up, or the roadmap does not get complete. Another is scamming in the form of malware on your wallet or through DMs on social media apps. Mismanagement from the creators of the NFT project, such as not growing or growing too soon, pushing you to overprice their project. All these things can be avoided by doing your research, turning your DMs off especially in discord and protecting your digital assets with a hard wallet (like ledger, etc). Protect those addresses.
NFTs are still in the beginning phases of the web 3 space but are gaining so much traction due to ownership. In the past, the real issue with web 2 was ownership, and creating or having an NFT provides ownership. In addition, good NFTs provide potential ROI, community, utility, and growth. By protecting yourself and doing your own research on products, NFTs could be a great investment. Regardless, the blockchain technology is vital in growing not only the NFT space, but also the web 3 space. Hopefully you got some more insight and information regarding NFTs. All the Best.
