Risks when investing in NFT
risks you should be aware of before investing in NFTs
The rise of blockchain technology has created a new type of investment, NFT. Investing in NFTs might be something that is viewed as very trendy at the moment as everyone is talking about it. Before you start, it is best to understand the what is NFT and the risks when investing in NFTs.
1. Scams
The increase in popularity of NFT increased the chances of scams. There are ways for scammers to sell fake copies of the original NFT, create fake website and wallets etc, which will be discussed in more details later in the article.
2. Protected By Law but is very unclear
Currently, there are existing regulations that protects investors when they purchase NFTs. However, since trading and investing in NFTs only gained popularity recently, it makes current regulations very unclear. There is also no no organization or government in charge of implementing new regulations for NFT. This raises the chance of scammers doing illegal activities to scam NFT investors and creators.
3. NFT's Price Demands On The Demand Of The Market
NFTs does not have an intrinsic value. Their price can also change drastically in 1 hour which makes it unpredictable. For how much a NFT is sold, it solely depends on the NFT’s hype and how much people are willing to pay for them. This means that scammers can inflate the price using unlawful or unethical methods. (Which will be discussed in a latter part)
4. NFT is a Highly Volatile and Iliquidable Asset
Price of NFT can change exponentially as mentioned in risk number 1. It is also very iliquidable as there needs to be a buyer before the owner can sell it.
5. Security of Blockchain
Blockchain technology is always promoted as secure and decentralized. However, there are some blockchain that are more vulnerable to hack. Also, some NFTs are not stored on the blockchain but instead, on a centralized server which is linked to the blockchain. These NFTs are more prone to being hacked and stole.
6. Uncertainty
There are a lot of uncertainties in NFT as it is a technology that have been on the rise recently. No one can predict how NFT will develop in the future which makes it an uncertainty when investing in NFTs.
A Note to You: Trading NFT is not an easy way to earn money!
Similar to buying unique actual paintings, NFTs let investors buy and sell digital assets. However, one shouldn’t blindly follow the crowd because doing so may put their finances in danger. Thus, when a person is in the NFT marketplace for trading, having knowledge about NFTs, buying and selling, and other related information can aid in making informed decisions.
NFTs are a developing technology, and the mania surrounding purchasing, owning, and trading NFTs has just recently begun to spread. Given the illiquidity, volatility, and lightning-fast pace of NFTs, as well as the numerous risks involved for investors, buyers, and sellers alike, it is uncertain where the future will lead us. Because this technology enables the use of blockchain in financial services for a variety of applications, including cryptocurrencies, we will likely see several upgrades to mitigate the risks mentioned above.
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