The Pros and Cons of NFTs in the Web 3 Movement

NFTs are one of the most talked about topics in the crypto and tech space today. Some people love them, and some hate them. But what is all the fuss about?

Learning about Web 3 and NFTs can be a bit of a minefield, especially if you don’t know where to start. That’s why I have written a quick pros and cons lists for NFT use in the Web 3 space.

Pros of NFTs

1. Better opportunities for artists

Before NFTs, artists had to rely on middlemen to help them connect with their customers. Sure, some people could make a living selling on the street, but the chances of becoming known for their work were very slim.

Many artists rely on platforms, such as Etsy, Fiver or eBay. These often take a chunk of the artists earning through sales fees and remove the artists ability to control the sale. The world of art has become cutthroat and impossible, making these platforms essential for survival.

But NFTs can change that.

Buy minting their work as an NFT, artists can sell their pieces directly to the customer and maintain full control of the sale. They can organically build their reputation and directly connect with their customers.

The only fees artists pay is the original minting cost and gas fee, but this is decisively better then older methods. Which brings me onto point number 2…

2. Creators can earn royalties

Unlike traditional art sales, artists who mint their work as an NFT can earn money from secondary sales of their work. This means they can be paid time and time again.

The art world is very volatile, with prices fluctuating based on speculation and demand (similar to the NFT marketplace). But the NFT marketplace offers something a little more to its creators.

Lets say we know an artist called Brian. Brian is in the early stages of his career and paints a beautiful landscape drawing. He then sells this canvas painting for a small profit of $100. But over the next 5 years, Brian gains fame and notoriety, and this same canvas painting is now worth $50'000. If this painting is sold, Brian will get no money back, even though he did all the hard work.

However, NFTs allow the artists to set a royalties fee and gain revenue from secondary sales of their work. This means they will always be compensated for their art, making NFTs a pretty sweet deal.

3. Transactions are honest and transparent

NFTs are stored on the blockchain, a digital ledger which records all transactions relating to a specific asset. And the best part? Everyone can see this ledger.

This transparency allows a new depth of honesty when buying and selling assets online. Everyone can see which wallet bought or sold an asset, how much the asset cost, how many hands it has gone through and which wallets were involved. They can also see who created and minted the asset, and what other transactions these wallets have made.

This information is very useful for proving the authenticity of the asset. For example, imagine Brian created a wallet and sold his landscape painting as an NFT. When the buyer goes to resell Brian’s work, he has undeniable proof that this NFT is authentic and not a forgery, a common problem in the art world.

This new layer of trust and honesty is a huge step for the digital world.

4. NFTs can act as an investment

Now, I’m sure all of this is sounding very lucrative for those looking to make a profit from NFTs. Well, your not the first to think this way.

Imagine you are scrolling through Twitter, and you discover a buddying young artist called Brian, looking to sell an NFT of his art for just $100. You like the art and you want to support him, so you buy the piece.

Fast forward 5 years later, Brian has shot to fame and that same piece is now worth $50'000. And the best part? You have undeniable proof that you own it! Due to blockchain technology, this piece cannot be copied, falsified or stolen, so you have the original and someone is willing to buy it.

Sound like an amazing deal? That’s the power of NFTs.

Lots of investors are looking to do the same thing, which is why NFT news is often clouded with speculation, uncertainty, horror stories or big-win stories. Everyone wants to find their own Brian.

However, it’s not all doom and gloom. Many speculate the market is oversaturated right now, but there is still room for innovative creators and artists to build valuable pieces. They just need to be found.

If you think investing in NFTs may be for you, check out this short post on how to sport a valuable NFT project.

5. There is room for more than just art

Part of spotting a valuable NFT is figuring out why the asset is useful.

While some NFTs just offer the picture itself and the potential for inflated prices, other NFTs offer owners extra benefits. This is called utility.

Nowadays, utility is a huge part of the NFT community. Most speculators believe the future of NFTs lies in project development or ownership of digital assets.

NFTs are not limited to JPEGs. You could mint almost any intellectual property as an NFT, such as a piece of music you wrote or a video you recorded.

This creative freedom means NFT could have a future in business.

Imagine you are a young videographer, and you make amateur documentaries with your friends at weekends. You and your friends decide you really enjoy making videos, and want to start taking this hobby more seriously. You set up a website and portfolio, you pick a business name and start marketing your content on social media.

However, your young and don’t have a lot of money. The videos you make are good, but they could be even better if you had some capital to get a better camera and some props.

You’ve heard about NFTs on the news and you decide to give it a shot. You and your friends create a few videos and mint them as NFTs. When you put them up for sale, they sell out instantly and you have the money you need to get the equipment you need.

Because of these NFT sales, you are able to expand your business, and in return, the buyers of your NFTs are given a free exclusive video every month as a thank you. This makes your fans happy, and as your fame grows, so does the value of these original NFTs. A win-win for new businesses.

Cons of NFTs

1 NFTs are new to the market

The first NFT was only sold in 2014, with NFTs only really becoming mainstream in the last 3 years. That makes this exciting technology very new.

And like with all new technology, there is always someone looking to make a quick buck. The influx of scammers and criminals in the space has been a scary challenge for the NFT world. Chain Analysis estimate scammers made $8.9million in 2021 alone by “wash trading”. This is when the scammers run multiple accounts and artificially inflate the price on an NFT to mislead buyers.

Most illegal action involves scamming NFTs out of your wallet or conducted a rug pull. But there are ways to protect yourself. I will be writing up a list of security measures you can take, so make sure to follow so you don't miss out.

2. Investing is risky

It’s no secret. The NFT market is very volatile.

One day your asset could be worth hundreds, and the next it could be pennies.

Your NFT is only worth what someone is willing to pay for it, which means you are very vulnerable to market speculation. NFTs can lose value overnight for many reasons, like not enough demand or the market suspects the project is a rug pull.

Your putting a lot of trust into a creator when you buy their work, meaning you risk loosing your investment and selling at a loss.

However, you can negate some of this risk by doing your research, getting to know the creator and only investing money you can afford to lose. Just be aware there is no guarantee of your investment paying off.

3. The market is saturated

Since the market is so lucrative and volatile, everyone wants a piece of the pie. People are piling into the space to make money as fast as possible, and some creators are using a loud voice to make their project sell out.

But the space is still very new, and with such a saturated market, no one knows which brands will survive and which will fail. It’s anyone's guess who the Van Gogh of 2022 will be.

With plenty of projects and investments to chose from, market research is becoming harder every day. Will there even be another project as successful as Board Apes Yacht Club, or are NFTs on their way out?

We have no idea what the future of NFTs will look like, but we do know NFT and blockchain technology are evolving. This means creators who don’t adapt to the times won’t survive the next few years even if they do sell out their projects (making their value go to zero).

With this in mind, is it too risky to bet on NFTs?

I don’t think so. I believe NFTs have too much potential to be forgotten about, and while they may be different in the future, NFTs are likely here to stay. However, I advise you do as much research as possible to keep up to date on the changing market before you commit to anything.

4. NFTs are illiquid

The NFT marketplace revolves around demand. If you buy an NFT and decide to sell it, you will need to find another person willing to buy the asset off you for the price you are asking.

This can take a very long time if you are not careful, and can lead to you getting “stuck” with an unwanted NFT. If no one wants to buy it from you, its valueless.

This means if you decide to buy an NFT to flip and sell for a profit, you need to make sure you do it fast enough and when demand is high so you can actually sell it.

If you don’t, you may just be stuck with it and the price may not go back up. This is why investors are now looking at projects with an excellent post-mint strategy, as they are more likely to produce an NFT that will rise in value rather than sink.

If you are going to invest this way, make sure you don’t lock up any funds you won’t need later down the line. Have a sound source of income and an emergency fund to support you if you need quick cash. Again, don’t invest money you can’t afford to lose.

5. NFTs are bad for the environment

A major criticism for the use of NFTs is that they are not very efficient and require a lot of energy to be put on the blockchain.

Naturally, electricity must come from a source of energy. This is most often greenhouse gases which are not good for the environment. Does this mean NFTs are harming the environment? You can read more about the controversy here.

While NFTs are not currently very efficient, there are procedures being put in place to reduce this carbon cost. For example, Ethereum will be moving from proof of work to proof of stake contracts which will allow them to be 99.95% more efficient.

Could this help reduce the problem for NFTs? Lets see.

Conclusion

NFTs have their ups and down.

For the most part, they can be a valuable asset for both buyers and sellers, and may be used in the future to revolutionise creative industries, such as gaming, art, music and sport.

However, their downsides can be off putting. If you do chose to be a part of this space, it’s important to research as much as possible and learn how to protect yourself. If there is anything you want to learn about NFTs in particular, leave a comment and I will do my best to answer. We will be posting more information about NFTs and Web 3 over the coming weeks if you are interested.

If you want to learn more about Web 3, here is a quick explanation you can read in just 6 minutes.

Guess what? We launching our own NFT project where you the audience can take control. Our missions include completing a community chosen project, donating to the beloved charity NABB and giveaways (including a classic motorcycle)! You can check out our roadmap and join our discord to be part of the ride. We are also on on Medium, Twitter, Instagram or YouTube. There is no obligation to join in, but feel free to start a conversation and get to know us.