NFTs are all the rage now and it seems everyone is talking about them. Million-dollar trades for pictures of colorful cats and pixelated punks have been making news since early 2021. With everyone from tech-savvy teens to billionaire CEOs going NFT-crazy, it begs the question––how can modern entrepreneurs get in on the action?
New technologies often promise opportunities for massive ROI, but it can be hard to tell if they will pan out long term. With blockchain commerce, the more stakeholders there are, the more secure investments become.
As with any potential investment, you never want to go in blind. That’s why we’re looking at the potential opportunities and risks you need to know before getting into NFTs.
What are NFTs?
Non-fungible tokens (NFTs) are non-interchangeable and non-replaceable digital objects. They are distinct from fungible assets like fiat money or cryptocurrencies in that each NFT is unique, can’t be divided and can’t be traded against each other. Fungibility underlies the utility of goods as financial instruments, like gold or bitcoins.
NFTs are tokens representing a digital asset, like a certificate of ownership or a deed. They can only be owned by one person at a time. Just like real-world commodities, the rarity of assets affects their value, and consequently, the value of their tokens.
So how is this useful for businesses?
NFTs offer great utility and security based on their unique characteristics. They share the following properties:
- Digital Permanence
- Provable Ownership
These features make them perfect for any use case where security, traceability, and fidelity are necessary.
What are the business opportunities of NFTs?
With NFTs disrupting traditional business operations everywhere, exciting new opportunities are being created. The following are key areas to keep an eye on:
NFT Management and Security Software
The increasing popularity of NFTs means that individuals and enterprises will need custom solutions for managing their assets. This creates several opportunities for software businesses, including:
- NFT evaluation and tracking services
- digital asset authentication
- NFT security
With more players entering the field, these opportunities are only increasing.
Contracts/Certificates of Authenticity/Real Estate
NFTs can potentially be used as secure and traceable documents. They may prove useful in the following real-world and digital applications:
- professional contracts
- certificates of authenticity
- deeds of ownership
- product licenses
They are transferable, durable, and almost indestructible, providing security and reducing the costs (and risks) associated with traditional document management and storage.
Supply Chain Management Solutions
NFTs feature some of the same advantages of blockchain technology like traceability and information security. NFT records are updated after each transaction throughout the entire supply chain. This can be leveraged for tracking supply chain operations quickly and accurately. While this hasn’t been fully realized yet, the potential to disrupt traditional SCM technologies exists.
Gaming / Digital Assets
No discussion of NFTs would be complete without acknowledging NFT gaming. Driving the growth of the play-to-earn industry, NFTs have made it possible to make a living by playing video games. Gaming platforms like Axie Infinity now support millions of players all trading NFTs and crypto-assets daily, with multi-billion-dollar market caps.
What are the risks?
While NFTs seem to be exploding, as with any new technology it’s wise to approach the field with caution. The following are just some of the risks associated with NFTs:
The value of NFTs is volatile meaning that for NFT investors, the market price of a token can fluctuate wildly with little basis. Valuations may shift based on buyer perception. NFTs are also illiquid assets, turning them into usable cash can be harder than with cryptocurrency or other assets.
NFTs can also pose serious cybersecurity risks including:
- bad actors minting malware as NFTs
- smart contracts used as entry points
- cams and phishing
Any of these could be devastating for individual NFT or crypto traders. For prospective businesses connected to the wallets of multiple users, it could be catastrophic.
While NFTs cannot be counterfeited once they have been minted to the blockchain, the assets that they are linked to can. In the past, bad actors have minted NFTs of copyrighted digital works and passed them off as their own.
Are NFTs right for you?
As with any investment, before getting deep into NFTs it’s important to do your research. While opportunities abound in this new space, they are not without their risks. Still, tech entrepreneurs who can capitalize on the potential of NFT technology can be at the forefront of industry-disrupting solutions. Where there’s big change, there’s always room for big gains.
About the authorElena Leralta
Working as Foreworth’s Chief Financial Officer, Elena possesses a wealth of knowledge on business management and finance owing to her over 20 years of experience working in the financial sector.More info →
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