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Are NFTs and Virtual Items a Good Form of Investment?

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Disclaimer: I am not a financial advisor so please do not take any of this information as impetus for your own investment. Any investments that you make should be a result of your own research. After all it is your capitol at risk.

While NFTs have exploded in popularity over the last few month, virtual items have been around for a very, very long time. Beyond the question of whether a tweet is worth $2.9 million, as was paid for Jack Dorsey’s first ever tweet, we’re all asking whether buying NFTs and virtual items can be considered a sound investment.

As with anything financial, the discussion is not straight-forward. That said, we can take a look under the hood to better understand NFTs and Virtual Items to consider whether they are likely to accrue value over time or not.

Investing in Assets

When investing in items, such as art, the first rule of thumb is to realise that the item itself isn’t the money-maker—it is selling that art to the highest bidder. This means the perceived value of an object determines its return on investment.

Thus, changes in value are often hard to predict. For example, if an artist of an original painting you own dies or if a particular asset has increased in rarity, you’re likely to see a spike in your investment.

This differs from, say, buying stocks where you expect the value of your stock to increase as a business grows its value.

Thus, for NFTs, like a tweet a GIF or an artwork, there’s no real-world counterpart defining its price other than the fact that somebody else wants it; and wants to give you X amount of money for it.

This is important to note before investing in non-fungible assets of any kind… But if you’re anything like me a few months back you’re questioning what “fungible even means”. That takes us onto…

What are NFTs and Should You Invest in Them?

NFT stands for Non-Fungible Token. Non-fungible denoting the fact that that given item is unique (opposing fungible items, such as money, which can be exchanged for exact copies of themselves).

Thus, NFTs are essentially tokens which prove your ownership over a particular asset—whether it be physical or digital. These NFTs locate themselves on the blockchain, which acts as a public leger allowing anyone, with the technical knowhow, to see the original transaction for the asset. Storing transactions this way helps to defend against fraud and theft, because for the token to change hands the transaction must be completed on the decentralised blockchain.

Investing in an NFT is easy. You simply go onto a marketplace and purchase the NFT. Of course, it’s a little more complex than that but you essentially just buy it as you would any other item, and then it is written to the blockchain.

So, now that you have an NFT how do you make money off of it? Well, that’s more complex. Like with real-world investment in items, it’s unlikely to be a get rich quick scheme. Instead by buying the NFT as an investment, you’re essentially wagering that someone will pay you more for that NFT in the future—something which only time will tell.

In short, NFT investing isn’t too different from investing in real-world objects. It is safer, being on the blockchain, but given the hype that has gone the way of NFTs in recent months there’s also a slight possibility that the NFT bubble may burst causing many to lose their investments if they are not chosen carefully.

Investing in Virtual Goods

Virtual goods are quite different. Here we’re going to talk specifically about virtual goods in video games. These can be simple items that appear across a game, or unique items such as the skins in CS: GO. The key difference between virtual goods and NFTs is that virtual goods are not on the blockchain, and are more likely than not to exist on the servers of a particular company—whether that be Blizzard, Valve or anyone else.

This means that the inherent value of these items is near to, if not, zero. This is due to the fact that the developers theoretically could copy the item indefinitely, move it, or a breakdown in the system could result in it being lost. This differs from NFTs as, unless blockchain completely decomposes (which it won’t) your proof of ownership will always be there.

But inherent value means little in the world of investment. As we mentioned before it’s all about what someone is willing to pay you for the item.

Given that virtual goods are often earned in different ways, be it through gameplay, grinding or transactions with real money, it’s hard to generalise about whether they are a sound investment, or will even make you money.

Just remember that markets like these are based on scarcity. That means if you find yourself with the only Santa Hat in the whole of Runescape, the only person with a specifically gorgeous skin in CS: GO or the only one with an alternate art item in Path of Exile the perceived value of that item is going to skyrocket.

The next hurdle about investing in in-game goods is turning it back into real money. Fortunately, sites like ElDorado.gg can help you out in this regard providing a lucrative marketplace for translating items and in-game money into real-world currency. Whether you’re looking to buy or sell gold in OSRS, CS: GO, PUBG or more Eldorado.gg has everything you need.

The Overlap Between NFTs and Virtual Goods

While NFTs and virtual goods are currently two different things, there’s a chance that in the coming years we may see them merge, specifically in the gaming space.

An independent survey found that 63% of gamers reported they would spend more on virtual goods if those goods also had real-world value. This real-world value can be promised by NFTs, as it provides gamers with a far easier way to sell games outside of the developer’s ecosystem. What’s more, if gamers buy in-game items as NFTs they would even be able to hold onto them after the game shuts down and move them to another game or ecosystem that would support them. While we’re not quite sure how that would work, it is certainly an exciting prospect.

So, in short, investing in both NFTs and virtual goods as a whole is a wager that someone will pay you more for that asset further down the line. While this can be a safe investment in items such as houses, and a doomed investment in technologies such as mobile phones, when it comes to art, NFTs and virtual goods we enter hazy ground. Of course, some people may make a tonne off of buying and selling these goods. After all art dealers, auctioneers and many types of traders have been around for millennia making money this way. But those inexperienced or without a true understanding of how these marketplaces work may fall into the trap of spending their capital on an asset that simply isn’t worth the investment.

That said, if you have a favourite piece of art or a particular weapon skin you simply want to own, that’s something totally different. The clout and enjoyment that can bring would be totally different. And, at the end of the day, if you make your way to the top of the CS: GO leaderboards using a particular skin as your signature then, well, that virtual good may be worth a whole lot more by the end.

This is a paid promotion. Datafloq does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products or other materials on this page. Readers should do their own research before taking any actions related to the company. Datafloq is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this promotion.
Image Credit: Gerd Altmann from Pixabay

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Source: https://datafloq.com/read/are-nfts-virtual-items-good-form-investment/14097

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