Overview
We live in a world where technology is constantly changing in many positive ways, especially where medical advancements can now cure terminal illnesses, for which there were never cures. There are cars powered by batteries and people on opposite sides of the world can now participate in virtual meetings with video and audio feeds of the highest quality.
How consumers see the world is changing as well, brought on by the same technology that resulted in the cryptocurrency craze which sent Bitcoin values soaring. Blockchain technology is paving the way forward for many industries, especially healthcare, finance, automotive, and several others that are slowly adopting smart contracts, amidst other rising technologies.
NFTs, which are non-fungible tokens, are not an entirely new concept even though not everyone is familiar with their existence and rise to fame in recent years. They have been the topic of many headlines around the world, and they are the reason why so many investors are forking out millions of dollars for digital collectable items.
In this article, we will explore where they came from, what they are, what their investment potential and outlook are, and what their associated pros and cons are. Giving investors the answers they may seek to this new, rising trend in the digital world and whether it is worth pursuing.
NFTs Explained
NFTs are digital tokens and assets which are based on a blockchain network, and they come in a wide range of forms, including:
- Art pieces
- GIFs
- Memes
- Videos
- Sports Highlights
- Collectables
- Virtual Avatars
- Video Game Assets
- Designer Sneakers
- Music, and many more.
The most notable characteristic of NFTs is their non-fungible nature. This simply means that each NFT is unique and that no two NFTs are the same or have the same characteristics. Fungibility means that there is more than one unit contained in the asset and all units are the same, interchangeable and each part is indistinguishable from others.
This is true for all currencies such as the South African Rand, for instance, where one R1 coin holds the same value as another R1 coin. Because they are fungible, a person can lend a few R1 coins to a friend or family member and when they receive payment back, the value of the coins that were received will not be distinguishable from the coins which were lent out initially.
This means that non-fungible tokens are each unique in their way, making them irreplaceable. Unique art pieces such as the Mona Lisa, for instance, are non-fungible. If anything happens to the painting it could be replaced with a replica, but it will not have the same value as the original piece.
How were NFTs created?
NFTs were created and launched in 2017 when Matt Hall and John Watkinson created Crypto Punks, highly pixelated digital images that were truly unique. NFTs are based on the Ethereum blockchain which is home to Ethereum, the second-most-popular cryptocurrency in the world next to Bitcoin, namely Ethereum.
Ethereum has a unique blockchain which was developed as a network that contains smart contracts, allowing developers to base their projects on the blockchain. Developers create different assets of value through an interconnected and verified ledger of communication which also provides ownership, allowing digital assets to go beyond basic cryptocurrencies.
Depending on the demand for NFTs, they can reach millions in value, with CryptoPunk #3100 sold for $7.8 million (110 million ZAR) in March 2025, four years after it was bought for just over $2,000 (28,215 ZAR). This is just one example of how much these digital artworks are selling today, all heavily reliant on the demand for these unique pieces.
How are NFTs different from Cryptocurrencies?
NFTs and Cryptocurrencies only share one similarity and that is that they are created using the same programming. Cryptocurrencies and paper money (also known as fiat currency) are both non-fungible.
The same principle applies to fiat money, where one unit is the same as another unit of the same value. These currencies can also be exchanged for one another, where one ZAR can be exchanged for another, and one Bitcoin can be exchanged for another Bitcoin.
This is not true of NFTs as each asset and unit is unique and must be treated accordingly. The two should not be confused despite their link to blockchain technology. Fungibility is one of the main things that makes cryptocurrency trusted as a store of value and method of payment.
What are the Advantages and Disadvantages of NFTs?
As with any other investment, it is crucial to weigh the advantages and disadvantages to determine whether the investment is worth it.
Advantages
- One of the main advantages of NFTs revolves around the potential for growth that it has and the fact that it could remain a step ahead of inflation, if the digital artwork appreciates, allowing the owner to earn a decent return on investment.
- NFTs also allow for ownership of a truly unique digital asset where the ownership or authenticity cannot be questioned.
- There is currently a significant amount of excitement behind NFTs and investors from around the world are exploring the options of owning some. Blockchain technology is expected to cause major shifts in consumer behaviour, much like the Internet did when it was invented.
- With physical assets, there are many challenges with authenticity and proof of ownership, which is not the case with NFTs because of blockchain technology. There is clear ownership with a digital certificate that serves as the certificate of ownership.
- Digital assets are not impervious to theft, but there are robust security features involved with the protection of digital assets and they are also insusceptible to damages, wear and tear, and other factors that physical art pieces may be threatened by.
Disadvantages
- Physical pieces of art cannot be digitized and there is more allure to seeing a painting with your own eyes than owning a digital asset that is protected with robust security.
- NFTs are still very confusing, and their ownership does not mean that there is copyright. Many people can still copy, paste, and share the image that someone else paid millions for, which calls into question the true value of these pieces.
- The environmental impact that revolves around cryptocurrencies and NFTs is still a major discussion. There is a lot of computing power and subsequent energy use that goes into blockchain-based assets.
The Investment Potential of NFTs
Whether or not to invest in NFTs will depend on each investor, their portfolio, risk appetite, and risk tolerance, among other factors. NFTs, like any other investment, are risky because there is uncertainty in their future.
Their future value cannot be calculated because there is truly little history according to which past performance can be determined. NFTs are a personal decision and will depend on the investor and whether they find personal meaning behind these unique pieces.
Another consideration is that the value of all NFTs heavily relies on what another investor is willing to pay for the NFT. The price of any NFT is therefore determined by demand instead of the various economic, technical, and fundamental indicators.
This poses the risk that investors may not be able to sell their NFTs, or that they may settle for a price lower than the initial purchase price. In addition, there is also the consideration that NFTs may be subjected to capital gains taxes.
This is because they are collectable items and they, therefore, do not receive preferential long-term capital gains rates. The likelihood of NFTs being taxed at much higher rates because of their unique nature is very high, especially if they appreciate once purchased.
What is the outlook for NFTs?
NFTs are highly speculative bets and the current trend involved with them could end at any given moment. Art is only ever worth the value that collectors place on it and there are many popular paintings where the artists only became popular after their death, for instance, Leonardo da Vinci with Mona Lisa.
FAQ
On which blockchain are NFTs based?
NFTs were created on the Ethereum blockchain as there is an ideal platform and architecture provided for the development of digital projects such as NFTs.
Are NFTs and Cryptocurrencies the same thing?
No. Cryptocurrencies and NFTs are both based on blockchain technology, but they are not the same.
Is it worth investing in NFTs in 2025?
This will depend on each investor, their risk profile, and their unique financial situation. The value placed on NFTs will depend on the demand for unique digital assets. Some may never appreciate it because of a lack of demand.
Are NFTs the future?
Blockchain technology could change how consumers view the world. However, it is uncertain whether NFTs will continue their upward trend.
Will NFTs replace physical art?
No, they are not likely to replace physical art. Physical art will always draw the attention of certain collectors while NFTs draw a different crowd for various reasons. Physical art cannot be digitized, and its value is set to increase as time passes whereas the future of NFTs is uncertain.
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