An NFT is a cryptographic token, a unit of data stored on a digital ledger, called a blockchain, which can be sold and traded. Unlike other cryptocurrencies like bitcoin, NFT can be represented with a particular digital or physical asset that has a unique value (such as a file or a physical object) and an authority to use the asset for a specified purpose. An NFT can be traded and sold on digital markets. Although, the concept of Non Fungible Token entered the market in 2014 but has recently gained wide popularity. Over $174 million has been spent on NFTs since November 2017.
NON FUNGIBLE TOKENS (NFTs)
NFTs are not mutually interchangeable like other cryptocurrencies and hence not fungible. On one side where all bitcoins are equal, each NFT represents a different underlying asset having different values. NFTs are created when blockchains stretch records of cryptographic hash, onto previous records, thus creating a chain of identifiable data blocks. This cryptographic transaction makes sure the authentication of each file by assigning a digital signature that is used to track NFT ownership. Further, data links that point to other details like where the art is stored can be destroyed.
HOW DO THEY WORK?
At a very high level, most NFTs exist on the Ethereum blockchain. Like bitcoin and dogecoin, Ethereum is also a cryptocurrency, but its blockchain also supports these NFTs, which store extra information that makes them work differently from other cryptocurrencies. An NFT is obtained from any digital objects like art, GIFs, videos, sports highlights, virtual avatars, video game clips, designer sneakers, music, and even a tweet.
NFTs are like collector’s digital items, for example, instead of buying a traditional painting the buyer gets a digital file and he can get exclusive ownership rights.
Let’s try to understand this with the help of some examples:
- Jack Dorsey sold his first-ever tweet as an NFT for more than $2.9 million.
- Nyan Cat, a 2011-era GIF of a cat with a pop-tart body was sold for nearly $600,000.
- Bollywood Actor Amitabh Bachchan sold his collection of NFT at $9,66,000 in an auction hosted by BeyondLife.
- In April 2021, Edward Snowden’s Digital artwork “Stay Free” was sold for $5.4 million. This is the only NFT that the whistleblower has created till date.
- “Save Thousands of Lives” created by Noora Health was sold via OpenSea at $5 million. The proceeds will be used by the NGO to save thousands of lives.
HOW TO BUY?
There are some key highlights to keep in mind if you are planning on starting your NFT collection:
- First of all, you have to get a digital wallet where you can store your cryptocurrencies.
- Once you have set up your digital wallet you will need Ether to pay for your first transaction.
- After adding ETH, you need to set up an account on an NFT marketplace where NFTs can be stored, displayed, and traded.
- Now you can finally buy your first NFT by either creating it on the blockchain on the website of the NFT project or you can buy it from a secondary market like OpenSea, Rarible, Foundation.
BENEFITS OF NFT
- NFT’s key feature is the ability to prove unique ownership. NFTs can assist in linking ownership to a single account because they are on a blockchain network. NFTs cannot be shared among various owners. NFTs protect consumers against the risk of receiving counterfeit NFTs.
- NFTs are primarily dependent on their uniqueness as they are produced on the blockchain and demonstrate their potential for adding value. NFT producers are provided with the option of releasing a limited quantity of NFTs. The immutability of the blockchain on which NFTs are kept, assures that blockchain-based NFTs remain unaffected by changes, removal, or replacement. As a result, NFTs have their authenticity as the most desirable attribute.
- In NFTs, creators of games might create NFTs for in-game objects that players could keep in their digital wallets. Players can then use the in-game things even outside of the game or can sell them to get money. NFTs use smart contracts to make ownership transfers simple. Smart creates accurate criteria between the buyer and seller that must be met before ownership transfers are finalized.
So, after knowing some key points about NFT your first question would be whether you should buy it or not. The simple answer would be: research thoroughly and analyze risks as it might also involve the loss of all the money that you would be investing. If you decide to take the risk, go ahead with caution.
Important Note: The reader is advised to do his or her own due research and diligence before investing in cryptocurrency or crypto assets. No investment of such kind is endorsed by Global Hues.