Non-fungible tokens, colloquially known as NFTs, have taken the art world by storm. Ethereum blockchain launched the very first NFT project way back in 2015, and as the world grew more interested in types of cryptocurrencies, NFTs rose to popularity. And as the stories of multimillion dollar sales of these digital assets began doing rounds on the internet, one question that everyone had was ‘what is NFT’.
Understanding What is NFT
An NFT is a digital asset that is used to represent objects in the real world, such as art, music, in-game items, and videos. They are often encoded using the same blockchain software as different types of cryptocurrencies and are bought and sold online, often with bitcoin. They are generally one-of-a-kind artifacts or parts of a limited run with unique identifying codes, unlike most digital creations that are almost infinite in supply.
How are NFTs Different from Cryptocurrencies?
Although NFTs are usually programmed in the same way as different types of cryptocurrencies like Bitcoin or Ethereum, but that is where the similarities end.
Physical money and cryptocurrencies are both fungible, which means they can be exchanged or traded for one another. Like money, one Bitcoin is always worth another Bitcoin in terms of value. Because of its fungibility, cryptocurrency is a relatively safe means to conduct blockchain transactions. However, NFTs are unique. Each NFT has a digital signature that prohibits them from being replaced or compared (hence, non-fungible).
How do NFTs work?
NFTs are digital tokens created using blockchain technology with distinct characteristics that are typically linked to a specific asset. These tokens can be used to verify ownership of digital assets like music, videos, artwork, game skins, etc.
NFTs can only be owned by one person. Ownership is managed through a unique ID and metadata that cannot be replicated by any other token. These tokens are minted through smart contracts that manage ownership and transferability of the assets. Whenever someone creates or mints an NFT, they execute a code stored in smart contracts that conform to different standards. This information is later added to the blockchain where the NFT is managed.
Steps to mint NFTs
- Create and link your crypto wallet to an NFT marketplace.
- Purchase Ether (Ethereum blockchain cryptocurrency)
- Transfer Ether to your wallet.
- To sell your first NFT, transfer the Ethereum cryptocurrency from your wallet to your NFT marketplace account.
- Register on the NFT marketplace with your wallet.
- Name and upload your NFT and select the ‘create’ option to list your NFT on the marketplace. Thereafter, you can either auction off or sell your artwork for a predetermined fee.
- Once your NFT is posted for sale, you can start interacting with potential buyers.
What are NFTs used for?
Artists and content creators have a unique opportunity to monetize their artwork thanks to NFTs and blockchain technology. They no longer need to depend on galleries or auction houses to sell their work. Instead, they can directly sell it as an NFT straight to the interested client, allowing them to keep more of the profit. Additionally, they can also integrate royalties into their software so that they receive a share of sales when their work is sold to a new owner. This is an excellent feature because most artists do not receive subsequent proceeds after their first sale.
Are NFTs Worth the Investment?
Once you have a basic understanding of what is NFT, the next question that often comes to mind is if they are worth the investment.
NFTs are now being viewed as the future of the digital art world and are expected to gain more popularity in years to come. However, like most crypto assets, the NFT marketplace is volatile and may not always be a profitable investment option. And while it is a risky investment option, you can always choose to invest small amounts to test the waters.
Investing in NFTs is mostly a personal decision. If you have the money to spare or if the piece holds meaning to you, it may after all be worth it. Do keep in mind that the NFT’s value is solely based on what other people are willing to pay for it as it is the demand that drives the price. This means, you may fetch a higher or lower resale price than what you originally paid for, or you may not be able to resell it at all if no one wants it. With that being said, you must approach NFTs just like you would any other investment option.
Do your research, explore your options, weigh in the risk factors, and only then decide to take a plunge. Investment Simplified is a great platform to address these concerns and anything investment-related in general. Check out the website to start your investment journey!