NFT has been named the Collins Dictionary’s Word of the Year for 2021, prompting many to question what NFTs are. Everything you need to know about the current craze is right here.
A non-fungible token, or NFT, is a digital asset that symbolises a physical item, such as the Charlie Bit My Finger film, which sold for £500,000 in May. NFTs are often encoded with the same underlying software as various cryptocurrencies and are bought and traded online, often with cryptocurrency.
Despite the fact that they’ve been there since 2014, NFTs are gaining popularity currently as a popular means to buy and sell digital artwork. Since November 2017, a stunning £123 million has been spent on NFTs.
NFTs are usually one-of-a-kind, or at the very least limited-edition, and feature unique identification numbers. “Essentially, NFTs generate digital scarcity,” explains Arry Yu, managing director of Yellow Umbrella Ventures and chair of the Washington Technology Industry Association Cascadia Blockchain Council.
This is in sharp contrast to the vast majority of digital products, which are nearly always available in endless quantities. If a certain asset is in demand, cutting down the supply should theoretically increase its value.
However, many NFTs have been digital works that already exist in some form elsewhere – such as the viral Charlie Bit My Finger clip or securitized versions of digital art that are already floating around on Instagram – at least in these early days.
For example, famed digital artist Mike Winklemann, better known as “Beeple,” created “EVERYDAYS: The First 5000 Days,” a composite of 5,000 daily drawings that sold at Christie’s for approximately £50 million.
Individual images—or perhaps the full collage of images—can be viewed for free online. So, why are individuals prepared to spend millions of dollars on something that they could easily screenshot or download?
Because the buyer can own the original item with an NFT. It also comes with built-in authentication, which acts as proof of ownership. The “digital bragging rights” are almost as valuable as the item itself to collectors.
What Is the Difference Between NFTs and Cryptocurrencies?
The abbreviation NFT stands for non-fungible token. It’s usually programmed in the same way as cryptocurrencies like Bitcoin or Ethereum, but that’s where the similarities end.
Fungible means that physical money and cryptocurrencies can be traded or exchanged for one another. They’re also worth the same amount: one pound is always worth another pound, and one Bitcoin is always worth another Bitcoin. The fungibility of cryptocurrency makes it a secure way to execute blockchain transactions.
NFTs are distinct. Each contains a digital signature that prevents NFTs from being substituted for or compared to one another (hence, non-fungible). Because they’re both NFTs, Charlie Bit My Finger isn’t equal to EVERYDAYS, for example.
What is the Function of an NFT?
NFTs are stored on a blockchain, which is a decentralised public ledger that keeps track of transactions. Most people are familiar with blockchain as the underlying technology that allows cryptocurrencies to exist.
NFTs are commonly held on the Ethereum blockchain, but they can also be held on other blockchains.
A NFT is made up of digital objects that represent both tangible and immaterial objects, such as:
• Sports highlights and videos
• Decorative items
• Video game skins and virtual avatars
• High-end sneakers
Even tweets are considered. Jack Dorsey, a co-founder of Twitter, sold his first tweet as an NFT for more over £2 million.
NFTs are essentially digital versions of tangible collector’s artefacts. As a result, rather than receiving an actual oil painting to put on the wall, the customer receives a digital file.
They also have exclusive ownership. At any given time, NFTs can only have one owner. Because NFTs include unique data, it’s simple to verify ownership and transfer tokens between owners. They can also be used to hold specific information by the owner or author. Artists, for example, can sign their work by putting their signature in the metadata of an NFT.
What Is the Purpose of NFTs?
Artists and content creators have a one-of-a-kind opportunity to monetize their work thanks to blockchain technology and NFTs.
Artists, for example, no longer have to sell their work through galleries or auction houses. Instead, the artist can sell it as an NFT straight to the consumer, allowing them to keep more of the profit.
Additionally, artists can integrate royalties into their software so that they receive a share of sales when their work is sold to a new owner. This is a desirable feature because most artists do not receive subsequent proceeds after their first sale.
Making money using NFTs isn’t limited to art. Charmin, the toilet paper company, auctioned off themed NFT paintings to raise money for charity. The product was named “NFTP” by Charmin (non-fungible toilet paper).
In February, Nyan Cat, a 2011 GIF depicting a cat with a pop-tart body, sold for approximately £424,000.
Snoop Dogg and Lindsay Lohan are among the celebrities who have jumped on the NFT bandwagon, sharing unique memories, artwork, and moments as securitized NFTs.
How to Purchase NFTs
If you’re interested in starting your own NFT collection, you’ll need the following items:
To begin, you’ll need a digital wallet that can hold both NFTs and cryptocurrencies. Depending on what currencies your NFT provider takes, you’ll probably need to buy some cryptocurrency, such as Ether. On platforms like Coinbase, you can buy cryptocurrency with a credit card. You can then transfer it from the exchange to your preferred wallet.
When researching your alternatives, keep fees in mind. When you acquire bitcoin, most exchanges charge at least a portion of your transaction.
Popular NFT Exchanges
There are many of NFT sites to choose from once you’ve set up and funded your wallet. The following are the largest NFT marketplaces right now:
• OpenSea.io: This peer-to-peer marketplace claims to sell “rare digital objects and treasures.” To get started, simply create an account and browse the NFT collections. To find new artists, sort the pieces by their sales volume.
• Rarible: Rarible is a democratic, open marketplace that lets artists and producers to issue and sell NFTs, similar to OpenSea. The platform’s RARI tokens allow users to vote on features such as fees and community regulations.
• Foundation: To upload their work here, artists must acquire “upvotes” or an invitation from other creators. Because of the community’s exclusivity and high admission cost—artists must also acquire “gas” to mint NFTs—it is likely to attract higher-quality work. Chris Torres, the developer of Nyan Cat, for example, sold the NFT on the Foundation platform.
It might also mean higher prices, which isn’t necessarily a bad thing for artists and collectors looking to profit if demand for NFTs stays the same or even rises over time.
Although these and other platforms are home to hundreds of NFT artists and collectors, do your homework before purchasing. Impersonators have listed and sold some artists’ work without their consent.
Furthermore, the verification methods for creators and NFT listings vary by platform, with some being more strict than others. For NFT listings, OpenSea and Rarible, for example, do not require owner verification. Buyer safeguards appear to be limited at best, so keep the old adage “caveat emptor” (let the buyer beware) in mind when purchasing for NFTs.
Should You Invest in NFTs?
Is it true that just because you can buy NFTs, you should? Yu says that depends.
“NFTs are dangerous since their future is unpredictable, and we don’t have any historical data to gauge their performance,” she says. “Because NFTs are so new, it could be worth trying them out with little dosages for now.”
To put it another way, investing in NFTs is essentially a personal choice. If you have some extra cash, it’s worth considering, especially if the piece has sentimental value for you.
But keep in mind that the value of an NFT is solely determined by what someone else is prepared to pay for it. As a result, rather than fundamental, technical, or economic indicators, which traditionally impact stock prices and, at the very least, constitute the basis for investor demand, demand will drive the price.
All of this means that you may be able to resell an NFT for less than you bought for it. If no one wants it, you might not be able to resell it at all. Do your homework, be aware of the hazards (including the possibility of losing your entire investment), and proceed with caution if you decide to go ahead.