An Overview of NFTs
NFTs or non-fungible tokens are the new buzzword in the digital world. But to a layman what are NFTs and what is all the hype around them?
What are NFTs?
NFTs are ‘one-of-a-kind’ or unique assets in the digital world having no tangible form of their own but can be traded like any other piece of property. NFTs can be thought of as a type of collectible like a piece of art or painting in the digital world just like what Bitcoin is to the world of digital currency.
However, since these tokens are non-fungible which means it can’t be interchanged with anything unlike money. Money being a fungible asset in economics, can be interchanged or swapped like exchanging a 100 rupee note for two 50 rupee notes without changing its value.
How do NFTs work?
Just like there can be only one original painting, though you can buy prints of the same or download a photo, similarly with NFTs, the digital tokens can be likened to a digital certificate of ownership that can be bought and sold.
Since, the blockchain stores a record of ownership on a shared ledger across thousands of computers around the world, these records cannot be forged. NFTs can also contain smart contracts to give the artist any royalty from the future sale of the token.
Some popular NFTs:
- Nyan Cat-an animated Gif of a flying cat sold for more than $500,000.
- Beeple’s ‘The First 5000 days’ sold for $69m by Christie’s
- Twitter’s CEO Jack Dorsey sold his first ever tweet as an NFT for more than $2.9m.
Digital files can be copied and duplicated, so how can NFTs remain unique?
Its true that the crypto art sold as NFTs like the examples above have been copied and shared endlessly, but the buyer of the NFT owns a token certifying that ownership as an ‘original’.
Since all this information is stored on the blockchain, anyone can verify the asset’s authenticity and ownership.
Generally, the artist retains the copyright of their work and can continue to sell or produce copies.
Where can you buy a Non-Fungible Token?
If you are keen to have your own NFTs, you will need a digital wallet to store the NFTs and cryptocurrencies. From this digital wallet, you’ll have to purchase some cryptocurrency which has to be what the NFT provider accepts. Cryptocurrency can be bought using your credit card on platforms like Coinbase, Formatic, Kraken, eToro, PayPal and Portis.
With your wallet funded and ready for use, you can start shopping from the NFT marketplaces like OpenSea, Rarible, Foundation and so on. However, you need to be mindful that each marketplace has its own crypto wallet requirements. There’s no common crypto wallet acceptable on all sites. At least not yet.
Is it worth investing in NFTs?
NFTs are attracting a lot of attention, what with even the high-profile celebrities pitching in with their investments. However, without extreme due diligence, no one can make out if a non-fungible token is worth the effort or a dud. Unless of course you have an eye for identifying diamonds in the dust. If you really must, then invest with caution. The only reason NFTs might turn out to be good investments if because of their scarcity and collectability. They are akin to art market, albeit much more riskier.
Its well-nigh impossible to sift fool’s gold from real deal. Issues like the volatility of the cryptocurrencies that the NFTs trade in, the influx of spammers and grifters in the NFT market and whether the collectors value the art they buy, must be explored in detail to counter the reservations around the NFTs.
NFTs and environmental concerns:
Since NFTs are bought and sold using cryptocurrency, there is a concern about their carbon footprint. These transactions are quite energy inefficient and emit quite a lot of greenhouse gases.
There has been a lot of discussion on the energy use in the NFT world and the need to make the platforms more sustainable.
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