NFTs have become increasingly popular in online communities, especially those that discuss and deal with cryptocurrencies. Despite being closely related to the cryptocurrency world, NFTs are not the same thing. Let’s take a look at what NFTs are, how they work, and how to purchase them.
What Are NFTs?
NFTs—or non-fungible tokens—are digital assets. They can represent real-world creative works such as physical objects as well as music, art, videos, and in-game items (games being activities introduced by the blockchain to encourage mining). NFTs are bought and sold online and encoded using the same software as most cryptocurrencies. Basically, NFTS can do four main things: simplify transactions, remove intermediaries, eliminate fraud, and facilitate the creation of new markets.
Non-fungible tokens have been around since 2014, but it’s only recently that they have become (arguably) mainstream. In 2021, the net worth of the NFT market reached $41 billion, almost equal to the worldwide fine art market. Like fine art, non-fungible tokens are also unique, each with an individual identifying code. Because of this, it’s impossible for two NFTs to be substituted for one another.
NFTs are located on blockchains. It’s how these digital assets can remove go-betweens from the transaction process, instead encouraging direct interactions between buyers and sellers. Artists can use NFTs to establish a more direct connection with their audiences.
The current market revolves around collectibles, including sports cards, digital artwork, and rarities. Currently, NBA Top Shot is one of the most hyped NFTs. The NBA Top Shot is a safe space for collecting NBA moments tokenized by NFTs in digital card form.
How Do NFTs Work?
Non-fungible tokens exist on a blockchain. A blockchain is a public ledger distributed to record transactions. There are numerous blockchains available, but you can mostly find NFTs on Ethereum. NFTs are “minted” or created from digital objects that indicate ownership of tangible or intangible items, such as GIFs, graphic art, collectibles, sports and video highlights, video game skins, virtual avatars, music, designer sneakers, and even tweets.
Yes, even tweets count. Jack Dorsey, a co-founder of Twitter, sold the first tweet he ever posted as an NFT and received more than $2.9 million. If you have physical collector’s items, think of NFTs as a way to own the digital original. NFTs are a way to communicate pride of ownership in lieu of displaying a physical item that people may or may not be able to access.
Investors who own NFTs also obtain exclusive ownership rights. And because NFTs use blockchain technology, verifying ownership and transferring tokens are both easier. NFTs also allow investors to store important information via metadata.
Why Are NFTs Important?
Non-fungible tokens create digital scarcity by creating a definitive version of an electronic file. Because they are accessed via the blockchain, transaction records cannot be modified and ownership can always be verified. This streamlines processes and does away with the need for intermediaries, and eliminates fraud and fakes. Instead, NFTs allow artists to establish direct connections with their patrons.
It is tempting to consider NFTs a type of cryptocurrency. However, they’re actually not the same. Cryptocurrencies and NFTs rely on the same type of programming, but cryptocurrencies are fungible. This means each unit of cryptocurrency is identical in value. One Bitcoin will always be equivalent to another Bitcoin. It is one of the things that makes cryptocurrency a trusted method for conducting blockchain transactions. NFTs are non-fungible, meaning you can’t interchange them. Each token has a different digital signature.
How Do You Buy an NFT?
The first thing to do if you want to purchase NFTs is to open a digital wallet. This is a platform that will allow you to securely store cryptocurrencies and NFTs. There are a number of NFT and cryptocurrency wallets, including Kraken, Coinbase, eToro, Robinhood, and PayPal, among others. There are also wallets intended specifically to display NFTs after they have been purchased, such as OpenSea.io, Rarible, and Foundation.
Once you’ve created a wallet, you can use a debit or credit card to purchase NFTs. When selecting a platform or wallet, just make sure to factor in the cost of fees. Most exchange platforms charge 1 percent of your total transaction when buying cryptocurrencies.
What Are the Pros and Cons of NFTs?
NFTs have numerous advantages. For one thing, NFTs involve the digitization of assets. This expands their market, leading to higher prices and greater liquidity. NFTs can also enhance the diversification of financial portfolios. Another benefit is that NFTs use blockchain technology. This system allows the permanent, public recording of information. It is impossible to delete, hack, or alter.
As long as your NFTs are stored on a blockchain, you will have immutable and verifiable authenticity records. These records prevent theft or mishandling. Once you add the data to the chain, no one can ever change or delete them.
Despite these benefits, there are still some downsides to NFTs. They do not offer income potential to investors; NFT prices can be volatile because the marketplace is small.
What Does the Future Hold for NFTs?
In the end, NFTs are like any other investments. You must do proper research and background checks before starting with them. However, the projected future outlook for NFTs is positive. If you’re seeking to grow your wealth and are digitally savvy, these are a potential option. Here is an important article from November of 2021, by technology website Hongkiat.con about the more serious uses of NFTs.