What are NFTs? Non Fungible Tokens: Everything You Need To Know About

What are NFTs? Non Fungible Tokens: Everything You Need To Know About

NFTs “Non Fungible Tokens”  are unique in themselves and are not interchangeable. On a digital ledger blockchain, the data of NFT is stored.

To give NFts verifiable and public proof of ownership it uses the technology of blockchain. Original files copies here are not limited or restricted to the owner of NFT, they can be copied and shared like other files we normally do.

As NFTs are “Non Fungible Tokens” that can’t be interchanged with others, their unique quality makes them different from blockchain cryptocurrencies such as bitcoin.

“If you are an artist and still don’t use NFT (Non-Fungible Token), you are potentially missing millions of dollars.” ― Olawale Daniel

Also, read| Indian Stock Market Basics For Beginners

What Is An NFT?

NFT means  “Non Fungible Tokens”, which you can not interchange or substitute with others. In NFTs objects like art, music, videos, etc are digitally bought – sold, and can be digitally stored.

NFTs are intangible forms of assets which means you can’t touch or feel them but can see. The same software is used for NFT which is used to encode cryptos. 

Understand this with simple examples-

1- You can easily change a Rs 2000 note with another note of the same denomination. This is a “Fungible Token” which means it can be interchanged, substituted, and are nonunique.

2- Think about MS Dhoni’s bat which he used to play in the 2011 World Cup which India won. The bat is unique on its own and can’t interchange or substitute with others. These are called NFTs “Non Fungible Tokens”.

3- Similarly, think about the letter written by Bhagat Singh, Mahatma Gandhi, or MF Hussain’s painting. All are unique in them and can’t be interchanged, these are called NFTs “Non Fungible Tokens”. As no substitute is available for the original object which is unique in it.

Note- Letter, painting, and the bat mentioned in the example are tangible forms, which means you can see, feel and touch them. But NFTs are intangible forms of assets? So to conclude things with the help of Blockchain in digital form you need to have an NFT “Non Fungible Tokens”.

NFTs are like digital assets available in the digital world, which can be bought or sold online with the help of digital proof of ownership through blockchain.

What Is Blockchain?

Without a trusted third party help blockchain guarantees the security of recorded data. The trustworthiness of blockchain makes it more reliable. Whenever a new block is added to the chain the old one can not be altered or manipulated. You can not alter, delete or destroy the transactions in the blockchain.

Whether you are a technology lover or someone who is a technophobe. In your daily life, every one of you should be heard about blockchain. 

Data in the form of blocks is stored in the Blockchain which together forms chains thus called Blockchain. Blockchain is completely “decentralized” the data stored here is controlled by a set of users who are active participants.

The database stored in Blockchain has multiple copies of it hence, a single user can’t tamper or change any data. Blockchain maintains and ensures trust and mass acceptance.

Blockchain is a serious example of “Innovation And You”, without the need for trusted third parties the Blockchain guarantees the reliability and security of records of data. The record of transactions in blockchain cannot be changed, deleted, or destroyed. Each new block is added to a chain, but the old one cannot be changed or manipulated. 

Blockchain was first proposed in 1991 and since is popular especially due to cryptocurrencies such as Bitcoin, because Bitcoin uses blockchain technology. Everything from cryptocurrencies, decentralized finance (DeFi) applications, NFT’s, and Smart Contracts all are supported by blockchain.

How Do NFTs Work

Talking about the traditional art or paintings that are valuable and costly because they are unique in them. We can’t change it with others. But in this digital world, the files can be easily copied and duplicated.

Here comes NFT. NFT basically “tokenized” the files and created a digital ownership certificate for someone who owns it. Now with that digital certificate of ownership, the digital files can easily be sold or purchased.

An NFT is created from digital objects that represent both tangible and intangible objects, it includes-

  • Art
  • GIFs
  • Videos and sports highlights
  • Collectibles
  • Virtual avatars and video game skins
  • Designer sneakers
  • Music

For example-  Jack Dorsey Twitter’s co-founder sold his first-ever tweet as an NFT for more than $2.9 million. 

A record of crypto-currency, which is stored on a shared ledger known as a blockchain. The ledger is maintained by thousands of computers around the world that’s why the record can not be faked.

NFTs are digital file collectors. So, instead of buying a physical painting, the buyers by NFT get a digital file of it. The unique data of NFT makes it easy to verify the ownership rights and owners can easily transfer tokens within them.

Also, the owner or the creator of that actual file can also add some specific information inside it. Like – A painter signs his/her art.

How Is An NFT Different From Cryptocurrency

The programming used for cryptocurrency, like Bitcoin or Ethereum, NFTs “Non Fungible Tokens” are built by the same kind of programming.

The difference that makes NFT different from Cryptrocurrcy is simple-

Cryptocurrencies-

  • Cryptocurrencies or physical money which you have are Fungible Tokens in nature.
  • Which means they can be exchanged with others.
  • Like you can change a dollar with another dollar equal to it and one bitcoin with another bitcoin equal to it.
  • That’s why cryptocurrencies are so trusted means of transaction.

NFTs-

  • Talking about NFTs they are non-fungible tokens which means you can’t interchange them with others.
  • Also, they are unique, and having a digital signature makes it impossible to exchange with others.

What Are NFTs Used For

Artists with blockchain technology and NFTs can monetize their sales. The artist now directly can sell their arts to consumers as an NFT and no longer need to depend on galleries or auctions to sell their art. Also, selling the art as an NFT lets them keep more profit.

Also, artists can create NFT with royalties by doing that whenever their art is sold to a new owner they will receive a percentage of the sale. This is an attractive feature of NFT because artists typically do not receive future income after their art is first sold. 

You not only can make money with NFT’s by selling or purchasing art. Money for charity can also be raised by NFT, brands like Charmin and Taco Bell have auctioned off themed NFT art to do so.

Example- Nyan Cat, sold for nearly $600,000 in February 2011 era CAT GIFs having a pop tart body.

How To Buy NFTs

Before buying NFT you need to keep these simple 3 three steps in your mind-

  1. For buying or selling NFTs you need to have a digital wallet.
  2. Then you need to purchase some cryptocurrencies like Ether. Check what currency your NFT provider accepts purchase only after that.
  3. Using a credit card you can buy cryptocurrencies. You can now purchase cryptos from platforms like Coinbase, Kraken, eToro, and even PayPal and Robinhood.

Where You Can Buy NFTs

After you set your wallet now you need to buy NFTs from the market. These are the popular marketplace where you can buy NFTs-

  1. OpenSea.io
  2. Raible
  3. Foundation

Note- Check the information provided there before buying NFTs. 

How To Sell NFTs

  • After owing the NFT, it’s your digital asset with you.
  • Either keep it as a collection with you, display it so that others can see, use it for a digital project or you can list the NFT for sale also.
  • The market where you are selling NFT will charge a fee for it. These fees can fluctuate depending on the blockchain network used by the NFTs as the blockchain computing energy required to verify the NFTs, which is referred to as the “gas fee”.
  • The marketplace of your choice you prefer you can upload NFT to it.
  • Keep in mind that the marketplace supports the blockchain the NFT was built on.
  • According to a set price, you can then list it for sale.
  • Also, you can do an auction where the buyers will place bids.
  • After NFT is uploaded the marketplace will verify it.
  • The marketplace will transfer it from the seller to the buyer after NFT is sold.
  • Then the marketplace will transfer the crypto funds and expenses to your wallet.

How To Create NFTs

In this digital world, anyone can create NFTs. But most of NFT comes from artists, musicians, filmmakers, writers the ones who can guarantee the authenticity of their work and also can monetize it.

  • First, you need to open a crypto wallet and cover the fees involved in the creation of NFT by funding it.
  • Now upload the work to the marketplace you choose.
  • Click the create button then.
  • Now, either you can list the NFT for sale at a fixed price or do an auction.

How Much Are NFTs Worth

According to the recent news, the NFT has to cross million-dollar sales- For example-

  • A 2011 meme of a GIF of flying pop Nyan Cat was sold for more than $600,000.
  • Some of the digital art by Musician Grimes was sold for more than $6m.
  • Jack Dorsey founder of Twitter sold his first-ever tweet for $2.5m.
  • Fotabbal trading cards were sold by a French firm and raised $680m.

The examples mentioned above are enough to tell the worth of NFTs. NFTs will after a time rule the digital world.

What’s The Size Of the NFT Market

According to DappRadar company which tracks the data on crypto-based applications, the NFT market size exceeded $10 billion in transaction volume in the third quarter of 2021.

In 2020 the NFTs market was valued at $250 million. The compound annual growth rate of NFTs will increase more between 2021 to 2026.

NFTs are unique digital assets and can easily be exchanged through buying and selling them. NFTs are held on certain blockchains such as Matic, Flow, Wax, and others, but many are held on Ethereum. Anything that exists in the real world, the NFT act as a digital twin in the digital world of that.

One of the defining key components of NFTis the “True ownership concept”. As digital economies continue to flourish, NFTs have a higher potential to play an important role in bringing the digital and physical worlds closer to each other than ever before.

How Are NFTs Priced

Factors that keep in mind before pricing NFTs-

  • The artist’s reputation.
  • Gallery exposure.
  • The popularity of the artist or how popular the file is.
  • Creativity.
  • Whether the NFT is a Speculative asset or not.

Pros and Cons Of NFTs

Pros Of NFTs

  • The value of physical art will increase after time, the same is with NFTs. Digital art in the form of NFT with time increases its value. For example- The value of MF Hussain’s painting will increase with time.
  • In the form of NFTs buying and selling of digital assets grabs more buyers and sellers.
  • To ensure that the artists and the original creators get paid in the future resale of their work, “Smart Contracts” a set of coded commands are built into the blockchain.

Cons Of NFTs

  • The digital assets in NFTs are static, on their own, they don’t generate income. NFTs are valued by the demand of buyers. This means the price will not high for long or forever, and NFTs could lose value at times.
  • On a marketplace creating and selling NFTs is not free of cost. Sometimes the fees are more than the value of NFT.
  • The NFTs and blockchain technology they build on have an environmental impact as they use significant amounts of energy to create and verify transactions.

Are NFTs Right Investmet For You 

Creating NFT and selling them is something new for the creators and they are liking it. But NFTs are speculative investments when it comes to buying them. The value of digital assets in NFT is not static it will fluctuate according to the demand.

One needs to identify the new NFT trend to get the best value. Without figuring it out you can not guess when the value will increase and when not.

For example- Some artworks may be sold for a petty value and resold for thousands of dollars. It depends on the demands.

Before buying an NFT some things you need to keep in your mind. Like- Who is the original creator of the assets, is that piece unique, history of it, popularity, demand, the payment you need to make for viewing the digital assets.

According to the argument that the NFT is a “bubble” waiting to be popped, bubbles usually only appear backward. But keep in mind that this doesn’t change the fact, that in the future digital assets will become more popular.

Weigh the risks, and diversify your investments – perhaps by adding stocks from businesses developing crypto as well as blockchain technology to your NFT portfolio.

If you are someone who loves collecting art, music, etc then dabbling in NFT investing is the option for you.

Conclusion

NFTs are in the early days of development. This is a promising new frontier in the technology world, but the risk is too high when investing in the early stages of any movement. As you learn more about NFTs, tread lightly, and remember to remain diversified with your investments to limit the risk of anyone asset diverting your wealth-building progress.

FAQs Of NFTs

What is a famous example of a nonfungible token?

The young girl- Chole Clem who becomes an internet sensation when her picture where she was “Side eyeing” went viral. Now that girl is selling her original picture digitally as NFTs, at thousand of dollars at auction.

How to create an NFT account for free?

Follow these simple steps to create an NFT account for free-

  1. First, go to Rarible.com.
  2. From the top right corner select “my profile”.
  3. Then sign in it with your wallet.
  4. After this click on the create option and fill in the information about the NFT you wish to create.
  5. Now there you will see a “free minting” option and click create the item.
  6. Now with your wallet sign the free ‘minting authorizations’. This option will make you in charge of all the NFTs you create.
  7. After this when a buyer buys the NFT it will mint and send to the buyer from the wallet automatically.

Can a photo be an NFT?

NFT “Nonfungible tokens” are unique digital assets. They comprise art, photos, music, a ticket, tweet, for instance, animations and even a movie can be an NFT. Anything unique or popular.

Should you need to buy NFTs?

Just because a new car is launched doesn’t mean you should buy it. Buying something depends on whether you need it or you want it.

Same as with NFTs. They are available but it doesn’t mean you should buy them.

It’s hard to judge the performance of NFTs because they are new in the market. There is a lot of uncertainty related to NFTs and we don’t have a history to judge the performance. Yes, NFTs are new and you can invest a little amount in it for sure.

In simple terms, it’s one’s personal decision whether to invest in NFTs. If you have spare money and you want to invest it somewhere, invest the money in NFTs. In the future “digital assets” like NFTs will rule.

But keep in mind, NFTs are different from Stocks. Stock prices depend on technical or economical factors whereas NFTs value is based on what someone is willing to pay for it.

Nikita Dhyani

Nikita Dhyani is a Content Writer at Ionic Digitech. A passionate content writer and has been using her content writing skills to develop various content related to financial and business-related topics. She has done BAJMC (Bachelors in media and mass communication and journalism) from Graphic Era University. Her specialties include - Content creation, Content development, Media managing, Communications skills.

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