Many people are often confused or just plain scared when it comes to the world of investing. This has never been truer in our modern times, given how fast things are moving, thanks to the rapid technological advancements. One new entrant that has taken the internet world by storm is the non-fungible token (NFT). NFTs make it possible to buy and legally own various digital art and collectibles across the internet and are made possible by cryptography. For instance, you could purchase a piece of digital artwork and get unique encoded proof that you’re the original owner. Doesn’t that sound great? This is the true essence of NFTs.
But are NFTs worth it, or are they just another passing hype? One thing is for sure, just like Bitcoin was pitched as a digital alternative to currency, NFTs are considered a digital solution to digital art and collectibles. Digital artists see technology as an answer to selling their digital products; many are already reaping the benefits and seeing their lives change.
What is an NFT?
NFT, Non-Fungible Token is a unique identifier created cryptographically similar to many cryptos. It can be used to tokenize and prove ownership of various digital goods. However, NFTs differ from cryptos like Ethereum and bitcoin because they cannot be exchanged (non-fungible) or replaced with something else due to their uniqueness. Bitcoin and Ethereum are fungible, meaning you can exchange one for another and still have the same thing. NFTs are more like one-of-a-kind trading cards, which are also non-fungible, where if you give up one for another, you get a completely different one.
How Does an NFT Work?
Since you now have a rough idea of an NFT, the next step is understanding how it works.
The most significant chunk of NFTs is held by Ethereum cryptocurrency’s blockchain, which keeps track of general transactions such as who’s holding and buying in a distributed public ledger. Other blockchains also support NFTs and have their versions of them. NFTs have unique tokens published on the blockchain, enabling them to be “minted” or turned into a digital asset, digital file, or collectible and sold. A minted NFT has a unique identity whose ownership can be pegged on an individual. The ownership of an NFT is transferable, and its value is primarily set by market forces, just like any physical items on sale. The blockchain ledger makes it easy to verify and validate the ownership (can only be one owner) of an NFT at any time.
The NFTs metadata also allows creators to store other information such as a name, description, signature, etc.
What are NFTs Used For?
There are many application areas of NFTs, and every day seems to bring a new entrant to its market. Artists and gamers are having a field day and reaping big with NFTs. NFTs have given them a platform to sell their inventions and a straightforward way for their fans to support them. NFTs provide an attractive feature for artists in terms of royalties since they can be programmed to get a percentage of sales whenever their art changes ownership. Traditionally, artists have sold their art in a one-time deal with no benefits afterward.
Celebrities haven’t been left behind either and is increasingly taking an interest in NFTs in various ways. The most popular currently include Snoop Dog, Lindsay Lohan, Shawn Mendes, and Jack Dorsey, who’ve used NFTs to securitize and sell unique memories and moments.
How to Buy NFTs?
Having known what NFTs are, you might be wondering how you can venture into buying them. There are several marketplaces where you can buy NFTs, depending on what you’re looking for. Some of the most popular include Rarible, OpenSea, and Foundation. However, you’ll need to fulfill some requirements before starting, such as having a digital wallet to store your NFTs and crypto.
NFTs will provide a broader range of functional areas in the future (if they’re there to stay) other than a seamless way to sell digital art and collectibles. While there’s a lot of money changing hands currently with the NFTs, there’s also the controversy about their adverse effects on climate. The process of creating blockchain assets, which includes NFTs, uses up immense amounts of energy, and concerns have been raised on how the craze could impact the environment. However, the good news is that researchers and developers have an active focus on ways to reduce the energy consumption in mining. Also, new blockchains that are more carbon neutral and low energy are coming up and could solve the climate issue once and for all.