Non-Fungible Tokens (NFT)
What Is a Non-Fungible Tokens (NFT)?
Non-fungible tokens or NFTs are cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other. Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency. This differs from fungible tokens like cryptocurrencies, which are identical to each other and, therefore, can be used as a medium for commercial transactions.
- NFTs are unique cryptographic tokens that exist on a blockchain and cannot be replicated.
- NFTs can be used to represent real-world items like artwork and real-estate.
- “Tokenizing” these real-world tangible assets allows them to be bought, sold, and traded more efficiently while reducing the probability of fraud.
- NFTs can also be used to represent individuals’ identities, property rights, and more.
How Is an NFT Different from Cryptocurrency?
NFT stands for non-fungible token. It’s generally built using the same kind of programming as cryptocurrency, like Bitcoin or Ethereum, but that’s where the similarity ends.
Physical money and cryptocurrencies are “fungible,” meaning they can be traded or exchanged for one another. They’re also equal in value—one dollar is always worth another dollar; one Bitcoin is always equal to another Bitcoin. Crypto’s fungibility makes it a trusted means of conducting transactions on the blockchain.
NFTs are different. Each has a digital signature that makes it impossible for NFTs to be exchanged for or equal to one another (hence, non-fungible). One NBA Top Shot clip, for example, is not equal to EVERYDAYS simply because they’re both NFTs. (One NBA Top Shot clip isn’t even necessarily equal to another NBA Top Shot clip, for that matter.)
How Does an NFT Work?
NFTs exist on a blockchain, which is a distributed public ledger that records transactions. You’re probably most familiar with blockchain as the underlying process that makes cryptocurrencies possible.
Specifically, NFTs are typically held on the Ethereum blockchain, although other blockchains support them as well.
An NFT is created, or “minted” from digital objects that represent both tangible and intangible items, including:
• Videos and sports highlights
• Virtual avatars and video game skins
• Designer sneakers
Even tweets count. Twitter co-founder Jack Dorsey sold his first ever tweet as an NFT for more than $2.9 million.
Essentially, NFTs are like physical collector’s items, only digital. So instead of getting an actual oil painting to hang on the wall, the buyer gets a digital file instead.
They also get exclusive ownership rights. That’s right: NFTs can have only one owner at a time. NFTs’ unique data makes it easy to verify their ownership and transfer tokens between owners. The owner or creator can also store specific information inside them. For instance, artists can sign their artwork by including their signature in an NFT’s metadata.
The pros of NFT
The following are some advantages collectors look for when purchasing non-fungible digital artwork:
Increase in Market Value
When you acquire these tokens, just like any other investment, there’s always the possibility of your money growing in value. CryptoPunk #3100, for example, was initially sold for $2,127 on July 6, 2017. The artwork’s owner refused to sell until March 2021, despite the fact that he or she had received several bids. Nonetheless, given the more than $7.5 million return on investment, they received when they sold, that collector is probably performing backflips.
Possession of a One-of-a-Kind Item
These digital treasures are non-fungible, which means they can’t be replaced. When you know you have a one-of-a-kind piece, whether it’s a painting, a piece of furniture, or a digital image, audio clip, or other digital assets, it’s such an incredible feeling.
At the present, blockchain technology is generating a lot of interest. Some predict that technology will have the same impact on consumer behavior as the Internet did. That’s a fascinating concept, and by purchasing an NFT, you’re actively contributing to that technological advancement.
Maintaining records of authenticity and chain-of-ownership for priceless artwork appears to be difficult at times. Because NFTs exist on the blockchain, there are clear ownership records for all of them, which means your digital artwork should never be stolen or its legitimacy questioned. The technology has ultimately grown into a better means to manage and handle important data and records, not only as a tool to manage digital treasures.
Cons of NFT
There’s no denying that NFTs are intriguing. However, there are also significant disadvantages to investing in them. Here are some of the most major disadvantages:
Impossible to Digitize Physical Art
The motives for owning physical art and digital art are frequently different. Physical art cannot be digitized. Seeing a one-of-a-kind picture with your own eyes has an attraction that these tokens can’t match.
NFTs are perplexing assets, even for specialists. When you buy one of these non-fungibles, you aren’t necessarily buying the art’s copyright. People may still locate copies of the work for which you hold the token on the Internet, and there’s nothing stopping them from copying and pasting these files into social media, effectively showing off and sharing something you may have spent millions for.
The environment has recently been a prominent issue of discussion. Any record added to the Ethereum blockchain necessitates a considerable amount of compute, which consumes a significant amount of energy. As a result, broad trading in NFTs and other blockchain-based assets isn’t always a green process. Indeed, almost everything related to a blockchain is unsustainable from an environmental aspect due to the quantity of energy consumed.
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