What Is NFT? Everything You Need To Know About A New Trend
You might have heard about the modern NFT (non-fungible token) in the news already, but the concept is relatively new to a lot of people and can raise a series of question marks. They are more common in the art industry, and they are often associated with impressive amounts of money. The fuss can be difficult to understand at first – however, the non fungible token actually makes sense and there are certain aspects regarding the operating principles. NFTs can be used to represent items such as photos, art, videos, audio, and other types of digital files. So, what is NFT and how does it work?
What technology is behind NFTs?
NFTs are powered by Etheruem blockchain, which the second biggest crypto network after Bitcoin, but it’s technology is more advanced.
Where can I buy NFTs?
What is ETH?
Ethereum is a cryptocurrency of NFTs. You need an Ethereum wallet to store ETH just like a phisical wallet. You can either register one on Coinbase or Metamask, but there are a great number of wallets available. Be cautious with wallets use services with two-factor authentication to safely store and use Ethereum. You can check the live exchange rate of ETH on Yahoo Finance.
What is NFT?
Simply put, NFT stands for non fungible token. In theory, this is a collectible. However, it is also a digital asset. In other words, it is not the type of collectible you touch, turn around and look at. It is not the type you can store in a safe or a deposit box. Instead, it is exclusively available in a digital form. In other words, it can be associated with cryptocurrency. However, cryptocurrency is not unique and definitely not a collectible.
Now, what is NFT and why is it so important? While often associated with cryptocurrencies, there are some major differences. This is because the NFT is non fungible. Practically, the NFT is unique. It cannot be exchanged for the same thing. Cryptocurrencies are different – you can buy one Bitcoin, sell it and buy another one, so these things are not unique. Now, what exactly makes the NFT stand out in the crowd? What is it that makes it so special?
The file stores a bit of extra information, which makes it more valuable than an actual digital currency. NFTs are extremely varied and can take any form. Some of them are music files, while others bring in digital art. Anything that can be stored digitally can be described as the modern NFT. From many points of view, NFTs are similar to other collectibles. However, instead of getting a unique piece to display in a glass case in your living room, you get a file.
How NFTs work
So, what is NFT? To get the bigger picture, you need to understand how these things work. NFTs belong to the Ethereum blockchain. From a technical point of view, they can be described as tokens. They come with lots of extra information – this is the part that adds value. Just like any other type of art, the NFT can be purchased and sold. Of course, the value depends on more factors and the market demand is one of them.
The NFT is unique, but not really. Just like other types of art, it can be replicated. It is even easier in the digital format – a simple copy can be made within seconds only. Copies are also bought and sold. They are part of the blockchain as well. But then, a copy will never share the same high value. A copy does not have the extra information coming with the original file and this is what adds to the extravagant values you can see today. You can right-click on a picture, save it and keep it – you will not be a millionaire, as it does not carry the same information.
What are NFT marketplaces?
There are a wide variety of platforms where you can buy an NFT from. Some platforms are general and provide access to different marketplaces. Then, you can also find more specialized platforms – finding the right one depends on what you are after, be it baseball cards, video or music files. Some people are after NFTs based on the industry they come from. Some others are more concerned about their actual significance.
To be able to buy NFTs, you need a wallet approved by the respective platform. Also, it might be a good idea to fill it up with cryptocurrency upfront. Many times, NFTs can be released in drops. They come out in a few different batches, rather than one at a time. Whenever a drop begins, frenzy buyers will be all over it. This is why you should already be registered and get the wallet topped up before the drop actually starts.
Who uses NFTs?
You are starting to see NFTs everywhere but who uses it? NFT creators cover more categories of people – from actual artists to world-renowned brands. In fact, new names join this trend on a daily basis. Artists are more likely to benefit from an NFT because they allow their fans to support the work. Some pieces are small and basic, while others can be more sophisticated and ambitious – they all sell though.
Some NFTs are included in actual video games, which takes the money spending idea to another level. People buy assets in all kinds of games, but the NFT would take it further. Up until the NFTs kicked in, digital assets bought inside a game were still owned by the company behind it – players are basically renting stuff to enjoy while gaming. The NFT means the ownership is changed to the actual player. In fact, more and more games are based on nothing but NFTs.
The NFT allows artists to actually get paid for their work – prices would obviously vary based on numerous factors. An anonymous group of people has recently burned an original painting by Bansky, only to turn the art into an NFT. NFTs are also being created by brands – such as restaurants or hotel chains. They release various NFTs out there – most of them featuring some gift cards as well – in order to make more money in the long run.
Even a basic tweet over the popular social network will bring in some extra value. Jack Dorsey – a Twitter co-founder – has managed to sell the first tweet ever written for almost $3 million. Musicians are likely to jump on this trend too. More and more artists sell originals of their actual work. They get rid of the rights, but they also sell clips and behind-the-scenes videos. It may sound crazy, but you can even buy digital assets like homes or furniture in the NFT form.
Are NFTs controversial?
As every new technology NFTs have week points at the moment. One issue is the copyright and the scammers who try to re-sale artworks which isn’t owned by them. This is why we always keep direct contact with photographers and models. Profit is only one thing but trust is more important if we are talking about working together. The other issue is with the impact over the climate. NFTs use plenty of energy during the creation process. Believe it or not, a simple GIF animation might require as much energy as a single individual for the entire household over a couple of weeks. Marketplaces will have to make some changes to the way they “mint” NFTs to keep everyone happy.
Now, digital cryptocurrrencies are designed over a proof of work system. Financial records, users and identities are kept secure. Such a sophisticated system requires lots of energy. Believe it or not, a major digital currency can use as much energy as an entire country. The impact on the climate is not perfectly obvious yet though. However, more and more artists have already decided to try and produce carbon-negative work.
Key characteristics of NFTs
What are the main characteristics associated with non fungible tokens?
Most importantly, they are not interoperable. Characters from certain games cannot be used in other games. Trading cards are also unique, whether it comes to game cards or basketball cards.
NFTs are not divisible either. This is another difference between the NFT and a digital coin. Most digital coins can be split into small denominations – not the case with NFTs.
Since everything is saved on the blockchain, tokens cannot be destroyed. NFTs are indestructible. At the same time, NFTs cannot be removed either – not to mention replicating them. Saving a video on your hard drive does not mean that you own a valuable file – you do not have the extra information coming with it and you are not the actual owner. The ownership is valid. When you buy something in a game – such as an armor or a gun, you basically rent the equipment. When you buy music online, you do not own it – you only own the license to listen to it.
Finally, the NFT can be verified and identity theft or other forms of theft are history. Storing ownership data on the blockchain is seriously a plus. All kinds of items can be traced back to the actual developers or creators. Any type of art can then be authenticated without having to hire an expert or rely on independent verification.
Bottom line, what is NFT? To some, it is an industry that will see huge amounts of money moved left and right. To others, it is a waste of time and money. NFTs will be out there for a while and they seem to target a specific market – the super rich. For the average individual out there, paying a fortune for a video that everyone can find for free over the Internet is simply not worth it – different people have different needs.