What is NFT?
NFT stands for “immutable token”. At a basic level, an NFT is a digital asset that connects property to unique physical or digital items such as artwork, real estate, music or videos.
NFTs can be considered modern time collections . They are traded online and represent a digital proof of ownership of any item. NFTs are securely recorded on a blockchain , the same technology behind cryptocurrencies that ensures the asset is one-of-a-kind . Technology can also make NFTs harder to modify or imitate.
To truly address NFTs, it is helpful to become familiar with the concept of economic interchangeability.
- Interchangeable items are easily interchangeable , as their value does not depend on their uniqueness . For example, you can replace a $1 bill with another $1 bill and you still have $1, even if your new bill has a different serial number.
- Irreplaceable items are not interchangeable. In NFTs, each coin has unique properties and is not worth the same as other similar coins.
So why do people spend so much money on NFTs? “By creating an NFT, content creators can validate scarcity and authenticity for almost anything digital,” says Solo Ceesay, Calaxy co-founder and COO. “Compared to the traditional art collection, there are an infinite number of copies of the Mona Lisa in circulation, but only one original. NFT technology helps assign ownership of the original part.”
Selling NFT has been a lucrative business in the art world. Here are a few examples you may have heard of:
- Digital artist Beeple has sold “Everydays — the First 5000 Days” for $69.3 million at Christie’s auction.
- A 20-second video clip of LeBron James’ “Cosmic Dunk #29” sold for $208,000.
- A CryptoPunk NFT was sold for $1.8 million in Sotheby’s first curated NFT sale.
- Twitter CEO Jack Dorsey has auctioned the NFT of his first tweet, which sold for $2.9 million .
When you buy an NFT, other people can make copies of the picture, video or digital item you own. However, similar to purchasing a unique piece of art or a limited edition edition, the original may be more valuable.
How do NFTs work?
Many NFTs are created and stored on the Ethereum network , although other blockchains (like Flow and Tezos) also support NFTs . Because anyone can inspect the blockchain, NFT ownership can be easily verified and tracked, while the person or organization that owns the token can remain pseudonymous.
Different types of digital goods can be “marked” such as artwork, in-game items, and still images or videos from the live broadcast – NBA Top Shots is one of the largest NFT markets. While the NFT transferring ownership is added to the blockchain, the file size of the digital item does not matter because it remains separate from the blockchain.
Depending on NFT, copyright or license rights may not come with the purchase, but that is not the case. Similarly, purchasing a limited edition print does not give you exclusive rights to the image.
As the underlying technology and concept advances, NFTs could have many potential applications that go beyond the art world.
For example, a school might issue an NFT to students who have earned degrees, allowing employers to easily verify an applicant’s education. Or, a venue could use NFTs to sell and track event tickets, potentially reducing resale fraud.
What is the difference between NFTs and cryptocurrency?
NFTs and cryptocurrencies are based on the same underlying blockchain technology. NFT marketplaces may also require people to purchase NFT with a cryptocurrency. However, cryptocurrencies and NFTs are created and used for different purposes.
Cryptocurrencies aim to act as currency by storing value or allowing you to buy and sell goods. Cryptocurrency tokens are exchangeable tokens similar to fiat currencies like the dollar. NFTs create one-of-a-kind tokens that can show ownership and transfer rights over digital products.
How to buy NFT
You can buy, sell, trade and create NFTs from online exchanges or marketplaces. The creator or current owner can choose a specific price. Or it could be an auction and you have to bid on the NFT.
- Foundation : A community-selected marketplace that requires creators to be invited by other creators who are already part of the platform.
- Nifty Gateway : An arts-driven marketplace that works with famous brands, athletes, and content creators.
- OpenSea : One of the first and largest marketplaces where you can find NFTs for a wide variety of collectibles.
- SuperRare : A marketplace focused on curating and presenting digital art.
- Rarible : Presents a series of NFTs with an emphasis on the arts. It uses its own RARI token to reward members.
The registration process may vary depending on the market. Typically, you buy NFTs using a cryptocurrency such as ether (Ethereum’s native cryptocurrency), but the price can also be listed in dollars. Depending on the marketplace, there may be different fees associated with each transaction.
Underline
While there will be many practical applications for NFTs in the future, today they are primarily used in digital art.
Ceesay says, “For creators, NFTs create a seamless way to sell digital art that may not have much of a market. Additionally, there are ways for creators to get paid fees for each subsequent sale of the art,” he says. On the other hand, collectors can speculate on digital art and boast bragging rights over rare collectibles in the chain.”
If you are considering purchasing an NFT as an investment, know that there is no guarantee that its value will increase. Some NFTs sell for thousands or millions of dollars, while others may stay or become worthless.
