NFT (Non-Fungible Token) and Everything You Should Know About It
NFT, NFT, NFT!!!
The word is catching everyone’s eyes repeatedly. You must have come across news like Nyan Cat is sold for over $1 million, popular digital artist Beeple sold his artwork, named Everyday’s – The First 5000 Days, containing 5,000 different digital images for around $69 million to an Indian entrepreneur Vignesh Sundaresan. There is news that even the popular pop and rap artist Snoop Dogg is investing in NFTs and creating a huge crypto-empire.
“Everyday’s – The First 5000 Days” from Beeple
All these headlines must make you wonder “wait a minute, what’s happening, what is NFT”.
Every social platform including Instagram, Facebook, and especially Twitter is filled with users talking and posting about the same, NFTs. What turned the most heads toward NFTs was the announcement of Meta (Metaverse) by ‘the’ Mark Zuckerburg.
Then the decision of the Twitter CEO, Jack Dorsey, to sell his first tweet reading just setting up my twttr as an NFT, worked like fuel to the fire. (P. S. Jack recently sold the NFT of this tweet for around $3 million! Ka-boom Right! 😶)
NFT of Jack Dorsey’s tweet “just setting up my twttr”
And your head must have surely exploded if you have heard that some animated images of rocks were able to secure six figures (in dollars) as NFT.
Pet Rocks NFT
All these items of news related to NFT make you wonder “What does NFT mean actually?”
After spending hours of reading, learning, and asking around regarding the same. We think we may have the answer to this question.
What is an NFT?
Before we dive into the definition of NFT, let’s start with NFT in full form. NFT is an abbreviation of Non-Fungible Token. The term, non-fungible, means unique and irreplaceable. You can not replace one NFT with another, however, you may exchange the ownership of two or more individually owned tokens if all the parties agree upon the same transfer.
Those who have more than sufficient knowledge of the digital world may already know what this token is. And for others, you may think of an NFT as a digital cryptographic asset. Instead of possessing the asset offline or physically, the owners and creators of the token possess it online.
An NFT may contain real-life objects as assets. This includes everything digital ranging from the artwork (paintings, drawings, digital art, etc.), audio (songs, music, recordings, etc.), videos (short and long clips), pictures (selfies, portraits, etc.), in-game items, and anything else.
To understand this, you may take the example of the Bored Ape Yacht Club that launched recently. The creators of this club sell different images and digital drawings of a “Bored” ape in different outfits and accessories.
NFT Images from Bored Ape Yacht Club
The club is gaining popularity by the day and the NFT value of its images is rising by the hour as more and more users are placing their bids over the token. (Even Snoop Dogg has recently purchased a token from the club and is bidding regularly on others.)
Some may say that just like Bitcoin introduced the digitization of currency money, NFT will introduce the digitization of artwork.
How Does an NFT work?
NFT is based on blockchain technology just like some of the popular cryptocurrencies. Under this technology, every transaction related to the NFTs is recorded under a digital ledger. Hence, an NFT works like a token that stores important information related to the transaction.
Depiction of Blockchain
How an NFT work is first, a unique digital token is assigned to the artwork. The NFT is minted before it can be transferred to the next owner. This unique token defines who owns the artwork. You may not see or feel it physically, but digitally it is yours to use or flaunt.
How is the Ownership of an NFT Defined and Transferred?
To define the ownership over any NFT, a unique digital token is used. When the ownership of an NFT is transferred by the seller to the buyer, this digital token is reassigned under the buyer’s name. Whether you want to proceed with the transaction or not, is your call.
If you think you are getting the desired and reasonable price at the time, you can transfer the ownership to the bidding party in lieu of some currency as agreed upon by the involved parties (generally some cryptocurrency).
This does not mean that others can not see or get the artwork under the NFT. It’s just that the ownership of the token will remain to a single individual only. Understand it like, when you google the physical artwork of any famous artist, for example, a drawing by Vincent Van Gough. You will get image results for the same.
A Masterpiece from Vincent Van Gogh
You can download it, share it, or do anything else with the image (within some restrictions, obviously). But the actual ownership of the image belongs to that one person who purchased it from the creator or the previous owner.
Some NFTs are valued in the millions nowadays. It becomes quite tough for one individual to provide this amount for the artwork. Hence, a new variant of NFT named Fractional NFT is booming these days. Under this, one buyer can purchase and get the percentage of NFT according to the amount paid by him. This allows different individuals to share the ownership of a single NFT affordably. However, this variant applies to high-valued NFTs only for now.
What is the Difference Between NFTs and Cryptocurrencies?
Some individuals may think that the NFTs and the cryptocurrencies are the same things. But this is not the truth. Yes, it is a fact that some cryptocurrencies and NFT are built on the same platform named blockchain, but both are quite different from each other.
The NFTs are non-fungible and can not be traded for others. The Gucci Ghost and the Nyan Cat are both NFTs however, both are in no way similar to one another just for being NFTs. However, you can exchange one cryptocurrency for another one very easily as these are fungible. Cryptocurrency supports NFTs but an NFT can not support cryptocurrency.
How are NFTs Integrated with Metaverse?
As stated earlier, one of the main reasons behind the increasing popularity of the NFT domain is the introduction of Meta or the Metaverse. The Metaverse or the Meta Universe is a virtual world created out of real or imaginary places. The concept is somewhat similar to NFTs as the NFTs are virtual or digital artwork created from realistic things.
As you may already know that to enter Metaverse, one needs cryptocurrencies. The same holds for NFTs as well. Hence, the chances are quite high that the NFTs will become the main currency in the virtual land of Metaverse, posing a strong connection between both.
From Where Can You Deal in NFTs?
The next question that you may ask now is where one can deal in NFTs. The answer to this is NFT marketplaces. There are dozens of popular NFT mining marketplaces (OpenSea being the most popular amongst these) that allow you to bid over an NFT and transfer the ownership if required.
These marketplaces offer and support a variety of payment options for the transaction. You may find specific marketplaces according to the category of NFT you are selling (Musician Marketplace for music, NBA Top Shot for official clips from the NBA matches, and more). There are individual marketplaces that provide you with the type of NFT you want.
To proceed with the transaction of purchasing an NFT, first, you need to create a digital wallet that supports NFT storage as well as for cryptocurrencies. When the wallet is online, you can use the same to transfer the amount to the seller or get the amount from the buyer to procure or sell the NFT, respectively.
What are the Most Popular NFT Marketplaces?
As stated earlier, for different kinds of NFTs, different marketplaces are available. These allow you to buy or sell the specific NFT as you want. Some of the most popular NFT marketplaces are:
This is one of the best platforms or marketplaces to mine, purchase, and sell different NFTs easily. You can create an account on the website, browse to look for your favorite artists, and a lot more.
Next is Rarible. This is another great marketplace to look for some new artists and their collections. You can also trade your existing NFTs on the platform.
The Foundation marketplace to deal with NFT is quite sophisticated. One creator needs to get an invitation from another existing one to get access to this platform. The popular Nyan Cat NFT originated and was dealt with on this platform.
Why People are Interested in NFTs?
Another thing that you may wonder is what is the reason behind the ever-increasing popularity of the NFTs and why are people interested in the same. One of the major reasons behind this is the popularity and trust of users in blockchain technology. After the huge success of cryptocurrency, people are now looking out for more innovative ways to own and deal in unique digital content.
This is the best way for people to gain attention over the internet. Although one owns the NFT, the same artwork will still find a way to the internet and be visible to everyone. This will help in increasing your popularity. Additionally, when any artwork or NFT is sold, the original creator gains around ten percent of the deal. This also motivates more and more creators to show and sell their artwork online.
Owning an NFT provides a sense of possession to the users, and hence attracts more and more collectors worldwide.
What Can You Do with an NFT?
The best use of an NFT for a creator is that it provides an option to digitize the artwork very easily. If you as a creator want to flaunt your art on a digital platform instead of some gallery or auction site, then NFT is the best way to do that. This method also allows you to gain more as you connect with the interested buyer directly without any intermediary or external charges.
One of the best things about NFT price is that you get a certain amount as royalty on the artwork, every time it is sold or transferred. Why this feature rules over offline sales is that when a piece of art is sold offline, the creator of the same does not get any share from the sale made later.
The same benefits apply to the buyers as well. With the help of NFTs, you can purchase the artwork of your favorite artists and support them. Even if you want to earn profits, you can invest in the NFTs. For this, you need to purchase the token smartly. Buy an NFT that promises a price increase in the near or distant future, as you want. Then when the price increases, you can sell the same NFT for a profit.
Should You Invest in NFT?
Just like any other type of investment, there are both advantages and disadvantages to investing in an NFT.
The main advantage of investing in an NFT is that it is safe with blockchain technology. Hence, the risk of losing an NFT is around zero. Additionally, any individual can invest in the NFTs irrespective of the stream he is working in or the financial background of the same. If you want to know how the blockchain works, then NFT is the best way to do that.
The con of investing in an NFT is this, it does not provide assured returns. You may like one NFT. However, others may not feel moved by the same. Hence, there is no guarantee whether you will be able to sell the NFT for more or not. Just because one can tokenize NFTs, does not mean that there is a surety of investment.
How Promising is the Future of the NFT?
The gaining popularity of NFTs over the past few months shows a positive and vibrant future for the NFTs. The interest of more and more investors and collectors in this idea is increasing. This shows that the future holds exciting opportunities for everyone. Estimates show that as the domain of NFTs is quite easy to enter and understand, over 40% of users will use this to start dealing in and using the crypto industry.
The sale value of NFT of Gucci Ghost was $3,600. The sale value of XCOPY Ethereum NFT was $3.9 million (ownership-Snoop Dogg). Additionally, facts show that NFT enthusiasts, buyers, sellers, collectors, and dealers spent over $230 million on NBA highlights alone. All these figures show that if used smartly, the domain of NFT can result in growth and income for everyone.
After 500 years the NFTs may go extinct and unusable. This can happen because websites run out, the image quality deteriorates, and other factors may impact the status of the NFTs, but until then, the future looks bright.