NFT For Dummies
One fine evening, I was scrolling through my newsfeed and saw a report claiming “Bored Ape #7090” was sold for USD 2.27 Million! It was a photo of a golden ape with colourful teeth. Okay, the value of art is subjective, I guess.
This was only the beginning; I kept seeing such news- NFTs being sold for thousands and thousands of dollars! I was impressed- people buying pictures spending that much? Little did I know, this only gets more interesting. The vast empire of NFTs, to this day, is only growing.
What are NFTs?
Let’s start with the basics. NFT means Non-Fungible Token. These are unique digital assets that can not be interchanged or replaced. Each NFT comes with a digital signature that marks the uniqueness of that piece. The signature is like a certificate of ownership, which means only the owner will have it and only they may use or exhibit it.
NFTs can be in many forms. An NFT can be any artwork in any digital form, such as an image, video, music, GIF – anything! Other forms of NFT can include digital avatars, fashion items, video game items, virtual land and even MEMES!
How NFT Works
NFTs are regulated on a blockchain and are traded using cryptocurrencies. There are many blockchains and cryptos available right now.
Blockchain is a system of storing and organizing data in a programmable, secure and transparent manner. This can be used to record transactions and track assets, basically as a digital database.
Cryptocurrencies are one of the important parts monitored by the blockchain. In the simplest words, cryptocurrency is virtual money. You can use this to buy, sell and exchange assets in digital space.
To sell an NFT, you have to create any digital asset in any form and “mint” it. Minting is the process of transforming digital assets into a unique token that can be purchased/exchanged on the blockchain. You’ll need a cryptocurrency wallet and balance to mint your NFT in any marketplace.
To buy an NFT, you’ll also need a crypto wallet and currency. After that, you’ll have to connect your wallet to the marketplace and start collecting NFTs of your choice!
Use of NFT
This is probably something you’re wondering about as well; why spend so much time and effort on things that aren’t even there in real life? Well, you’d be surprised to know just how versatile these digital assets are.
As I’ve mentioned before, NFTs are digital assets. Whether it’s gaming or just any activity in the virtual world, tools and elements can be created and traded as NFTs. So, these are very handy as in-game items, digital real estate, designs etc.
As NFTs have a certain set of data programmed into them, they can be an excellent method of identity verification and authentication of any sort. This is a great addition to the academic and business sector. NFTs as certificates and licenses are efficient because of the easy traceability in the blockchain!
For artists, art curators, and collectors, NFTs create a new opportunity to access a range of marketplaces for collectables.
Why NFTs? The Benefits
Although discussions of NFTs can be traced back to 2012, it hasn’t been long since these have created a noteworthy buzz. There are many valid reasons for this craze; let’s have a look at a few:
- Ownership: Blockchain network strictly monitors and stores data about each token. The management and easy traceability make asset ownership efficient. NFTs are single units of assets. One NFT can not be owned by multiple individuals. So, it’s easier for buyers to see where the NFT originated and who owned it previously, reducing the chances of ownership related disputes.
- Authenticity: The reason NFTs are so highly regarded is their uniqueness. The process of creating an NFT ensures the restriction of the asset being copied. The complete history also provides the security of not being able to misuse any token. Hence, this is one of the core utilities of the tokens.
- Security: NFTs are secured in the blockchains, and the transfer or transaction is recorded diligently. Every record is present permanently, so anything related to any NFT can be traced back, making the ownership and exchange secure.
- Valuation of Art: Since the introduction of NFTs, art creators and collectors have found many marketplaces to exchange art. The decentralization of the artwork trade has created a more nurturing place for artistic materials in digital form. The option to set and determine the price for the art has also given the artists a proper channel to get an apt valuation of their creations. Since it’s a competitive market, the buyers get quality assets at a competitive price as well.
- Inclusivity: The span of what can be considered an NFT is huge. This has brought content creators from many different industries under the same umbrella. So, there are different types of assets in the same few marketplaces, creating a good opportunity for revenue boost for such artists and content creators.
Risks Regarding NFTs
With anything in the digital space comes a series of hidden traps. NFTs are no exception, especially when so much demand and benefits are associated.
The first one is obviously financial. Despite NFTs being very profitable, the fees to own crypto or mint NFTs are quite high. Sometimes, the creators end up spending a lot on these and don’t get the expected return due to a multitude of reasons.
Another drawback of this is the unethical creation of NFTs. Anyone can have access to someone else’s artwork and turn that into a token without their permission. This deprives the original artist of the true value and benefits of the asset being exchanged on the blockchain.
Environmental impact is a major concern when it comes to NFTs. Each token leaves a huge carbon footprint. When the world is struggling to cope with global warming, something with such potential and possibility of growth can’t be regarded as the greenest method of transaction.
The world as we know it is changing. People are taking the Metaverse very seriously, and the aftermath of life in digital space is going to change many fields substantially. NFTs will probably be one of the most important factors contributing to the growth.