The questions that we all are thinking about are, what are these NFTs!? How are people making so much money through NFT and what’s all the hype about? The world is transitioning into web 3.0 and NFT is a major part of the same.
NFTs suddenly blew up the search engines when Beeple created a record by selling his artwork “Everydays – The First 5000 Days” for a whopping $69.3 million or even take Nyan cat NFT as an example which sold for $600,000.
Let’s not forget Twitter CEO Jack Dorsey who sold his first-ever tweet for $2.9 million as an NFT. You can find so many other examples of artists selling their work for millions of dollars.
New types of digital art and collectibles are being traded with the advent of NFT. Digital artists are now seeing their work become highly successful with crypto traders, which is giving them more time to do what they love. Even celebrities have caught on to this trend where they can easily connect with their fans all over the world.
Digital art is just one way NFTs can be used. You can represent ownership of any unique asset by buying a token, be it digital or physical.
What is an NFT?
NFT is a Non-Fungible Token. The term “Fungible” means something replaceable. To put it simply, NFTs are non-fungible, i.e., irreplaceable. Non-fungible is an economic term that describes assets with a high degree of uniqueness.
And the Token is an asset that is present on Blockchain. A few examples of assets are animations, digital artwork, music, videos, tweets, etc. A token helps to track these assets on the blockchain.
Let’s break this down further, for example, consider you bought a notepad from Amazon. This notepad is fungible because there are various copies of the same product which can be exchanged easily.
Now let’s think, you have written your name on the notepad and made certain changes to it. At this moment, the notepad becomes non-fungible because there’s only one such copy present.
You won’t get the same product with the same changes anywhere else in the world and you can’t exchange it with any other copy. We hope this makes the concept a bit easier to grasp.
Other examples of fungible items are currencies because they can be easily exchanged with smaller or higher values. Non-fungible tokens are blockchain-based cryptographic tokens that make a unique, one-of-a-kind item. You can't replicate them.
How Does NFT Work?
With the advent of Ethereum’s ERC-721, developers can assign uniqueness to their assets. Non-fungible tokens help to assign ownership of any digital data on the Ethereum blockchain, which represents a public ledger.
The NFT is minted with the help of digital and non-digital assets. This includes assets like videos, music, GIFs, artwork, collectibles, and the list goes on. Physical assets include legal documents, signatures, car deeds, etc.
The rule of Non-Fungible Tokens is to have one owner at a time. The ownership of the assets is tracked with the help of the unique ID and metadata which no other token can replicate. Smart Contracts help to mint NFTs and manage their ownership and transferability.
The developers execute codes stored in Smart Contracts that conform to the ERC-721 standards. Following this, all the information is loaded to the blockchain where the NFT is managed.
The Significance of NFT
Non-fungible tokens are a step in the evolution of what cryptocurrency became after the explosion of technological progress. Every type of asset has a complex financial system to follow. New forms of digital representations of physical assets through NFTs are reshaping the infrastructure that surrounds them.
One of the most obvious benefits of NFTs is market efficiency. Converting a physical asset into a digital one smoothens the processes and eliminates intermediaries.
NFTs allow people to create a digital or physical representation of their work and showcase it on a blockchain. This removes the need to use agents and connects them directly with their audiences.
With more knowledge, this kind of technology is slowly gaining the favor of the audience because of its characteristic of not being hackable, alterable and erasable. To add a cherry on top, NFT cannot be replicated and helps in managing your identity.
NFT vs Cryptocurrency
Most NFT tokens are built with some similar programming as cryptocurrencies, like Ethereum. However, they are not the same. Unlike cryptocurrencies, non-fungible tokens on the blockchain cannot be exchanged or traded at equivalency.
Instead, they are distinguished by their unique identification codes and metadata and can't be replaced with another token from the same set. They allow users to keep track of the digital or non-digital assets they own.
Cryptocurrencies are fungible, meaning they can be exchanged with another cryptocurrency of the same value.
For example, one bitcoin can be exchanged with another bitcoin. NFT is different because each has its distinctive signature, so it's impossible for them to be exchanged or traded in any way.
NFTs & Ethereum
The NFT is secured on an Ethereum blockchain. Ethereum is a decentralized blockchain platform and it helps to set NFTs in motion for several reasons. Both the technologies together make it impossible to steal the ownership of a digital asset.
All Ethereum-supported products share the same backend. Put simply, all products are constantly compatible with each other – this allows you to carry your NFT over from one product to another.
Ethereum makes transactions and metadata are publicly verifiable. You can check them at any time to prove the ownership history. Another plus point is that Ethereum is never down, your tokens will always be ready for trading.
Popular NFT Marketplaces
It is one of the oldest and most popular NFT marketplaces. It's also very broad, hosting every kind of NFT, from art to music, photography, and sports collectibles.
There is support for more than 150 cryptocurrency payment tokens so you're never far away from your choice.
Rarible is a platform that allows users to sell individual pieces of art as well as collections. They attract sports, gaming, and media brands, as well as artists who release compilations of their work.
Rarible is owned by members of the community and encourages decentralization. The platform uses its token called RARI.
Nifty Gateway is the NFT marketplace that matches artists with promising buyers. A few of the most expensive NFTs were sold via this platform, Beeple's CROSSROAD and Pak's The Merge, which sold for US$6.6 million in and US$91.8 million respectively.
Not only does this platform gets a lot of love on Twitter but also attracts celebrity NFTs.
Binance is one of the biggest crypto exchanges and its NFT market is rapidly expanding. Furthermore, it comes with its own blockchain making it a more secure platform to buy, sell and trade.
For these reasons, Binance NFT is seen as one of the most forward-thinking digital assets around.
The Pros & Cons of NFT
1. Safe technology:
NFTs are created using blockchain technology, which prevents the information from being hacked, erased, or altered. A blockchain is a decentralized digital ledger that permanently stores transactional records from all the connected computers on its network.
2. Unique ownership:
Collectibles are great because they're a one-of-a-kind piece, whatever they may be. Plus, there's a nice feeling you get when you own something that no one else owns.
Whether it's a painting, furniture, or any other digital/physical collectible, you will always be the rightful owner.
3. Growth in value and excitement:
Just like any other investment, it's possible to see an increase in the value of your tokens if you buy them at the right time.
Also, there is a lot of excitement about blockchain technology currently. It has the power to change the way people behave in their everyday lives just like the Internet did when it was first introduced.
1. Environmental impact:
A lot of power is used up by the computers to create and sell NFTs, just like when you're doing any kind of blockchain transaction.
Some scientists are worried that the increased usage of NFTs could do more harm than good to an already-depleting environment.
2. Fraudulent activities:
Blockchain is immutable and can withstand any number of malicious attacks, but NFTs are a different story.
There have been complaints from artists who have noticed that their work is being used on online marketplaces without their permission.
3. Not liquid & Volatile:
NFTs have pretty much not been on the market for very long now so it is hard to gauge exactly how liquid their market is.
It's not something a lot of people know about and there are only a few potential buyers and sellers. They are also difficult to trade during periods of stress and prices can get volatile with trading taking place on decentralized exchanges.
Whether or not NFTs are here for the long haul, for now, they have managed to make some people some money and are creating new possibilities for digital assets.
This technology is growing day by day, and new updates are bound to make the technology a much more secure place to put out your work. The scope is huge and we are just as excited as you to carefully trudge the path of NFT in this modern internet era!