NFTs are the latest craze in the world of cryptocurrencies, and one of the most bizarre to boot. In short, NFTs are digital tokens meant to represent ownership. These are also supposed to be non-fungible, meaning that they will forever remain unique. They can’t be altered so that another party can claim original ownership.
We’ve heard wild stories of NFTs selling in the millions, and it can be easy to get excited about their potential, but you must understand how they work first. In this article, we’re going to dig deeper into how NFTs work, whether they’re a smart investment, and what you should know before investing in them.
NFTs are tokens or pieces of code that are made to be unique. A token can be associated with a piece of digital property but could also be used to prove the authenticity of physical assets as well. In either case, every NTF transaction will be broadcast on a blockchain, with Ethereum’s being the most popular one for NFTs at the moment.
Having transactions broadcast on the blockchain means that you can track when an NFT was sold and its ownership at every step of the life lifecycle. This is very important as prevents fraud.
It’s also important to understand the difference between a fungible and non-fungible asset. Fungible means that the value of an item can be replicated and exchanged for assets of the same type. One of the biggest examples is the US dollar. All $100 bills have the same value and will get you something based on the current exchange rate anywhere in the world.
A non-fungible asset will have unique characteristics that define its value, for example, diamonds. No two diamonds are the same, and the value of each diamond will be defined by things such as the cut, the purity, the weight, and the color, among others. Works of art are similar. Each work of art will have a different value, even art from the same artist. The same goes for NFTs.
NFTs could end up transforming the world of ownership. Especially digital ownership. NFTs might seem like a novelty, but it would be wise for you to get familiar with them right now as they could one day play a huge role in our lives. While it’s often used to authenticate digital art, there are many other applications to NFTs. Let’s take a look at a few of them.
NFTs are like virtual authenticity certificates that can be attached to any type of property. They have been used to authenticate all sorts of digital properties such as:
- Virtual trading cards, like those used in sports video games
- Virtual real estate
- Tweets from celebrities
- Original versions of famous memes
- Video clips and original recordings
An NFT could be used to sell the original version of an artist’s studio recording, for instance. But many companies are seeing the potential for NFTs in other areas.
Nike, for instance, is developing an NFT system that would tie a specific token to every pair of shoes that it sells. This could be a game-changer in an industry where counterfeiting and trust are so important. There is a huge resale market for rare kicks and knowing that you have the real pair is very important. It can be used for a person’s enjoyment or for those who want to resell them.
NFTs are also getting the attention of the luxury goods industry. One of the most well-known projects in that sector is Everledger, a part of the diamond industry. Diamonds are put on their proprietary blockchain, which allows each one to be authenticated, but would also enable buyers to track their progression through the supply chain.
Other similar initiatives have been used to prove the authenticity of things like wine, which is something all wine collectors should be excited about.
NFTs cannot only be used to prove authenticity and track ownership, however. Another benefit of NFTs is that they can provide more price transparency. You know exactly what a product was originally sold for and how much the person selling it bought it for. This will ensure that you’re getting a fair price.
NFTs could also end up revolutionizing how we view ownership. For instance, an artist could decide to sell a piece of their art, but still get royalties every time the piece of art is sold. That was impossible not too long ago.
An artist could also license their art so it can be shown in a virtual gallery or used in marketing. Tracking the ownership of things like photos will be easier. NFTs could help limit theft and artists won’t have to go through the strenuous legal process of having pictures taken down and suing the parties that infringed on their copyrights.
While NFTs can be used to authenticate virtually anything, it’s in the world of digital assets that they’ve made the biggest splash. One of the most popular NFT projects was CryptoKitties, which introduced the concept to the world.
In short, CryptoKitties allowed players to buy and sell virtual kitties on the Ethereum platform. Each transaction was verified on the blockchain, making sure that no two kitties were the same. The game also allowed players to breed their cats to create even more unique kitties. The most expensive kitty to date was sold for 600 ETH, which is worth about $1,900,000 at the time of writing.
Many other similar projects were launched, though they weren’t all as popular. CryptoPunks is one example. Even though the game wasn’t as popular as CryptoKitties, some of the NFTs there sold for massive amounts, with two selling for 4200 ETH. The game was similar in many ways to CryptoKitties with the difference being that the number of “punks” that were created was capped at 10,000, which helps preserve value. Each buyer gets a unique “punk” with various characteristics. This is another project that uses the Ethereum blockchain.
It all depends on what types of NFTs you want to buy. If you are looking for art, for instance, then you have to go on specialized marketplaces such as Rarible, OpenSea, and AirNFTs. If you want to get game NFTs, then these can usually be sold via the game.
NFTs are bought and sold pretty much like any other cryptocurrency. All you have to do is open an account with your marketplace of choice. You then need to pick a wallet if you don’t already have one. One popular wallet for buying NFTs is the Trust Wallet. Other wallets include the Alpha Wallet, Pillar, and Enjin.
This is very difficult to tell at the moment since the market is very new. There are many things that you’ll have to take into consideration if you want to jump in.
The first thing you have to know is that the market is very volatile, just like it is with crypto. That’s because NFTs are solely subject to the law of supply and demand, and you don’t know in which direction it’s going to go. It’s also very difficult to predict the value of an NFT coin since so many things have to be taken into consideration.
We have no idea where the market will be a few years from now. It’s still a very new market, and it is difficult to predict where demand for something like a Beeple NFT will be two, five, or 20 years from now. The value of NFTs has lost about 70% on average already because of the tons of projects that have been released, with some being rather dubious.
This has hurt the value and public image of NFTs, but it doesn’t mean that they’re useless. This only means that it would be wise to wait until they’ve outgrown their fad phase and their value stabilizes.
If you were thinking of buying NFT coins from an artist, for instance, it would be wise that you look up their history. You should also think twice about buying from an artist that hasn’t sold NFTs before since you don’t know how much their previous pieces sold for.
Another thing you have to worry about is fraud. While the blockchain adds a strong layer of security against counterfeiting, it’s not the only thing you need to watch out for when buying NFTs. Some artists, for instance, have claimed that some of their work has been tokenized without their permission. This means that you could end up paying a lot of money for an NFT that is not only worthless but illegal.
NFTs are set to revolutionize the way we prove and exchange ownership. While it’s difficult to know what their future value will be, we can expect them to be part of our everyday lives at some point, so learn about them right now.