Are you ready for the role of NFTs in the crypto economy?
April 20, 2021
6 min read
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In the realm of blockchains and digital assets, changes are happening quickly and unexpectedly, and innovations continue to emerge at an accelerated pace. NFTs, or non-fungible tokens, are a particularly intriguing development in the crypto world. In March 2021, the founder of Twitter put up for sale an autographed tweet as NFT. A few days later, a digital-only work of art was sold at Christie’s auction house for an incredible $ 69 million.
However, the successful bidder of the work will not receive a sculpture, painting or even a print and, instead, will receive an NFT. The concept of NFT is one that many of us are just beginning to hear about, and it can be difficult to understand.
If you want to learn more about this latest trend in the crypto economy, you’ve come to the right place. We’ve written this short and straightforward guide covering everything you want to know about NFTs – their history, purpose, and why they are a source of so much excitement and anticipation.
What are NFTs?
An NFT is a non-fungible token. Fungible is an economic term describing an asset that is made up of units that can be easily interchanged. Money is an example of this, because you can swap one $ 20 bill for two $ 10, and it will be the same value as before. However, when something is not fungible, it can never be interchanged as there is nothing equivalent in terms of value.
A non-fungible asset has properties so unique that they belong only to him, and the physical examples would include an original painting or a real diamond. NFTs are the digital version of a non-fungible asset because they can be brought in and sold like any other physical good, but they actually have no tangible form of their own.
Related: What is an NFT? Inside the next billion dollar crypto sensation
How does an NFT work?
A non-fungible token is a unit of data stored on a digital ledger or blockchain. The majority of NFTs are part of the Ethereum blockchain. Ethereum is a cryptocurrency, but its blockchains have the facilities to also support these NFTs along with the additional data that sets them apart from a real Ethereium coin in terms of attributes and function. While NFTs are associated with Ethereum, other blockchains can also create their own versions of NFT, and some have done so – TRON is one example.
Technically, an NFT can be any digital asset, whether it’s a digital drawing, domain name, gif, collectible, or even a ticket that gives you access to a particular event or coupon. However, most of the current enthusiasm around NFTs centers around selling and buying digital artwork.
Related: The NFT Gold Rush: Here’s Why Everyone Is Talking About Non-Fungible Tokens
Why are NFTs unique?
At first, NFT sounds like a weird concept. After all, it is easy to understand why a painting such as the Mona Lisa or a precious diamond would not be fungible because it is irreplaceable and unique. On the other hand, digital files can be easily and indefinitely duplicated, and it would seem that a digital file can never be truly irreplaceable or unique.
When it comes to NFTs, however, it’s not that simple or that simplistic. An example of NFT would be a work of art that has been “tokenized”. The work of art’s non-fungible token then becomes an official certificate of ownership that can be brought in or sold and only belongs to the person who purchased that token.
This is an important distinction because digital files can be constantly replicated and the digital assets of an NFT are no exception. Instead, an NFT gives you ownership of the digital asset because it cannot be transferred to anyone else. In terms of physical assets, anyone can own a copy, or a replication, of the Mona Lisa. Only one person, however, can own the original. NFTs work much the same way.
As with cryptocurrencies, a record of the seller, recipient, and value of the transaction is then recorded on a blockchain. So a digital file itself is infinitely reproducible, but its NFT is recorded and tracked in its underlying blockchain and provides those who own it with proof of ownership of the NFT. NFTs are secure because there is no way to tamper with records on a blockchain. Interestingly, NFTs can also come with a smart contract where artists will receive a commission on any future sales of the token.
Related: 3 Tips For Creatives Who Want To Get Into The NFT Industry
Are NFTs a Profitable Investment?
NFTs have not necessarily been around long enough to truly understand the trends, implications and viability of these assets. This unpredictability means they are not immune to criticism, which has arisen for a number of reasons. First and foremost, serious concerns surround the environmental impact of maintaining blockchain for NFTs.
This reflects the same criticisms of cryptocurrencies, as NFTs operate on a proof of work blockchain rather than proof of stake, resulting in a higher carbon footprint and reduced energy efficiency for NFT transactions. . Additionally, many economic and financial experts have warned that recent interest in NFTs is an unsustainable bubble.
On the other hand, there is considerable potential for NFTs to become a permanent feature of the crypto world. There is no doubt that NFTs are the latest trend to gain attention, and this phenomenon has certainly made fascinating headlines. NFTs allow people to purchase a unique digital artwork or other collectible item online that they fully own – they are the only ones in the world who own this original asset.
NFTs may not have been around for very long, but some have already sold for tens of millions of dollars. They can certainly be lucrative, but the question is whether they are a fleeting trend or the future of the crypto economy.