Understanding the NFT World
- Target Audience: General
- Age group: 10-99
- Tone: Explanatory Casual
- Formality: Neutral
- Topic: Techno-Commercial
- Domain: Academic/ Business/ General
- Intent: Inform and Advice
- Subject: NFT – What is ?
- Read time: 4 minutes
Understanding the NFT World is key to success in the crypto world. If one asset class shot to prominence in 2021, it has been the NFT. Technically known as the Non-Fungible Token, it is essentially accumulating collectibles and digital art in the crypto world. In reality, NFT is a unique and non-replaceable unit of data stored on the blockchain. Non-fungible, as the name suggests, is anything that another identical item cannot replace; or said it’s mutually non-replaceable. So while copies of the original can be made and distributed, the ownership is recorded and does not change. Fungible items are like currency notes, everyone has a few, and each has a value associated with its denomination. Not NFT. Only the owner of the NFT can have any value attributed to it; the rest can only keep and distribute copies.
Blockchain refers to all the distributed but interconnected records known as ledgers storing all transactions on the crypto framework. Each transaction gets recorded as a block, including all its transaction data. Each block links to the previous block, thereby creating a chain extending back in time to the earliest transactions. Thus the term blockchain was coined. NFT can be related to any digital assets like Image files, video files, and Audio files that can be stored and distributed electronically. NFT uses a digital ledger to keep the proof of ownership. So the NFT ownership is apparent while millions of copies can keep circulating the internet. Like you can print thousands of copies of a book, but the copyrights to the manuscript always lie with the author.
What is an NFT?
NFTs have been in existence in the crypto world since 2014 but have started amassing immense popularity only recently. NFT’s allowed people and organizations to monetize assets they owned, like the first-ever tweet made by Jack Dorsey. It can also be your original song that you have already made money off, but now you are selling the ownership rights to someone else. Organizations like NBA are selling small clips of important game footage for thousands of dollars, something that was lying idle in their archives gathering dust. All without moving an inch or much effort. That’s the power of NFT. It can revolutionize crypto use and allow monetizing assets that were previously not possible.
To understand its value in the real world, think of a digital asset you have. Like a selfie with a Hollywood celebrity, a meme you made that became very popular, a video of the remotest place on earth you visited. They all have no real monetary value associated with them in the real world. However, they are all unique, famous, or scarce, which are the correct parameters to hold any value in the digital world, like the Mona Lisa painting in the Louvre museum in Paris. It’s the only one, though millions of pictures and replicas are available worldwide. So it has a definite value. Similarly, any digital asset can be made into an NFT and bought and sold in the crypto world. I am sure this has helped you in understanding the NFT World.
What is a Token?
There are a lot of technical information and terms around NFT. E.g., the Token, which is the base for all transactions. A token is a digital asset recognized by its unique ID, termed the Token ID. The different cryptocurrencies we know today, like Bitcoin, Ethereum, etc., are nothing but coins used for transactions. Like a 1 USD dollar bill with a real-world value (termed as Purchasing Power) attached, all coins have a value associated with them in the digital world. Cryptocurrencies can be gifted, traded, exchanged, and used for purchases like regular currencies. But do not confuse crypto coins with tokens. While coins represent value, tokens represent assets in a token ID. Like any asset, the token can be stored, invested in, shared, gifted, traded, and staked. While the term token is also interchangeably used with crypto coins like Bitcoin and Ether, it is essentially a digital asset with a value.
Understanding the NFT World does come with its own set of technicalities. However, if you are not new to crypto, you will quickly get a hold of it. If you are new to crypto, you will get some sleepless nights trying to figure out the basics. While we have a quick solution for your Insomnia in our article, learning crypto will take a week to get started.
Like NFT, there are other tokens like Defi, governance, and security tokens. So a token can have a specific meaning as in NFT or can be used to denote any of the other tokens mentioned above. Since Bitcoin and Ether are so well-known and familiar, other cryptocurrencies are also sometimes termed tokens or alt-coins. So token is a term used in many different ways in the crypto world.
How to deal in NFT’s?
NFT tokens are made by creating a code on blockchain that assigns a unique ID to the asset and records the ownership and other details. Once created, it can have a value associated with it and be listed and traded on NFT marketplaces like OpenSea. The purchasers will bid, buy and transfer the assets to their digital wallets. This is basically how NFT’s are created, sold, and purchased online. You will be wondering if NFT’s are a good source of investment, especially since the value can go up or down as per the demand. Well, there cannot be a specific answer to this. Just like the value of currency increases and decreases, so can the value of NFT based on the demand and how valuable it is.
An example of an NFT will be the first-ever tweet on Twitter. The tweet is unique, and there cannot be anything like that in the future. Twitter revolutionized small message platforms, which gives more importance to this tweet. So it depends on what other people are willing to pay, much like art. You can trade your NFT for something else in the marketplace or another NFT as well. Since NFT has a monetary value, it has purchasing power and can be traded.
Once the NFT is purchased, it needs storage in some form of a digital wallet. Digital wallets can be online and offline to store cryptocurrencies and NFT’s. Once you buy cryptocurrency or NFT, you will have to use a wallet to keep them securely, just like a physical wallet. Online crypto exchanges offer the services of a digital wallet with your account like Coinbase or Binance, which are also known as online wallets. To make the wallet more secure, you can store the assets in an offline wallet, also known as cold storage or hardware wallet, where only you have access to it using your private security key. Trezor and Ledger are two companies that offer hardware wallets. This storage ultimately secures your cryptocurrency and NFTs.
Understanding the NFT World is of prime importance now. Experts debate the future of NFT, and a lot of them advise against it because NFT is probably just a passing phase and another bubble waiting to burst. But, like it or not, NFT’s are here to stay, at least for a while. The bottom line is the NFT market is booming, and large organizations like NBA’s Top Shot have seized the opportunity and made millions selling digital video rights in the form of NFT. So it’s a proven business model waiting to be tapped while the market still exists for it. If you have a digital asset that conforms to the norms set by NFT, you can make your special NFT and sell it online marketplaces. Understand the NFT world. Do your research before deciding to go ahead. Who knows, you could be making your million there.