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 there is one asset class that shot to prominence in 2021, it has been the NFT. Technically known as the Non Fungible Token, it is essentially a way of accumulating, collectibles and digital art in the crypto world. In reality NFT is actually a unique and non-replaceable unit of data stored on the blockchain. Non-fungible as the name suggests is anything that cannot be replaced by another identical item; or simply 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 of those have 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 the distributed but interconnected records known as ledgers which store all transactions on crypto framework. Each transaction is recorded as a block including all its transaction data and they each link to the earlier block thereby creating a chain extending back in time to the earliest known transactions. Thus the term Blockchain was coined. NFT can be applied to any digital assets like Image files, Video files and Audio files that can be stored and distributed electronically. NFT’s use a digital ledger to store the proof of ownership, so while it can have millions of copies circulating around the internet, the ownership is clear. 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 huge popularity only recently. NFT gave people and organizations the opportunity 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 has the ability to revolutionize crypto use and give the opportunity to monetize assets in a way that was 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, video of the remotest place on earth you visited, all of them have no real monetary value associated with them in the real world. However, they are all unique, or popular, or scarce, which are actually the right parameters to hold any value in digital world. Like the Mona Lisa painting in Louvre museum in Paris. It’s the only one, though there are millions of pictures and replicas scattered in the world. So it has a definite value. Similarly any digital asset can be made into a 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, like the Token which is the base for all transactions. Token is a digital asset which is has its own unique ID by which it is recognized. It’s called the Token ID. The different cryptocurrencies we know today like Bitcoin, Ethereum, etc. are nothing but coins that can be used for transactions. Just like 1 USD dollar bill has a real world value (known as Purchasing Power) attached to it, all coins have a value associated with them in the digital world as well. 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 the form of a token ID. Like any asset, the token can be stored, invested in, shared, gifted, traded and also 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 get a hold of it quickly. 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.
Just like NFT, there are other token like DeFi tokens, governance tokens and security tokens. So 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 common, all the other cryptocurrencies are also sometimes termed tokens or alt-coins. So token is a term that’s used in many different ways in the crypto world.
How to deal in NFT’s?
NFT tokens are created by creating a code on blockchain which assigns a unique ID to the asset as well as records the ownership and other details. Once created, it can have a value associated with it and 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 bought online. You would 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 a coin increases and decreases, so can the value of NFT based on the demand and also based on how valuable it is. Like the first ever tweet on Twitter is really unique and there cannot be anything like that in future and because twitter actually revolutionized small message platforms. So it depends on what other people are willing to pay, much like art. You can also trade your NFT for something else in the marketplace, or another NFT as well. Since NFT has a monetary value, it has a buying power and can be used to trade.
Once the NFT has been purchased, it needs to be stored in some form of a digital wallet. Digital wallets can be online and offline where you can store cryptocurrencies and NFT’s. Once you buy cryptocurrency or NFT, you will have to make use of a wallet to store 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 an access to it using your private security key. Trezor and Ledger are two companies that offer hardware wallets. This completely 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 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 own special NFT and sell it online marketplaces. Understand the NFT world, do your research, before you decide to go ahead. Who knows you could be making your million there.