Understanding the NFT World
Article Details
- 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
Introduction
Understanding the NFT World is key to success in the crypto world. If there has been one asset class that shot to prominence in 2021, it has to be the NFT. Technically known as the Non-Fungible Token, users essentially accumulate collectibles and digital art in the crypto world in the form of NFT. In reality, NFT is a unique and non-replaceable unit of data stored on the blockchain. As the name suggests, Non-fungible is anything that another identical item cannot replace; in simple terms, it is 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 distributed yet interconnected records known as Ledgers. These Ledgers are the information databases that store all transactions on the crypto framework. Each transaction on the crypto network gets recorded as a block, including all its transaction data. Each block is linked to the previous transaction block. All the blocks are interconnected similarly, extending back to the earliest transactions. This transaction interlinking design was how the term Blockchain was coined. NFT’s can be any digital assets like images, video, or audio files which can be stored and distributed electronically. NFT uses a digital ledger to maintain the proof of ownership. As a result, NFT ownership is apparent, while millions of copies can keep circulating on the internet. Just like a book can have thousands of copies; however, copyrights to the manuscript always lie with the author.
What is an NFT?
NFTs have been prevalent in the crypto world since 2014 but have only recently started amassing immense popularity. NFTs allowed individuals and companies to monetize their unique assets in ways not possible earlier. Unique digital assets can be an original song sold on the subscription model on Spotify, but now the song owner wants to sell the ownership rights to someone else in the form of an NFT. E.g., the first-ever tweet made by Jack Dorsey was a unique asset and was sold for a whopping $2.9 million. Organizations like NBA are selling small clips of important game footage for thousands of dollars. NFTs have enabled transaction sales for unique assets in a new way. All of these sales are now possible without much effort. That is the true power of NFT. It can revolutionize crypto use and allow monetizing assets in previously impossible ways.
Think of any digital asset to understand its value in the digital world. E.g., a selfie with a Hollywood celebrity, a popular meme, a video of the remotest place on earth. All these digital assets have no 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 song Baby by Justin Bieber. The ownership is unique and clearly defined, though millions of copies are available worldwide. So it has a definite value in the digital world. Similarly, any digital asset can be made into an NFT and bought and sold in the crypto world. We are sure this information has helped in understanding the NFT World.
What is a Token?
There is much technical information about NFT. E.g., the Token, which is the base for all transactions. Let us understand what a Token is and what it does. A token is a digital asset recognized by its unique ID, termed the Token ID. The various cryptocurrencies we know today, like Bitcoin, Ethereum, and more, are nothing but coins used for digital transactions. Just like a 1 USD dollar bill comes with a real-world value (or Purchasing Power) attached, all coins have a definite value associated with them in the digital world. Cryptocurrencies can be gifted, traded, exchanged, and used for purchases, just like transactions in regular currencies in the real world. However, 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 Token is also interchangeably used with crypto coins like Bitcoin and Ether, it is essentially a digital asset holding a definite value.
Understanding the NFT World does come with its own set of technicalities. If anyone is aware of crypto, they will quickly get a hold of it. However, if someone is new to the crypto world, they will get some sleepless nights trying to figure out the initial basics. While we have a quick solution for Insomnia in our article, learning crypto will take around 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 be used to denote any other tokens mentioned above. Since Bitcoin and Ether are so well-known and familiar, other cryptocurrencies are sometimes called tokens or alt-coins. So Token is used in many ways in the crypto world.
How to deal in NFT’s?
NFT tokens are created by creating a blockchain code that assigns a unique ID to the asset and records the ownership and other details. Once created, it has value and can be listed and traded on NFT marketplaces. One example of an NFT marketplace is OpenSea. On an NFT marketplace, buyers will bid, buy and transfer the assets to their digital wallets. NFTs are created, sold, and purchased online in this manner. Readers will be wondering if NFTs are an excellent 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 its value at a particular time.
We go back to our example of the first-ever tweet on Twitter by Jack Dorsey. The tweet is unique and irreplaceable, and there cannot be anything like that in the future. Twitter revolutionized small message platforms, giving this particular tweet even more importance. So it all depends on the uniqueness of the asset, and the price people are willing to pay to own it, much like art. NFTs can be traded for another NFT in the marketplace 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. Once cryptocurrency or NFT assets are purchased, they need a wallet to store and keep them secure, just like a physical wallet. Digital wallets can be online or offline. Online crypto exchanges offer the services of an online digital wallet like Coinbase or Binance, also known as online wallets. For additional security, the digital assets can be stored in an offline wallet, also known as cold storage or hardware wallet. Offline wallets are accessed using a private security key, making them more secure. Trezor and Ledger are two companies that offer hardware wallets.
Summary
Understanding the NFT World is of prime importance now. Experts debate the future of NFT, and many advise against it because they feel NFT is probably just a passing phase and another crypto bubble waiting to burst. However, like it or not, NFTs are here to stay, at least for a while. The bottom line is that 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 is a proven business model waiting to be tapped while the market still exists. Anyone with a digital asset that conforms to the norms set by NFT can monetize it by selling it online in NFT marketplaces. Understand the NFT world. Do detailed research before deciding to go ahead. Who knows, those unlocked assets can make millions for anyone.