For some months now, NFTs have been the rave of the digital asset market. Many people are however still in the dark about what NFTs are and how they work. On the flip side, many people are making life-changing money and groundbreaking discoveries and innovation through this fast-rising technology. This short article will encapsulate what you need to know about this digital asset market that has come to stay.
WHAT IS AN NFT?
NFT is short for Non-fungible Token and these are digital assets that represents items in the real world like music, arts, videos, etc. They are bought and sold online like regular cryptocurrencies and their encoding is generally done with the same software as regular cryptocurrencies.
HOW LONG HAVE NFTS BEEN AROUND?
NFTs were first launched in 2014 but they have gained notoriety in recent months because they have become and increasingly popular way to buy and sell digital works of art. The NFT market was worth $41 Billion in 2021 alone. This is an amount that is close to the total value of the fine art market .
THE CONCEPT BEHIND NFTs
NFTs differ from physical art works because they are generally one of a kind or one of a very limited run. This differs from many physical digital creations which are mostly always in infinite supply. Essentially, NFTs create digital scarcity which reflects in the NFT’s price. However, many NFTs are digital creations that are already existing somewhere in some form like iconic NBA game video clips and secure versions of digital art that’s already floating on social media. Anybody can view and download the digital assets for free so why are people willing to spend millions for something they can already view easily? This is because an NFT allows the buyer to own the original item and it contains built-in authentication which serves as proof of ownership. NFT collectors value this “digital ownership rights” which is why they spend millions on NFTs.
HOW ARE NFTs AND CRYPTOCURRENCIES DIFFERENT?
NFTs are built using the same software as crypto but that’s where the similarities end. Cryptocurrency is fungible. This means it can be traded or exchanged for another. They are also always of equal value (e.g. 1 Bitcoin equal to another Bitcoin). NFTs are different because each NFT has a unique digital signature that cannot be exchanged for another hence, the “non-fungible” tag. (One NBA NFT clip is not equal to another NBA NFT clip simply because they are both NFTs).
HOW DO NFTs WORK?
NFTs exist on a blockchain ( a distributed public ledger that records transactions). Blockchain technology is the underlying process that makes cryptocurrencies work. NFTs are specifically held. on the Ethereum blockchain although they are supported by other blockchains too. An NFT can be created or minted from digital objects that represent real items including Gifs, videos, collectibles, etc. NFTs are like collectors items, only digital. They also come with exclusive ownership rights and can have only one owner at a time who is easily verified by the use of blockchain technology The NFT creators can also embed information in the NFTs e.g. artists can sign artworks by including their signature in the file.
HOW & WHERE TO FIND AND BUY NFTs
You will need some key items if you want to own an NFT. Firstly and most importantly, you need a digital wallet to store your cryptocurrency and NFTs. You’ll also need to fund your wallet to purchase these NFTs with cryptocurrency. You can buy crypto from leading exchanges like Binance and Coinbase. After you have deposited some crypto into your digital wallet, you can now shop for NFTs on NFT websites. There’s no shortage of sites to shop for NFTs but the most popular ones are Opensea.io, Rarible and Foundation. Keep in mind that you will need to sign up and complete your KYC on these sites as deemed necessary. Also remember to do your own research carefully before buying any digital collectibles.
SHOULD YOU OWN NFTS?
Just because you can buy something doesn’t mean you should. People buy NFTs for different reasons. Some buy them to keep them as a store of value, some buy them to sell later and make some profit, others buy them because they want to own the physical art or item for which the NFT proves ownership, etc. Investing in NFTs is a personal decision. It may be worth considering if you have money to spare but always remember that it is a high-risk investment because it’s value is based entirely on what someone is willing to pay for it. Demand drives the price rather than economic, fundamental or technical indicators. That said, approach NFTs like you would approach any investments. Do your research and understand the risks and if you decide to get in, remember to apply caution.
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