Let’s try to understand what NFT is in the most easy-to-understand language. I am certain that after reading the post until the end we will understand everything we need to know about NFTs. We will be covering the following: What is an NFT? How do NFTs work? Where to browse or buy and sell NFTS? Is NFT Overhyped?
Disclaimer: Buying or Selling NFTs contains risks and Shakeuptech will not be responsible for any loss or fraud. It is solely the user’s/person’s own discretion.
What is an NFT?
First thing first: What is an NFT? so in the simplest terms possible an NFT basically stands for non-fungible token. Now the word fungible by itself refers to something that can be traded or interchanged with another item. While still maintaining the same worth of value. For example, a banknote or casino chips, or goods are all examples of fungible items. Bitcoin and Ethereum and other cryptocurrencies are fungible as well, meaning we can trade them for equally valuable cryptocurrencies.
Fungible assets like Bitcoin or Ethereum or any other cryptocurrency for that matter equate to a specific amount of money or dollars, the same thing holds true for gold and any other minerals. If I were to give us a thousand dollar banknote for example and us give me back two 500 banknotes, we are both fine with that, right? it’s a fair trade all. The 1000 banknote is different from the two 500 banknotes; however they hold the same value or worth, so they are fungible. The same goes for cryptocurrencies, let’s take bitcoin and Ethereum, for example, they are both fungible, which means if we trade one for another we will end up having the same value or item in return. So basically physical money at the very end.
Non-fungible on the other hand, however, implies the exact opposite, it is an asset that is not interchangeable or not substituted, genuine and authentic. It contains unique characteristics that make it different from other items in the same asset class. Now let’s elaborate on that a bit more for ease of understanding. Let’s think of painting art, for example, it’s not fungible because it cannot be produced in bulk. And even in the case, somebody tries to copy it or forge it will not be authentic. Now we should have a clear understanding of what exactly the term non-fungible means.
The last word in NFT is token. Definition of a token is a voucher that can be exchanged for goods or services. And in the context of NFTs, a token refers to a digital certificate or proof of ownership that is stored on a secured distributed network that is referred to as a blockchain. These tokens are stored majorly in the Ethereum blockchain. NFTs contain distinguishable information about who is the digital asset owner and who is the seller. This makes it 100% unique and authentic.
Clear Definition of NFT
Combining all the definitions we can conclude that NFTs or non-fungible tokens are a voucher that proves the authenticity of a digital asset that we own or bought and this voucher or token is stored in a secure Ethereum blockchain. However, we can still find NFTs in other blockchains too. Now let’s learn how does NFTs work, NFTs basically create a blockchain-based digital certificate, or we may think of it as a digital signature for our own digital belongings or collectibles including music, art, paintings, or so many more.
This digital signature or token gives our item a unique digital identity as the underlying infrastructure and the programming language used by NFTs are exactly the same as those of cryptocurrencies. They also are based on programming languages similar to Cryptocurrencies such as Ethash and Scrypt. But we have learned that Cryptocurrencies are fungible assets and they can be interchanged for similar value items.
Staking an NFT
NFTs are digital assets, but how do we make money on the NFTs bought. So like in the real world, where we can open a fixed account and deposit our money. And the money stays inaccessible for a certain period of time. The time period can vary from a year to a decade. We earn a certain rate of interest which also varies with the time period. This rate of interest is much higher than a regular savings account.
The same is the case with the NFTs, many platforms allow us to Stake our purchased NFTs. Staking NFTs means locking our NFTs for a certain period of time, earning a certain interest. The APY for the staking varies from low to very high percentage. We can however un-stake our NFTs at any time but the rewards will be changed back to regular interest.
A popular marketplace where we could browse discover as well as buy and sell NFTs is on a website called Opensea, Axie Marketplace, Rarible, and more. Here we will find a variety of NFT categories such as domain names, music, photography, and many more. Cryptopunks is an example of popular NFT. It has more than 10000 collectibles tokens that can be bought, sold, and stored with proof of unique ownership. NFTs are becoming extremely popular and have helped many famous personalities in generating huge revenue. Jac Dorsey, who was the CEO and Co-founder of Twitter sold his first ever Tweet as an NFT for a whopping $2.9 Million. This has inspired many creators and artists to list their artwork or music as an NFT on these popular NFTs Online Marketplace.
Future of NFT
NFTs’ popularity is growing like wildfire. The demand for NFTs is at an all-time high and it seems it will keep on increasing. But the thing about hype is that it can end up abruptly as well. Many a time we have seen the value of Bitcoin or Dogecoin skyrocketing but it also crashes overnight. Just like the stock market is based on future predictions and no one knows what is going to happen, the same is with Crypto and NFTs. People should always be cautious before investing in an NFT as the future is still uncertain.
NFTs are still very new to the world and have only started gaining recognition. Most of the buyers of some really expensive NFTs are capable of investing huge amounts of money in these new-age digital assets, is because they have an extremely strong financial background. And most of them can easily bear the huge losses even if the market crashes. But people with no strong financial background should not risk until he/she is extremely certain and are ready to bear the loss.
Disadvantages of NFTs
The disadvantage of NFTs is still not fully researched and proved. But many sources days that the environmental impact of mining Ethereum which is what NFTs use for transactions is very high. The carbon footprint of mining is very detrimental to the environment as most of the miners around the world use fossil fuels to run their system which is used for mining Cryptocurrency.
Another disadvantage is related to the asset ownership identity. Unlike the usual copyright patent that we get for our artwork or content. NFTs tend to create unique ownership or copyright for that same content in form of blockchain. But this data is related to the metadata of the artwork or digital asset and not its visual importance. The digital artwork can easily be copied by simply capturing a screenshot. However the ownership rights stay with the person associated with the NFT. So all of this information is still not clear and can change in the future. We will see some better explanations for all our questions in the upcoming days.