What Is An NFT? Non-Fungible Tokens Explained

What Is An NFT? Non-Fungible Tokens Explained

Non-fungible tokens (NFTs) seem to have exploded from ether this year. From art and music to tacos and toilet paper, these digital assets are being sold like 17th-century exotic Dutch tulips – for a few million dollars.

What Is An NFT? Non-Fungible Tokens Explained

But is NFT worth the money — or hype? Some experts say they are a bubble ready to pop like Dotcom Craze or Benny Babies. Others believe that NFTs are here to stay and that they will change investments forever.

What is an NFT?

An NFT is a digital resource that presents real-world objects such as art, music, in-game items, and videos. These are bought and sold online, often with cryptocurrencies, and are usually encoded with the same built-in software as the crypto.

Although they have been around since 2014, NFTs are now gaining notoriety as they become an increasingly popular way to buy and sell digital artwork. A staggering $ 174 million has been spent on NFT since November 2017.

NFTs are usually one of a kind, or at least one of a very limited run, and contain unique identification codes. “Basically, NFT creates a digital deficit,” said Ari Yu, chair of the Washington Technology Industry Association’s Cascadia Blockchain Council and managing director of Yellow Umbrella Ventures.

This is in stark contrast to most digital creations, which are almost always infinite in supply. Presumably, stopping supply would increase the value of a given asset, assuming it has demand.

But many NFTs, at least in these early days, have become digital creations that already exist in one form or another elsewhere, such as iconic video clips from NBA games or protected versions of digital art that are already floating around on Instagram.

Famous digital artist Mike Winkleman, better known as “Bipal”, created a combination of 5,000 daily drawings to create the most famous NFT of 2021, “Everyday: The First 5000 Days”, which sold for a record-breaking 69.3 on Christie’s. Millions.

Anyone can view individual photos — or even complete collages of photos online for free So why would people want to spend millions on something they can easily screenshot or download?

Because an NFT allows the buyer to own the original item. Not only that, it has built-in authentication, which serves as proof of ownership. Collectors value that “digital boast” more than the item itself.

How is an NFT different from a cryptocurrency?

NFT stands for Non-Functional Token. It is usually created using the same type of programming as cryptocurrencies like Bitcoin or Ethereum, but that’s where the match ends.

Physical money and cryptocurrencies are “fungible”, meaning they can be traded or exchanged with each other. They are worth the same — one dollar is always worth another dollar; One bitcoin is always equal to another bitcoin. The fungibility of crypto makes it a reliable means of conducting transactions in the blockchain.

NFT is different. Each has a digital signature that makes it impossible for NFTs to exchange with each other or on an equal footing (hence, non-fungible). An NBA top shot clip, for example, is not equal to every day because they are both NFT. (An NBA top shot clip is not necessarily the same as another NBA top shot clip, in that respect.)

How does an NFT work?

NFTs exist in a blockchain, a distributed public ledger that records transactions. You are probably most familiar with blockchain because of the underlying process that makes cryptocurrency possible.

In particular, NFTs are typically housed in Ethereum blockchains, although other blockchains support them.

An NFT is created, or “minted” from a digital object that represents both real and obscure items, including:

  • Graphic art
  • GIF
  • Video and sports highlights
  • Collectible
  • Virtual avatars and video game skins
  • Designer sneakers
  • Music

Even counting tweets. Twitter co-founder Jack Dorsey has sold over $ 2.9 million as his first tweet NFT.

Basically, NFTs are like physical collector’s items, digital-only. So instead of getting an original oil painting to hang on the wall, the buyer gets a digital file.

They also get exclusive ownership rights. NFTs can only have one owner at a time, and using their blockchain technology makes it easy to verify ownership and transfer tokens between owners. Manufacturers can store specific information in the metadata of an NFT. For example, artists can sign their artwork by including their signature in the file.

What are NFTs used for?

Blockchain technology and NFT give artists and content creators a unique opportunity to monetize their wares. For example, artists no longer have to rely on galleries or auction houses to sell their art. Instead, the artist can sell it directly to consumers as NFT, which allows them to keep more of their profits. Also, artists can program in royalty so that whenever their art is sold to a new owner they get a percentage of the sales. This is an interesting feature because artists usually do not receive future income after their art is first sold.

The industry is not the only way to make money with NFT. Brands such as Charmin and Taco Bell have auctioned the themed NFT art to raise funds. Charmin dubbed her offer “NFTP” (non-fungible toilet paper), and Taco Bell’s NFT art sold out within minutes, with the highest bid reaching 1.5 Rapid Ether (WETH) at — 3,723.83 at the time of writing.

Nyan Cat, a 2011-era GIF of a cat with a pop-tart body, sold for about $ 600,000 in February. And the NBA Top Shot made more than $ 500 million in sales at the end of March. A single LeBron James Highlight NFT has collected over $ 200,000

Even celebrities like Snoop Dogg and Lindsay Lohan have jumped on the NFT bandwagon, revealing unique memories, artwork, and moments as protected NFT.

How to buy NFT

If you are interested in starting your own NFT collection, you need to acquire some key items:

First, you need to get a digital wallet that lets you store NFT and cryptocurrency. Depending on which currency your NFT provider accepts, you may need to purchase some cryptocurrencies, such as Ether. You can now buy crypto using credit cards on platforms like Coinbase, Kraken, eToro, and even PayPal and Robinhood. You will then be able to transfer it from Exchange to the wallet of your choice.

You may want to consider fees as a research option. Most exchanges charge at least one percent of your transactions when you buy crypto.

Popular NFT Marketplace

Once you’ve set up your wallet and got the funds, there’s no shortage of NFT sites for shopping. Currently, the largest NFT marketplaces are:

OpenSea.io: This peer-to-peer platform bills itself as a purveyor of “rare digital items and collectibles.” To get started, all you need to do is create an account to browse NFT collections. You can pick pieces by sales volume to discover new artists.

Rare: Like OpenSea, Raible is a democratic, open marketplace that allows artists and producers to issue and sell NFT. RARI tokens issued on the platform enable holders to consider features such as fees and community rules.

Foundation: Here, artists must receive an invitation from an “upvote” or co-creator to post their art. The exclusivity of the community and the cost of access — artists also have to buy “gas” for the Mint NFT — meaning it can boast of high-caliber artwork. For example, Nyan Cat creator Chris Torres sold NFT on the Foundation platform. It can also mean high prices – not necessarily a bad thing for artists and collectors to capitalize on, the demand for NFT has remained at its current level or even increased over time.

Although these platforms and others host thousands of NFT manufacturers and collectors, be sure to do your research carefully before purchasing. Some artists have become victims of impersonators who have listed and sold their work without their permission.

In addition, the verification processes for creators and NFT lists are not consistent across platforms – some more rigorous than others. OpenSea and Raible, for example, do not require owner verification for NFT listings. Consumer protections seem to be the best scattered, so when shopping for NFT, it’s best to keep in mind the old adage “caveat matter” (let the buyer be careful).

Should You Buy NFT?

You can buy NFT, does that mean you should? It depends, says U.

“NFTs are risky because their future is uncertain, and we do not yet have much history to judge their performance,” he notes. “Since NFTs are very new, it may be worth investing in a small amount to try for now.”

In other words, investing in NFT is a very personal decision. If you have money, it can be worth considering, especially if one party holds money for you.

But remember, the value of an NFT depends entirely on what someone else is willing to pay for it. Therefore, demand will drive prices rather than basic, technical, or economic indicators, which generally affect stock prices and at least generally form the basis of investor demand.

This means that an NFT can be resold at a lower price than you paid for it. Or if someone doesn’t want it, you can’t resell it.

NFTs are also subject to capital gains tax – just like when you sell stocks at a profit. Since they are considered collectible, however, they may not receive the preferred long-term capital gain rate of stocks and may be taxed at even higher collectible tax rates, although the IRS has not yet ruled on what NFTs are considered for tax purposes. Remember, cryptocurrencies used to buy NFT can be taxed even if their value has increased since you bought them, which means you may want to check in with a tax professional when considering adding NFT to your portfolio.

That said, contact NFT exactly as you would invest: do your research, understand the risks – in which you could lose all your investment dollars – and if you decide to immerse yourself, proceed with a healthy dose of caution.

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