Unpacking NFTs: Non-Fungible Tokens Explained

NFTs or non-fungible coins (NFTs) are all over the place. From music and art to toilet paper and tacos, NFTs are sold as seventeenth-century exotic Dutch Tulips–some with thousands of dollars.

But are NFTs worth the cost or hype? Many experts think they’re a bubble that’s about to burst, similar to the dot-com bubble and Beanie Babies. Some believe NFTs will be around for the long haul and can transform investing forever.

What is an NFT?

An NFT can be described as a type of digital asset that could be found in music, art games, video content, and in-game items, as well as others. They are sold and bought on the internet, often using Cryptocurrency, and typically are encoded using the same software that is used to encode numerous cryptos.

Though they’ve been around since 2014 onward, NFTs are gaining notoriety as they become an increasingly popular method to purchase and sell digital art. It is estimated that the market in NFTs was valued at a staggering sum of 41% billion dollars in 2021 which will soon surpass the worth of the world market for fine art.

NFTs are typically unique, or at least one with a limited number, and come with distinctive identifier codes. “Essentially, NFTs cause digital scarcity,” claims Arry Yu, chairman of the Washington Technology Industry Association Cascadia Blockchain Council and the managing director at Yellow Umbrella Ventures.

This is in stark contrast to the majority of digital products that are nearly endless in supply. The idea is that cutting off supply will increase the value of an asset as long as it is in high demand.

Many NFTs, at a minimum in the early days, are digital works that are already in ways elsewhere, such as famous videos from NBA games or securitized versions of digital art being displayed on Instagram.

A well-known Digital artist Mike Winklemann, better known as “Beeple,” crafted a collection of 5,000 daily sketches to make possibly the most well-known NFT from 2021, “Every day The First 5000 days,” which was auctioned off at Christie’s for new record $69.3 million.

Anyone is able to view individual images or even the whole collage of images at no cost. Why would anyone want to pay millions for something that they can easily capture or download?

Since an NFT lets the purchaser be the owner of the original item, it also comes with built-in authentication that acts as evidence of ownership. Collectors appreciate those “digital pride rights” much more than the actual item.

What is the difference between an NFT and Cryptocurrency? from Cryptocurrency?

NFT stands for non-fungible token. It’s typically developed by using the same software as Cryptocurrency, similar to Bitcoin as well as Ethereum However, and this is where the similarities end.

Physical currency and Cryptocurrency can be described as “fungible,” meaning they can be exchanged or traded against each other. They’re also equivalent in value. One dollar will always be worth another dollar. One Bitcoin is always the same as another Bitcoin. The fungibility of Crypto makes it an effective method for conducting transactions through the blockchain.

Different NFTs exist. Each one has a unique digital signature which means that NFTs are unable to be exchanged for or even equal to each other (hence they are non-fungible). A single NBA Top Shot clip, for instance, isn’t the same as every day since they’re NFTs. (One NBA Top Shot clip doesn’t mean it’s equal to another NBA Top Shot clip, in fact.)

What’s the Process of an NFT? How Does an NFT Work?

NFTs can be found on the blockchain, which is a public ledger distributed across the globe that tracks transactions. You’re likely aware of blockchain as the process behind making the cryptocurrency market feasible.

In particular, NFTs are stored in The Ethereum blockchain. However, other blockchains also allow them to be used.

An NFT is made, or “minted” using digital objects, which represent tangible and intangible objects such as:

  • Graphic art
  • GIFs
  • Highlights from sports and videos
  • Collectibles
  • Virtual avatars and skins for video games
  • Designer sneakers
  • Music

Even tweets even tweets count. The co-founder of Twitter, Jack Dorsey, sold his first tweet to be An NFT in the amount of over $2.9 million.

In essence, NFTs are similar to tangible items for collectors but digital. Therefore, instead of an oil painting that you can display on the wall, buyers receive the digital version instead.

They also have exclusive rights to ownership. The blockchain makes it possible to verify ownership as well as exchange tokens among owners. 

What is the purpose of NFTs?

Technology like blockchains and NFTs provide creators of content and artists an opportunity to make money from their work. For instance, artists mustn’t rely on auction houses or galleries to sell their artwork. Instead, they can sell the work directly to the buyer through an NFT and let artists keep more of their earnings. Artists can also program in royalties to get a share of the profits whenever their work is sold to a new buyer. This is an appealing aspect since artists usually don’t receive any future profits the first time their artwork is sold.

The art market isn’t the only method to earn money through NFTs. Brands such as Charmin as well as Taco Bell have auctioned off themed NFT art in order to raise funds to benefit charities. Charmin called its offer “NFTP” (non-fungible toilet paper), and Taco Bell’s NFT artwork sold out within minutes, with the most expensive bids being 1.5 wrapped Ether (WITH)–equal to $3,723.83 at the time of writing.

Nyan Cat, a 2011-era GIF of a cat sporting the body of a pop tart, was auctioned off for almost $500,000. It was sold in February. Additionally, NBA Top Shot generated more than 500 million in sales at the end of March. A single highlight by LeBron James NFT sold for more than $200,000.

Even celebrities such as Snoop Dogg and Lindsay Lohan are jumping on the NFT bandwagon and releasing their own unique memories, art, and moments in securitized NFTs.

How to Purchase NFTs

If you’re looking to begin the process of building an NFT collection, You’ll have to purchase certain essential items:

In the beginning, you’ll need to acquire a wallet online that lets you store cryptocurrencies and NFTs. It is likely that you will need to buy the Cryptocurrency such as Ether in accordance with your want to purchase and what currencies the NFT provider will accept. Cryptocurrency can be purchased using credit cards on platforms such as Coinbase, Kraken, eToro, and even PayPal and Robinhood right now. Then, you can transfer the Crypto from the exchange to the bank account of your choice.

It is important to keep the fees in mind when you explore choices. Most exchanges will charge you at least an amount of a portion of the transaction when you purchase Cryptocurrency.