NFTs are a trending topic in the tech and investment industries, but most regular consumers aren’t quite sure what they are and how they’re used. NFT stands for a non-fungible token, which is a collectible digital asset, such as a piece of art. Essentially, NFTs are traded through NFT marketplaces, acting as a digital record of ownership. This article will answer your top questions about NFTs so you can begin making smarter investment decisions.
1. What Exactly Does Non-Fungible Mean?
Non-fungible tokens are unique and can’t be replaced by anything else. For example, your regular cryptocurrency, like Dogecoin and Bitcoin, is fungible because it can be traded for another crypto. Something unique, or one of a kind, cannot be traded for anything else and have the same value. For example, if you trade a one-of-a-kind baseball card for another card, you’ll have a different card.
2. How Do NFTs Work?
NFTs are part of blockchain technology, which stores information to make them work differently from bitcoin. Blockchains are a list of recorded transactions, also known as ledgers, with each block storing information about a transaction and containing an encrypted signature and timestamp.
As the blogs are recorded in ledgers, they build on one another to form a chain. After a transaction is recorded, it cannot be edited or undone. Through verification, the data is rewritten to reflect transaction events.
Blockchains run on decentralized computers, so no businesses or government agencies manage verifications of transactions. Decentralization makes these transactions more secure and less hackable. On the blockchain, investors can purchase crypto and other types of digital assets, including NFTs.
3. Are NFTs Valuable?
NFTs can be valuable assets, just like art. What makes NFTs even more unique, other than the fact there are no two alike, is the fact you can own just about anything, including a tweet. However, right now, the industry taking the most advantage of NFTs in the art industry.
NFTs are the most popular way to buy and sell digital art. For example, Elon Musk’s partner, Grimes, sold over $5 million worth of NFT art in just a few minutes. Many contemporary artists are looking at NFTs as a way to make more money.
There are also virtual galleries allowing people to sell NFTs where virtual guests can view NFT exhibits.
4. How Are NFTs Created?
Creating NFTs isn’t difficult, which is why so many artists are doing it. The good news is you don’t have to have that much background knowledge of cryptocurrency, and you don’t even have to be a crypto investor yourself. Whether you’re creating an image or digital asset of any kind, you can develop an NFT to be sold. However, you’ll have to choose which blockchain you want to use.
Currently, Ethereum is the leading blockchain for NFTs, and using it allows you to sell your NFTs on all of the platforms that support Ethereum. All you have to do to create an NFT is sign up, connect your wallet, and upload your file.
It usually costs nothing to create NFTs, but some platforms might charge a fee.
5. What Can NFTs Be Used For?
NFTs focuses primarily on ownership because they’re digital collectors’ items. As discussed, authenticity and ownership are certified through the blockchain. These digital assets represent physical and digital objects, so just about anything can be turned into an NFT, including:
Art (Including Tweets)
Any type of digital content can become an NFT. Content creators, including artists and musicians, will gain royalties every time their NFT is resold, which means they can continue to make money on existing content. When artists sell their NFTs, they immediately get paid.
Virtual items in games and apps
Game developers can opt to use NFTs because they provide a record of ownership for in-game purchases. They can also earn a royalty when one item is sold to another owner.
Collectibles & real-world assets
While digital content is a more developed use for NFTs, physical items can also be tokenized and sold. One area where experts are trying to tokenize real-world assets is real estate.
6. Why Are NFTs Popular?
NFTs use technology that simplifies the ability to verify the owner of assets. Because they’re rare and made in limited supply, they are distinguished from digital content that’s shared online. Perhaps the most significant reason they’re so popular is they’re in limited supply, which creates demand for ownership.
NFTs are popular in the art and music industries because they allow artists of all types to avoid issues related to purchasing and ownership of their art. Additionally, NFTs can be an additional source of revenue.
7. How Are They Valued?
NFTs valuation works similarly to traditional art. Typically NFTs are valued by taking a look at the background of the artist and assessing their sales. However, any artwork can explode in the market without any record of sales.
NFTs have rights and royalties that can help artists earn more money. Instead of dealing with contracts, they can now earn up to 90 percent to license their art.
8. What is the Future of NFTs?
Many experts agree that just like crypto, NFTs are here to stay. NFTs are only worth what another individual is willing to pay for them, so it’s a higher-risk investment than stocks and bonds. For example, your NFTs will quickly lose value if people suddenly lose interest. Because NFTs are still a new concept, they come with problems. For example, there’s no way to prove with certainty that something is a single authentic copy even though the owner of the digital signature believes it to be.
Additionally, cryptocurrency and NFTs harm the environment, an issue practically every nation in the world cares about. While there is no paper used for NFTs or crypto, the network uses a significant amount of energy to mine crypto and tokenize assets.
Luckily, many companies are looking into a greener way to invest in crypto and NFTs. For example, Elon Musk has demanded cleaner solutions.
Getting Started with NFTs
Now that you know everything you need to know about NFTs, it’s time to decide if investing is right for you. While anything involving cryptocurrency and digital assets carries risk, many artists have found success digitizing their art and selling NFTs.