NFT is an abbreviation of Non-Fungible Token. To be precise, “Non-fungible” is different from others and cannot be interchanged. They have their unique identity and information. An NFT (Non-Fungible Token) is a unit of data stored in a blockchain that can be bought, sold, or traded using cryptocurrency. In other words, it is a Certification of Ownership of a digital asset.
Confused? Let us make it easier to understand.
Till now, we were buying and selling things that were physical and could be felt and touched. But in recent times, people are getting ownership of stuff like artworks, tweets, texts, songs, images, etc. And that too, not for some handful of money, NFTs are sold for millions of dollars!
Yes, you heard it correctly!
So what makes these digital assets worth millions of dollars?
Say, for example, a person owns a house. He would be having his documents and agreements on his name that proves he “owns that house.” Similarly, under NFT, the ownership is decided of those things with a unique value and identification. It is backed by blockchain, just like cryptocurrency. The blockchain system is a ledger that stores NFT and all of its transactions securely and anonymously.
Now the question is, which things have Unique identification and what can convert to NFT?
Suppose a 2000 rupee note has its value, but four notes of 500 rupees also hold the same value. So standard currency is a fungible fund. While stuff like artwork, tweets, and images are unique and have only one owner, one can make similar replicas, photocopies, or duplicates. However, after all, the original is owned by one person only. A token is assigned, which is nothing but a Non-fungible Token that decides the ownership of that particular digital asset.
How does the NFT marketplace work?
Blockchain ledger stores all the buying and selling transactions which makes it decentralized and safe. Currently, NFT blockchain is the same as Ethereum blockchain, so payments are accepted in Ethereum– a cryptocurrency. The reason behind backing up NFTs with blockchain is for a secure gateway for transaction and storage, so it becomes almost impossible to alter the information stored in it. Blockchain keeps a record of every transaction, making it difficult to steal or fraud. There is no so-called “third party” in blockchain that makes it more secure. In simpler words, blockchain is like a transparent bank. The ordinary bank stores your money and assets, while blockchain stores your NFTs to protect it from fraud or any kind of theft.
Some of the most popular NFT marketplaces in today’s time are:
- OpenSea.io
- Rarible
- Foundation
Ensure you research your marketplace carefully before making any investment.
How to create your NFT?
When you create your NFT, it is known as “minting”. So the first step is to select which artwork you want to convert into NFT. Any digital file could be an NFT like a digital painting, a music piece, a video, a text file, or anything we can call “digital.”
And if you think that you can mint any file into NFT and earn millions, then we are afraid to say that you don’t know that minting costs a good amount of money. Yes, before minting, first, you need to buy some cryptocurrency in your crypto wallet.
For example, if a person wants NFT for their artwork or any intangible item, they first need to create a Crypto wallet. Preferred wallets that support ERC-721 (the Ethereum-based NFT token standard) are MetaMask, Trust Wallet, or Coinbase wallet. The next step is to add balance to buy cryptocurrencies like Ethereum using a debit card or any other payment option. A person needs Ethereum equivalent to $100 for minting. Minting can cost you more or less, varying on the current Ethereum rate and platform used for minting.
Then one has to link this wallet to NFT-centric platforms like OpenSea or Mintable, where they can upload the artwork they want to convert to NFT. Every website has a Create button, where the person can select and upload the desired file.
Then comes the final stage, where they can sell it by three options:
- By setting up a Fixed price just like any other shopping website and sell it instantly.
- Another is by organizing an Unlimited Auction where the highest bidder buys the NFT.
- The last is Timed Auction, where bids take place for a specific time only.
You can learn more about crypto-lending from here.
- Some real-life examples of NFT arts/ digital assets sold in the past:
- Kevin McCoy minted the first-ever Non-fungible Token “Quantum” in 2014, sold for $1.4 Million.
- Beeple in 2021 sold their most expensive NFT Everydays: The first 5000 days for $69.3 Million.
- Mr.Dorcey sold Twitter founder Jack Dorsey’s first-ever tweet for the equivalent of $2.9 Million.
One crucial point every artist and creator should know is that many websites credit funds even for the “resell” of their NFTs. So every time the buyer resells their made NFT, the platform credits them some percentage of money for a lifetime after every resell.
Is NFT a good investment?
In recent days, the boom of NFTs has increased quite a lot, just like cryptocurrency. But the question is, is it an excellent choice to invest in NFT?
There are many examples where buyers earned much profit after holding and selling their NFTs. The sale of NFTs increased by 299% in 2020 compared to the previous year despite the fact that NFTs are taxable in most countries like India. Buying NFTs is like financially supporting the original creator or artist by giving them an attractive NFT price. Also, it is worth investing in some appreciable NFTs because the return on investment is quite huge, and also, this market is emerging, so more boom is likely to be seen soon. So this makes one question: is NFT a bubble that is soon going to burst? Well, every investment comes with a combo of reward and risk. Higher the reward so is the risk. So it is advisable to get fully instructed and educated before minting, buying, and selling an NFT.