In the current era, it is possible to miss out on the evolving tech trends in a blink of an eye. While 2020 was dominated by the COVID-19 pandemic, non-fungible tokens (NFTs) are making headlines in 2021. As per present-day observations, NFTs are touted to be the next big thing in the upcoming years.
Right from memes to digital art, these digital assets have a much higher value than they ever did before. To put that in perspective, it can be equated to a Van Gough painting that was sold for millions of dollars.
However, the main question that is making the rounds on the internet is – are NFTs worth the hype? While some experts believe that they are a bubble that will pop in the near future, some say that NFTs are the future.
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What is an NFT?
An NFT is a unique digital asset that grants the creator complete ownership of their digital items. These assets are traded online, mainly with cryptocurrency, and are generally encoded with the same technology used to develop different cryptocurrencies.
NFTs have been around since 2014. However, they are gaining traction as they are proving to be a lucrative medium to buy and sell digital assets. Nearly $174 million has been spent on NFTs since November 2017 [1].
In most cases, NFTs are one of a kind and come with a unique identifying code. Arry Yu, Managing Director of Yellow Umbrella Ventures said that “Essentially, NFTs create digital scarcity.”
“Digital scarcity” is not a term that a lot of people are familiar with, especially when almost all digital creations are infinite in supply. However, in this case, when the supply or the source is cut off, it raises the value of the digital asset.
A host of NFTs, especially in the initial days, have been creations that are already present in some form or another. For example, video clips from NBA games or different forms of digital art that have been floating around on social media.
Here’s the dilemma associated with NFTs. Since any person can view these digital assets for free, why are people investing thousands of dollars on something they can simply just download?
Here’s the catch! An NFT grants ownership of the original item to the buyer. Besides, it also comes with a pre-built authentication that is proof of ownership. Individuals who are shelling out huge amounts of money are paying for the “digital bragging rights” instead of the item itself.
Difference between cryptocurrency and NFT
As mentioned earlier, an NFT stands for non-fungible token. At present, the building blocks and programming structure of an NFT are similar to that of a cryptocurrency like Ethereum or Bitcoin. The similarity between NFTs and cryptocurrency ends there.
Cryptocurrencies and physical money are fungible. This means that they can be traded for one another. Besides, they are also equal in value. For instance, one dollar is always worth another dollar; one Ether is always worth another Ether. As cryptocurrencies are fungible, it increases its credibility while conducting transactions on the blockchain.
On the other hand, the ball game is completely different for NFTs. Every NFTs have a digital signature, restricting it from being traded for an equal amount of the same or other NFT.
How do NFTs work?
NFTs nest on a blockchain, which is a distributed public ledger that records transactions. Blockchain is the underlying process or technology that makes cryptocurrencies possible.
As far as NFTs are concerned, they are hosted on the Ethereum blockchain.
An NFT is minted from digital assets that represent intangible or tangible items such as:
- GIFs
- Art
- Collectibles
- Videos
- Designer sneakers
- Music
- Virtual avatars
Did you know that Twitter’s co-founder, Jack Dorsey sold his first-ever tweet as an NFT for over $2.9 million? NFTs are very similar to a physical collector’s items – the only difference is that they are digital. This means that instead of hanging a piece of art on the wall, an NFT owner gets a digital file.
Popular NFT sales
While art may be a popular form of NFT, non-art NFTs have also been traded in recent months. A lot of financial experts are convinced that there is a market bubble right now and it is only a matter of time before it pops.
Time will tell what lies in store for NFTs in the future. These are some examples of popular NFT sales that have taken place.
- Jack Dorsey, the co-founder of Twitter, sold his first tweet as an NFT for more than $2.9 million.
- ‘Nyan Cat’ GIF – The NFT for this infamous colorful GIF was sold for around 300 Ether, which was worth around $561,000 at that time.
- A popular YouTube video of a baby taking a crack at his brother’s fingers hit 800 million. The NFT for that video was sold for £500,000.
How can you buy an NFT?
If you can’t wait to build your very own NFT collection, you will have to get your hands on some important items.
The first step would be to have a digital wallet that enables you to store cryptocurrencies and NFTs. Step two will most likely be purchasing a cryptocurrency such as Ether, depending on the cryptocurrency the NFT provider is willing to accept. You can buy a cryptocurrency with a credit card on a host of platforms such as Kraken, Coinbase, eToro, and more. Once you complete this process, you can now move it to a digital wallet of your choice.
Future of NFTs
By now, we hope you have a basic understanding of what NFTs are, how they are minted, and the process to purchase them. Today, a bunch of applications offers great potential for NFTs in the real world. But, are NFTs the future?
It is too soon to tell whether NFTs will gain traction in the upcoming years. If you look at the current trends, there is a huge wave of interest in NFTs at the moment. While the technology is still in its infancy, it is hard to predict in which direction the pendulum will swing.
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Source:
[1] Leech. O (2021) “What Are NFTs and How Do They Work?” Coindesk [online] Available from: https://www.coindesk.com/tech/2021/02/01/what-are-nfts-and-how-do-they-work/ [accessed October 2021]
