WHAT IS NFT?
Technically speaking, NFTs mark the ownership of distinct commodities. They let us “tokenize” both virtual and real-world items, with single-ownership at a time. NFTs are digital assets that are stored on a blockchain; and cannot be exchanged on the same unit price as other cryptocurrencies because of their individuality and uniqueness, and they never change with time. Hence, every NFT is a piece of data linked to a distinct address stored on the blockchain. The owner of the NFT is the person who has to password to access that particular address on the blockchain.
For a better understanding of this concept, let us begin with the basics. The first question that must’ve risen in your mind is, “What is the meaning of fungible?”
Literally, the term “fungible” means divisible and interchangeable, i.e., when a particular commodity can be exchanged with mutual consent for another commodity, but its value remains the same.
For example, if you go to a handicraft store to buy a painting and your billing amount is, say, $10. There are quite a few ways to make this payment.
You can either pay the cashier with:
- a $10 note, two $5 notes, ten $1 notes, etc. in cash
- transfer $10 via the bank
- transfer $5 via bank and give $5 cash
And so on…
Here, the notes and coins are fungible. Although these are different, they hold the same value. As long as the total amount that you pay does not alter, you can use any other permutation that can be applied with the set of notes and coins, to complete the payment.
So now, non-fungible is something that is not fungible! In simple terms, you cannot alter or modify this particular commodity, in any way, after it is created. It will remain distinguished from any similar commodity. For instance, the famous Mona Lisa has been replicated millions of times as of now. But the one painted by Leonardo da Vinci, the authentic art-piece, is still distinguished and cannot be altered or changed.
As for the word “token”, it is a common word with its usual meaning. Let us assume you are at a mall. When you enter a showroom, you are asked to keep your bag (the one you got from one of the other stores) aside for security reasons. The guard will then hand you a token with an ID on it. This ID will be the same as the one put on your bag. Since no two sets of tokens will have the same ID, this “token” will help the guard match the bag to its owner. Hence, the guard uses the system of tokens with a single ownership to keep track of various shoppers’ commodities.
In the same manner, NFTs are created in such a manner that no two of them have the same value and they cannot be exchanged for one another. They mark the distinct ownerships of each created commodity.
Secondly, you might also want to know why NFTs are important. Although one can never put an end to the copies that are made after a piece of art is put up on the internet, NFTs are necessary because they only make the ownership authentication process easy and simple. The owner of the authentic/ original work will still be identified and known, and will receive all subsequent royalties and benefits from any retail of their products in the secondary market.
You must be wondering why people are buying NFTs at such a great pace as of now. One of the main reasons is that people are viewing NFTs as collectibles for investment purposes. They seem to believe that these assets will rise in value at some point of time and would give great returns in the future. But then, what makes an NFT a good investment? Some of the features that make an NFT valuable are:
- Uniqueness: If a commodity is original or authentic, like a signed book by one of the famous 20th century authors, it is rare and unique to find, and so it is a valued NFT.
- Ownership History: If one of Michael Jackson’s hats were to be sold at an auction, it would be a valued possession as it was previously owned by a renowned person.
- First of its kind: The first-ever tweet, or the first-ever digital signature are some of the first-of-its-kind and hence become a valuable NFT.
- Utility- real-world benefits: Some NFTs come with a real-world benefit. For instance, if you have a special NFT related to the brand ZARA, and this offers you a 5% off on all your purchases throughout your ownership of the NFT, this NFT becomes valued.
NFTS & PHYSICAL GOODS
Some artists showcase their tangible art pieces (physical art) on auctions in which they can be purchased only through NFTs. For doing the same, most physical commodities are required to get a licensing before the creation of an NFT for the same. This means that all the physical intellectual properties that have a license agreement, can now be purchased with the help of NFTs. The owners will have a digital ownership of these physical assets.
For example, Mike Winkelmann (aka Beeple in the world of art) sold his digital art “The first 5000 days” as an NFT asset. Later he came up with a real sculpture called “Human One” which was also sold as a digital asset by linking this physical commodity with an NFT.
STARTING WITH NFTs
- CREATING YOUR OWN NFTs:
- NFTs can be anything from art-pieces to memes and food recipes. You can get started by following a few simple steps.
- If you want to create your own NFT, you don’t need a lot of technical knowledge on crypto and other currencies as such. But there are a few tools that you can set up in a few minutes and get started with it.
- Step 1: Set up an Ethereum Wallet
- The foremost step towards creation or purchase of an NFT is creating an account that will store your currency and help you safely log in and out of your accounts on the NFT marketplaces.
- A lot of platforms are available for the same worldwide. Some of the most major and vast NFT marketplaces are mentioned below:
- Coinbase Wallet
- Step 2: Purchase a small amount of Ethereum
- To cover the costs of creating your NFT, you will have to purchase a small amount of Ethereum. On many NFT marketplaces, you will need money to convert your commodity to NFT.
- The easiest way to do so is by purchasing the exact amount of Ethereum that is required by you.
- Step 3: Connect your wallet to an NFT Marketplace
- Once you are settled with your wallet and some Ethereum, you must choose a marketplace where you want to list your work as an NFT.
- With this, you can connect your wallet to that marketplace and follow the required steps to generate an account instantly. You will then have all the things you need to create, mint and sell your NFT.
- SELLING/BUYING YOUR NFTs:
As the interest in NFTs is increasing exponentially, so are its marketplaces. Some of the popular ones are:
- Nifty Gateway
- Step 1: Make a Digital Art File for your NFT
- Any piece of art or information can be made into an NFT. If the marketplace you choose supports the file you created, it will work as an NFT.
- Step 2: Price your Art and List it on a Marketplace
- You will need to set a price to your NFT. You will have to pay the fees required to create an NFT and then after you mint it, your NFT will be live on the marketplace in just a few seconds.
- Step 3: Wait for Bids
- After your art is listed, anyone can find and bid on it. You will be notified by your marketplace regarding the same.
WHY IS IT SO EXPENSIVE TO CREATE NFTS?
Turning a piece of content into an NFT requires a new one-of-a-kind digital coin to be minted on the blockchain. The creation of this coin requires a fairly complex computational task involving an entire network of computers.
Note: One cannot directly convert NFTs to cash. You will be required to sell an NFT to get Ethereum in return for it. Ethereum can then be converted to cash on one of the many trusted platforms like Binance
IS MY NFT AUTHENTIC?
Before you put your hard-earned money in any kind of investment, it is always better to know all about it. Better be precautious than running after the cure. Below-mentioned are a few precautions you can take before the purchase of an NFT:
- Social Media: You can go on various social media platforms and check the latest updates that the artists have put up regarding their NFTs for auction. You can also check their precious work and NFTs and try to figure out if the artist is credible or not.
- Other Markets: You might want to make sure that the NFT you want to purchase is not being auctioned or sold on any other platforms. This might pose a threat to your investment.
- Google search: You can also do a reverse-search on Google and check if there are any other versions of the NFT you are interested in purchasing. You will also be able to know how long the NFT has persisted and if it is credible or not.
- Price: If the price on the NFT of your choice is way too low, this could be the sign of a fraud.
WOULD I LOSE MY NFT BY ANY CHANCE?
One of the major fears that the purchasers of NFTs face is that if the host company deletes a sold NFT, or if the server goes down, they would have no access to the NFT even after paying a heavy price for it. This is where IPFS comes into picture.
Most NFTs are stored off-chain, i.e., the NFTs are linked to a URL which is used to point to the purchased data anywhere on the internet. In this case, links can pose a problem as they can die, change or lead to a completely different page altogether. Since content is hosted on a few servers, it becomes easy to block or modify it.
IPFS, or Inter Planetary File System is a network that is built in relation to blockchain and uses cryptography. In layman terms, it is a peer-to-peer system for storing and sharing data. It is a distributed system used to store and access files, websites, applications, etc. with a guarantee that the data will always be there, no matter what. It uses content-addressing (rather than the traditional location-based addressing) to uniquely identify each file in a global namespace.
Let us understand this with the help of a simple example. Suppose you want to download the cover picture of the “Tom & Jerry” cartoon. You will go to the web, enter a URL (for instance, http://tom&jerry/cover.jpeg). This URL will provide the address to your computer from where you can download the cover image of the cartoon. Now, if that particular location is inaccessible, you won’t be able to get the image. But there is a high chance that someone still has a copy of the image you wanted saved in his system. But you cannot access this file as such. Hence, instead of asking “where” to find something; IPFS allows you to ask “what” you want. This is known as a content-based addressing system. Here, every file has a unique hash or key; which ensures data immutability. You only have to ask for the hash to the whole network, and anyone who has the cover image will provide you with it. Because of a unique hash, a tampered file can be detected quite easily, hence removing any chance of security issues
FUTURE OF NFTs
In the near future, NFTs will be much more than just collectible digital assets on a blockchain. NFTs now have utilities in both: the real and virtual world, and this is what makes them more and more popular among the people.
NFTS have been involved in the gaming and the real-world experiences sectors now. In-game NFTs are now a reality and will be of real-value to the gamers who play and win these. They will contain benefits and other physical merchandise to celebrate the victory of the player. The desire to earn such rewards while gaming promotes the game and motivates the players to chase their gaming-passion. As for the real-life experiences, many of the concerts and executive club tickets are now sold via NFTs. Many celebrities have also started selling some exclusive content via NFTs to their fans and in return, the fans get merchandise and a chance to meet their favourite celebrity.
NFTs continue to develop and garner more interest in many domains. With increasing use cases, it is expanding in a lot of real-world applicable fields. NFTs are also becoming more environment-friendly as they are turning towards the use of green-technology for NFTs.
DOWNSIDES OF NFTs
- Value: As of now, the NFTs are linked more to the emotional and sentimental feelings attached and hence cannot be considered to be a great long-term investment.
- Environment: The negative effects that the NFT hardware is having on the environment is gigantic. Because of its indefinite usage of energy (in terawatts per day) it poses a serious threat to the environment, the consequences of which are visible.
- Control and ownership: Just because a person owns an NFT does not mean that the replication of the asset linked to the NFT can be controlled by the person. One can never stop duplication or replication of digital assets.
- Forgery: As soon as NFTs became monetized, many people, who were not the original creators, started to tokenize digital assets without the consent of the artists and hence the problem of forgery came into picture. Hence, rather than helping artists, it became a means to earn profits for corrupt people.
- Threats: NFTs have been a target of many hackers these days.