What is an NFT? Simply Explained.
NFT aka Non-Fungible Token
NFT stands for non-fungible token, where the term ‘non-fungible’ denotes non-exchangeable, i.e. fully unique, as opposed to, instance, a $100 dollar bill, which is a fungible asset since anybody may exchange their $100 bill for another $100 bill without issue. However, if you happen to have a $100 bill with a unique feature, for example, it was signed by the Queen, you are unlikely to exchange it. There have been reports of $1 notes with extremely uncommon serial numbers being traded for thousands of dollars.
How Exactly Do They Work?
NFTs are essentially digital certificates of authenticity. They are used to prove ownership of digital data, or to label anything in the digital world as your own.
Consider the following example: a work of art, such as a painting. The original painting is always worth more than a copy. If you want to buy an Andy Warhol, you’ll only be willing to pay a premium if you can prove its authenticity. Normally, this would be done with a “certificate of authenticity.” This all sounds pretty straightforward.
To perform the same thing with a digital file, such as a digital artwork, and identify the original from the copy, you would utilize NFT technology. It was not possible to authenticate a digital ‘asset’ prior to the advent of NFT technology on a blockchain. Because NFT functions as a digital certificate of authenticity, you can easily verify its legitimacy while also displaying the history of its prior owners and original author. In this manner, you can check the authenticity of digital art and pay a premium for a digital artist who created the NFT.
NFTs exist in a variety of forms. They may be an image, a song, a movie, a tweet, or anything else that is available online. On a smart contract blockchain, the author generates a “token” for such an online item. This token will include information on the digital asset, such as its name, symbol, and a unique hash that validates the NFT’s legitimacy. The token can then be traded.
Why Does It Have Value?
NFT may be created for anything that is one-of-a-kind and requires proof of ownership, not only digital art. Apart from being identifiable, NFTs carry other unique characteristics such as being indivisible, tradeable, fraud proof, scarce, and programmable. NFT creators can specify that royalties be paid to them whenever an NFT changes hands. This implies that a musician may compose an NFT song, and every time that song is traded or exchanged, he or she will be paid a nominal royalty, automatically.
Ultimately, you are paying a premium for irrefutable proof that a prominent artist or celebrity has passed on their ‘creation’ to you. With the rise of ‘blue ticks’ on social media, we see comparable premiums paid for digital sponsored content today. Ronaldo requested $1.6 million per sponsored post in 2021, according to the Guardian. In essence, huge fees are being charged for the privilege of a sponsor “knowing” that it is actually Ronaldo behind the account advocating your business or product digitally to a worldwide audience, who also “know” they are following Ronaldo himself, not a random fan account.
NFT Market Today
There are numerous large NFT markets and artists available now, and more are appearing on a regular basis. Notable examples include;
The world’s first and largest online marketplace for NFTs. It’s now the major marketplace for buying, selling and exchanging NFTs. In August alone, OpenSea has recorded $3.3 billion in digital merchandise transaction volumes on Ethereum, more than ten times what was sold in July and the growth has been remarkable.
NBA Top Shots
Video NFT marketplace, where fans can trade officially licensed NBA moments. These are video snippets packed as NFTs, some of which are selling for $1 million each clip. NBA players are able to earn money via royalties on such sales.
Mike Winkelmann, or widely known as Beeple, is a prominent American digital artist, with British auction house Christie’s calling him “a visionary digital artist at the forefront of NFTs”. His collage of images, known as “Everydays” has sold for $69.4 Million on March 12, 2021, making it fourth most expensive artwork by a living artist in the world.
Some NFTs are displayed digitally across art galleries or private homes, with digital frames being used to display such NFTs. Some have used a physical print of NFT with a QR code next to it proving the ownership on the blockchain.
Other Applications of NFT Technology
As previously indicated, NFT technology is being used throughout the digital world. Decentraland, for example, is a virtual world (worth more than $7 billion) in which users may own digital land that can then be sold or used for advertising. NFTs may be used in online games to establish ownership of rare digital objects, which players can then trade among themselves. Outside of blockchain or NFTs, game purchases in general have been making news on their own. A gamer, for example, paid $61,000 for an extremely rare ‘skin’ (model) for the AWP, one of the most powerful weapons in the Counter-Strike saga. This is not a unique instance; fans have spent thousands of dollars on in-game purchases in video games like Fortnite, where the exchange rate is 3500 V-Bucks for $79.99.
Nike, Coca-Cola, NFL, Disney, and even McDonald’s, as well as numerous major music companies, such as Universal, are joining the NFT industry.
Despite the efforts of specialists and top art scientists to detect forgeries, global counterfeiting costs luxury brands and art dealers billions of dollars. There have been numerous prominent incidents, including an art dealer named Tatiana Khan selling a $2 million fake Picasso she commissioned. Another prominent instance is that of John Myatt, who completed about 200 forgeries, many of which were sold at prestigious auction houses such as Philips, Sotheby’s, and Christie’s. He was apprehended by Scotland Yards in 1995, and admitted forging painters such as Matisse, Giocometti, Braque, Giocometti, Le Corbusier, Monet, and Renoir.
Perhaps this is the ultimate anti-fraud solution, as NFT technology allows any digital asset to be traced and certified through a blockchain, verifying whether it is genuine or counterfeit, at no cost, because data on a blockchain can never be changed or destroyed.
DISCLAIMER: The information contained in this article is for educational purposes only and does not constitute any form of advice or recommendation by Wheatstones, and is not intended to be relied upon by users in making (or refraining from making) any investment decisions.
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