Well done dealing with NFTs Jazza
What are NFTs? Taking you from beginner to expert.
What are NFs? NFT stands for non-fungible token. There are 2 types of tokens, namely fungible and non-fungible tokens. These have different applications. This article will explore what NFTs are, however it is essential to first differentiate them from fungible tokens.
What is the difference between fungible and non-fungible?
Investopedia defines the terms fungible and non-fungible as used in economics. Fungible means something that is not unique. It is anything that can be used to trade for other items, for example money. Non-fungible on the other hand refers to something unique. It is in the uniqueness, or rarity that its value lies. For instance, money is fungible, but a signed dollar note by a Hollywood star would render it non-fungible as Investopedia clearly explains.
What is the difference between fungible and non-fungible tokens?
Now we can actually start to understand what a fungible and non-fungible token is. First a token is a digital assets. So applying the terms fungible and non-fungible would mean that a fungible token is a digital asset that can be exchanged for a commodity. The best example of this is Bitcoin. This is because Bitcoin was the first blockchain to successfully solve the digital money problems of fraud. There are also altcoins, like Ethereum which was basically the first blockchain alternative to Bitcoin. While Ethereum offers a white label opportunity to create cryptocurrency, it has a number of disadvantages when compared to Bitcoin. This is essential information to know because 1 of the major advantages Bitcoin has over all altcoins is that it is ownerless. By the way it was interesting that Jazza referred to Elon Musk because he actually played a very big role in the creation of cryptocurrency. Most of us are aware that Elon Musk created PayPal. This was his attempt at solving the blockchain/online digital payment system. While Elon Musk created a very effective and efficient system, a whole team of programmers were peer reviewing Bitcoin and therefore came up with a very eloquent solution to payment. PayPal has its advantages, but differs from Bitcoin and blockchain in that it is fin-tech product and Bitcoin with its unique blockchain is not, and by definition, will never be fin-tech. Altcoins, or alternatives to Bitcoin are based on Bitcoin, but have their own unique blockchains.
So now that we have a better understanding of fungible tokens, let us move our attention to non-fungible tokens. Here is where things get interesting. With blockchain technology and Bitcoin people quickly realized its potential for storing ownership of physical, or digital, assets. They worked on the problem of how to represent a physical asset, such as, a building in digital form that could be owned. For example, you could theoretically own a piece of the Eiffel Tower or Louvre in France. There was a problem though because how could you make sure that the token you owned actually was the title to square inch or more property it stated. Gold is an asset that has been put on the blockchain for example. You can actually buy an amount of gold and then own the token while the gold remains in the volt where it is kept safely stored. Verifying that the asset you have bought is actually yours becomes tricky on the blockchain. While there have been many creative solutions, it still had a long way to go before it starred to catch on. Non-fungible tokens are therefore those tokens which represent a physical asset or are a digital asset that is unique or rare. Therefore both Forbes.com and Investopedia define non-fungible tokens as digital assets that are unique, or rare, that can be traded.
What are the Implications of NFTs?
There are many implications of NFTs if they are legitimate. However NFTs also open the door to many illegitimate NFTs. The main implication of an NFT is that you can sell your music, digital art, or any other digital asset and be assured you get full payment. Instead of loosing half your income to managers and music labels, you can make 100 percent of the profit. You can also protect your digital asset. This is where it becomes very appealing because for the first time you can keep a very clear record of your digital asset and can see if, and when, it is being used illegally. In short you are able to do what is virtually impossible with actually assets, which is keep pirating down to a minimum or illuminate it completely. Such an advantage is great for whoever buys the digital asset also. This applies whether the digital asset is the actual asset, such as a song or digital artwork, or a real asset such as gold or real-estate. We can see how appealing this is.
So What is the problem?
As always it is not the technology, but the people and most specifically the psychological, very human aspect, namely greed. Once I learnt about cryptocurrency, I quickly realized that trading is the most profitable part of cryptocurrency. Then I learnt there is a whole field called trading psychology. Having a research masters in psychology, my curiosity was piqued. I wrote a number of articles on this topic. Then got slightly bored because all road led to the same place: do your research, never invest more than you can afford to loose, and always be aware of your mental health. Please feel free to read these articles because they have a lot more information, for example how to avoid the pitfalls of greed and what is FOMO.
The Danger of Greed and NFTs
We know that scammers look for low-lying fruit and cryptocurrency trading is ripe with opportunities. So too for NFTs. According to Investopedia if an asset is being traded on a cryptocurrency blockchain, like Bitcoin or Ethereum, then it is most likely safe. However here is where the problem lies, anyone can make altcoins and almost everyone that can has tried. As Forbes.com points out that at the end of the day the tokens belong to the owner of the blockchain. With Bitcoin this is less of an issue because there is a communal ownership. Therein lies Bitcoin’s uniqueness and value as an alternative to traditional finance. However any altcoin, no matter how amazing it might be, is owned by someone. While there are checks and balances to try make altcoins more secure, you really have to do your own research and only invest what you can afford to loose. Is the NFT actually on the blockchain and is the blockchain that the NFT is on actually safe? Again you have to do your own research.
Credit to Jazza where Credit is Due!
Yet again Jazza has been transparent. It is very tempting especially for artists and musicians to use such technology. It is understandable that artists and performers alike would want to use such technology and buyers would support them through purchasing using this technology. Both are provided with protection according to the strength of the technology and blockchain used. However as Jazza points out, there is a great opportunity for scamers and scams. Scams are not new to cryptocurrency. Blockchain is not scam proof, especially with altcoins. There have been, and unfortunately probably will be, scams of different magnitudes and millions have been lost and made in these scams. So thank you to Jazza for addressing this very controversial topic of NFTs. You should be aware that the scams that I am talking about here involve FTs, or fungible tokens. Even more so you should be careful of scams when dealing with NFTs.
Summary
This is not supposed to be comprehensive article. However it covers the basics and breaks down NFTs. My intention was to start you off in the research process. I intend to write some more articles on this subject since it is in the spotlight and could potentially harm many vulnerable people who are new to the crypto space. Be careful. If it looks like it is too good to be true, it probably is. Rather take your time. You need to learn about terms such as, FOMO and FUD. Please feel free to check out other articles on cryptocurrency in DecenTalk as well as other people’s articles. People talk about going down the crypto rabbit whole for a reason. Remember to be very careful if you are considering trading or investing in order to profit. Trading psychology is a huge area and exists for a reason.
