CryptoBox #18 - The Good, The Bad, and The Future of NFTs
Hello Friends 👋
NFTs. Yes, those. You have been hearing about them, wondering about them, and most likely trying to unearth information about them. And today, you have reached the right place to do that. In this blog, we will explain the various aspects of NFTs in the most comprehensible way. Let’s dig in.
What Do NFTs Mean?
NFTs stand for Non-Fungible Tokens meaning unique tokens that exist on a blockchain and cannot be replicated. Basically, these tokens are digital assets that represent real-world items like artwork, music, games, videos, real estate, etc., in a secure cryptographic manner. Since the ownership of NFTs is recorded in a blockchain, they can be bought and sold online, mostly using cryptocurrency.
Non-Fungible means something unique and can’t be replaced with something else. For instance, a bitcoin is fungible i.e. you can trade one with another bitcoin and you will have the same thing after the trade. But if you own a painting, it is one-of-a-kind and hence ‘non-fungible’.
Although NFTs can be made for any digital asset, a good volume of trading takes place around digital art. Being present on a publicly accessible digital ledger (blockchain), it is easy to know the real owner of a particular NFT which curbs any corruption or fraud activities.
An Example of NFT
An NFT example can be any digital asset like a piece of art, music, video, or object within a video game. Domain names, digital collectibles, essays, real estate, etc., are also examples of NFTs.
How Do NFTs Work?
NFTs are unique tokens on a blockchain where each token carries an assigned value set by the market. These tokens can be bought and sold just like other tangible assets. Since they are ‘non-fungible’ digital assets, it is easy to verify and validate their ownership and the transfer of tokens between different owners. This makes their buying, selling, and trading completely secure and thus efficient. A lot of NFTs reside on the Ethereum cryptocurrency’s blockchain, a distributed public ledger that records transactions.
What Does It Mean to Buy an NFT?
To buy an NFT you will first need a digital wallet. The digital wallet is used to store NFTs and cryptocurrencies. It is nothing but a software program, an application, an online service, or an electronic device, that allows different parties to conduct electronic transactions using digital currency units.
Then you’ll have to purchase some cryptocurrency (e.g. ether) in order to start trading. You can use platforms like OpenSea, Coinbase, Kraken, PayPal, Rarible, SuperRare, Foundation, etc., to buy cryptocurrencies. After purchasing the cryptocurrency, you can move it from the exchange to your wallet.
How to buy NFTs?
After funding your digital wallet with cryptocurrency, you are ready to buy and sell NFTs. You can bid or buy these digital asset tokens from the NFT marketplace. Major marketplaces that support NFT purchases are OpenSea, Rarible, SuperRare, and Foundation. There are also other niche marketplaces that specialize in particular assets. For example, NBA Top Shot is owned by the NBA and sells player performance clips as NFTs.
How to sell NFTs?
Upon buying an NFT or a digital asset, you can keep it as a collectible, showcase it for public display or use it for a bigger digital project. Or you can put it up for sale by uploading it to your preferred marketplace. It is important to know beforehand whether that marketplace supports the blockchain your NFT was built on. Once you upload your NFT, the marketplace will verify the asset. You can set the price of your NFT or go for an auction-style sale in which buyers place bids.
After your NFT is sold, the marketplace will take care of the transfer from the seller to the buyer and place crypto funds in your digital wallet. Marketplaces charge you a fee for NFT sales. This fee includes listing charges and other blockchain computing expenses.
Risk Factors of NFTs
Just as any other investment, trading NFTs involves a certain amount of risk. That’s mainly because the value of NFTs may rise or fall in the marketplace. This fluctuation may or may not favor the buyers at the time they choose to sell their investment.
In addition to this, the amount of electricity required to process, verify, and regulate cryptocurrency transactions is enormous. This has raised environmental concerns among the public, along with the active buyers and sellers.
With the exception of these two setbacks, the potential benefits offered by NFTs impress the investors nonetheless.
After understanding all these factors, you can either think of NFTs as a passing phenomenon or an entirely new possibility for trading and investment. Whatever the outcome, NFTs are definitely making waves and continue to rise in the investing world with more and more investors jumping on the bandwagon.
Need To Know More About NFTs?
Please check the below articles to know more about NFTs -
If you want to share anything or have any suggestions/questions, please leave them in the comments!
That’s it for today :-)
Hope each of you has a great start to your day. I’ll talk to everyone tomorrow.
— Amit
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