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What is Non-fungible token (NFT)?

Recently, Facebook CEO Mark Zuckerberg rebranded the social giant as Meta Platforms Inc., underscoring the growing popularity of a promising phenomenon: the metaverse.

This Metaverse concept has a connection with non-fungible tokens (NFTs), the very token we can use to represent ownership of unique items?

Hence in this blog, we are going to understand first what is NFT and then in further blogs I am planning to cover Metaverse.

What is an NFT?

The acronym NFT means non-fungible token, which means a unique digital asset that cannot be modified or replaced with something else on the blockchain.

Unlike Bitcoin, which is a fungible cryptocurrency, which can be traded for a predetermined value, like any other currency or money. An NFT is a unique token with no interchangeability with other tokens – much more like a piece of art. Those unique NFTs do not have a set standardized value. Instead, non-fungible tokens (again much like art) are based on the current market value.

The simplest way to think about the difference between fungible tokens, like Bitcoin or Ethereum, verses non-fungible tokens like NFTs is:

Cryptocurrencies = currency (or money) and NFTs = goods.

You can trade cryptocurrencies like you trade stocks for a set ticker price or you can use cryptocurrencies to purchase goods for a set price. NFTs on the other hand, are the “digital goods” that you can purchase with various cryptocurrencies for various prices.

How are NFTs traded?

Like cryptocurrencies, NFTs are bought and sold on specialized platforms. OpenSea is the best-known NFT marketplace.

A sale does not necessarily involve the transfer of the object depicted by the token. NFTs of famous paintings have been sold, for example, but the buyer does not receive the painting.

What changes hands is a certificate of ownership of the NFT, registered on the blockchain. The certificate must be kept safe in a digital wallet, which can take various forms.

To purchase an NFT, the wallet must contain enough of the relevant cryptocurrency -- for example, ethereum (ETH) if the person is buying a token on the Ethereum blockchain.

Ultimately, NFTs are digital contracts, with certain rules embedded such as the number of copies available for sale.

Is this will become like art collecting?

I’m sure some people really hope so — like whoever paid almost $390,000 for a 50-second video by Grimes or the person who paid $6.6 million for a video by Beeple.


Image source: Beeple video

Someone can right-click on that Beeple video and download the same file the person paid millions of dollars for.

Wow, rude. But yeah, that’s where it gets a bit awkward. You can copy a digital file as many times as you want, including the art that’s included with an NFT.

But NFTs are designed to give you something that can’t be copied: ownership of the work (though the artist can still retain the copyright and reproduction rights, just like with physical artwork). To put it in terms of physical art collecting: anyone can buy a Monet print. But only one person can own the original.

Are non-fungible tokens safe?

Non-fungible tokens, which use blockchain technology just like cryptocurrency, are generally secure. The distributed nature of blockchains makes NFTs difficult, although not impossible, to hack. One security risk for NFTs is that you could lose access to your non-fungible token if the platform hosting the NFT goes out of business.

Should You Buy NFTs?

Just because you can buy NFTs, does that mean you should? It depends.

NFTs are risky because their future is uncertain, and we don’t yet have a lot of history to judge their performance. Since NFTs are so new, it may be worth investing small amounts to try it out for now.

In other words, investing in NFTs is a largely personal decision. If you have money to spare, it may be worth considering, especially if a piece holds meaning for you.

But keep in mind, an NFT’s value is based entirely on what someone else is willing to pay for it. Therefore, demand will drive the price rather than fundamental, technical or economic indicators, which typically influence stock prices and at least generally form the basis for investor demand.

That's it for this blog. Thanks for reading and keep learning.  





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