If you are someone who likes to keep themselves up to date with the latest news and trends, then surely you must have come across the hype over โNon-fungible tokens (NFTs)โ. ๐ง What are these exactly and why do people invest in them? Lets find out! ๐ฉ๐ปโ๐ซ
โNon-fungible tokenโ defined
/nษn fสn(d)สษชb(ษ)l tษสk(ษ)n/
A record on the blockchain network for a particular digital or non-digital asset.
How do NFTs work? ๐ง
NFTs simply represent real world objects like art, music, pictures, etc. whose ownership is unique and exclusive, bought and sold through cryptocurrencies. ๐ช
It can be said that each NFT is one of a kind with unique identification codes. NFTs thus create a โdigital scarcityโ.
NFTs are based on a particular blockchain ๐that facilitates the recording of transactions. To be more precise, its generally the Ethereum blockchain that houses NFTs (๐
not to imply that other blockchains donโt).
They are unique in the sense that they can only have one owner at a time ๐ and are indivisible. Their unique data makes verification of identity ๐ and transfer of tokens between owners easier. ๐ค๐ผ Ownership is managed through metadata which no other token can replicate.
They are โmintedโ from digital objects representing both physical and intangible items like paintings, GIFs, videos, virtual avatars, tweets, etc. through smart contracts ๐ that assign ownership and manage transfers. During this process, a code that conforms to specific standards like ERC-721 in a smart contract, is executed. The received information is then added to the blockchain responsible for managing that NFT. In short, a new block is created โก information is validated โก blockchain records the information ๐จโ๐ป.
When you invest in an NFT, you donโt get the actual thing, but its exclusive ownership in the form of a digital file. You can also store particular information in them.
Why do people invest in NFTs? ๐คจ
Exactly! ๐ Why would someone want to invest in something that is technically never with you in the first place? If it's just a digital image, why not just take a screenshot? ๐คจ Is it the case that the rich are trying to find out ways to spend their amassed wealth ๐งโ๐ผ?
But, on a serious note, there can be a variety of reasons that we should have a look at together.
Yes, they really want to appreciate pure art and want to show off their status ๐
This might be true to a considerable extent. If someone has the means in the form of capital, they would obviously want to invest it somewhere. And when there is pure and valuable masterpieces in the form of art, who would not be willing to purchase and invest in them? ๐ฉ
Its no joke that in the web2 world, some โcrazy, rich peopleโ love to buy the most simplistic paintings in the name of modern art and spend millions of dollars on it. ๐ธ They do so to show off their wealth power and status symbol in the society as if saying,โ ๐ look I purchased this art-related stuff just for a few million bucks.โ
This is exactly the case in the web3 world with regard to NFTs where the people with resources can invest into them and show off their wealthy status through the exclusive ownership of a particular asset. Since blockchains are public, one can see that someone owns an NFT.
The best example to explain this โshow-offโ is that Twitter has a feature whereby if you own an NFT, say a digital art, and you decide to use it as your profile picture, the usual circular icon becomes hexagonal.
For doing so, you have to follow a few steps:-
- First, you need to subscribe to Twitter Blue that gives you access to premium features on the platform
- Go to the โeditโ option for your profile photo
- Tap โchoose NFTโ
- Connect your crypto wallet that has the NFT to be used (Metamask, Coinbase wallet, Rainbow, etc.)
- Enter the required keys and grant the permissions.
- Choose the NFT and tap โdoneโ.
For the money in it ๐ค
You may already have understood that NFTs hold different values for themselves as even the simplest thing like the Twitter founderโs first tweet was worth millions of dollars. If you own an NFT, you also get the right to decide if you want to transfer its ownership to someone else. ๐ค๐ป
It can happen that the value of your NFT may go up as per the market situation and by selling it off during that period, you can earn huge profits.
Support a cause ๐
Certain organizations work towards using NFTs to support some cause like helping people affected by a war (like the Ukrainian or Palestinian conflict) or some calamity, for providing general humanitarian aid (basic necessities to people of underprivileged regions), to call out for international attention, for the environment, etc.
For example, on the occasion of its 75th anniversary, UNICEF launched a collection of 1000 NFTs to provide digital connections to schools in underdeveloped areas and raised around 235 ETH (which is equal to 2,35,31,214.93 INR).
Joining a community ๐ซ
If you genuinely are interested in NFTs, then you might as well gear up to join NFT communities for updates. ๐๏ธ
Exclusivity or uniqueness of an NFT project generates demands and reputation. Being an NFT holder, if you join these communities you can strive to gain from the zealous investors in that space.
Should you be interested in NFTs? ๐
After the above discussion, you might be wondering if at all you should still be interested in NFTs. The thing that should be kept in mind that even these come with their own set of pros and cons.
Firstly, people need to get this straight that owning an NFT doesnโt mean actually having that asset with you, just the ownership ๐
๐ปโโ๏ธ. For instance, if you buy NFT in the form of the โMona Lisaโ painting, you wonโt get to hang that painting on your wall. You just get the โtitleโ as the owner of that asset, which appears on your wallet.
It is, however, not being suggested that you should absolutely not consider owning NFTs. If you have the resources and think that an asset is worth the amount, you can proceed with the purchase. But remember to be careful at all times!
Some NFT facts โ
- Although an NFT becomes unique in terms of it's ownership, (or that's what is generally understood through the blockchain) there's nothing the owner can do to prevent you from viewing, copying or sharing their NFT for free. Someone might as well create an identical piece. (We know that sounds weird ๐ ).
- NFTs do not violate the โโfree accessโ principle of the Internet.
- There are hardly a few things left that cannot be sold as NFTs. You name it- houses, paintings, digital art, pictures, etc.
- 2018 onwards, NFTs started gaining significant popularity and reached their highest point in 2021 by moving towards digital art.
- Because each NFT is verifiably unique, they are the most suitable way of authentication of ownership of resources.
- They cannot be interchanged directly with other tokens. For instance, 1 sol can be exchanged for another sol as their values are the same, but you cannot exchange one NFT for another.
Just hear this out ๐
Look, we or anyone else can only give you an idea about NFTs, their functioning, uses, advantages and cautions. At the end of the day, it is up to you to take a final decision after a thorough research and understanding.
Think wisely and then invest because finance-related matters do require extra caution. And while you ponder on this, you might as well move to the next chapter - things to keep in mind while choosing your NFT.
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