In this article, we will discuss what NFTs are, how do they work, where can you buy them, and if you should buy them.
Let’s have a real-life analogy that can help us get this concept.
You know the Mona Lisa, right? Pretty lady, mysterious smile, may have been a man, all that. On permanent display at the Louvre in Paris, the Mona Lisa was assessed at US$100 million on December 14, 1962. Taking inflation into account, the 1962 value would be around $879 million today.
Mona Lisa is a non-fungible asset because it is unique. OK, there are millions of cheap copies around the world, but da Vinci only painted one and that is the one that has real value.
Now, imagine Mona Lisa is a token and the Louvre is the person who owns it. Yes, you can take pictures of it, make your own copies, copy and save it on your desktop. You are free to do all that. But only the Louvre will have the original.
What Does NFT Mean?
Fungibility is the ability of a good or asset to be interchanged with another individual asset of the same type, quality, or quantity.
In other words, fungible goods are not unique, which is also the case of a banknote or a serial product.
For example, gold is considered fungible because a certain amount of pure gold is equivalent to that same amount of pure gold, whether in the form of coins, ingots, or in any other states, whereas a unique item such as gold fashioned into a statue by a famous sculptor would not be seen as fungible as it is unique.
In the same category of fungible goods we can mention bonds, sweet crude oil, company shares, precious metals, and currencies.
On the other hand, a non-fungible good is something unique.
Assets such as diamonds, baseball cards, or even land are not fungible since each unit has unique qualities that add or take away from their value. For example, individual diamonds have different sizes, cuts, and colors, so they are not interchangeable.
An NFT stands for Non-Fungible Token. This indicates a digital asset that represents a unique real-world object, such as art, music, and videos, on a blockchain.
It can be bought and sold online, with cryptocurrencies, and will be traded in the same way on Blockchain.
NFTs are also generally unique or at least part of limited series and collections with unique identifying codes.
This contrasts sharply with most digital creations, which are almost always infinite in supply and can be replicated endlessly.
How Do NFTs Work?
NFTs are part of the Ethereum blockchain. In order to interact with Ethereum, you will need a wallet such as MetaMask – we have a video about it too, if you would like to know details. You will need Ether in your wallet which can be purchased on exchanges such as Coinbase.
NFTs on Ethereum are based on open-source standards and you hold them in your wallet. As a result, minting an NFT doesn’t tie you to a platform. You can mint the NFT on Mintbase and sell it on OpenSea without having the NFT ever leaving your wallet.
In order to prove that you own the NFT, you receive a certificate, just like how if you were to own the Mona Lisa, you would receive one too.
Solana, Cardano, and Tezos are other blockchains that offer NFT support.
Where Can You Buy NFTs?
The most popular NFT marketplaces we can mention are OpenSea or Rarible, although new ones such as LooksRare are also making waves – we have a video comparing it to the already-established OpenSea in which we take a look at how it compares. Don’t forget to check it out!
OpenSea is by far the big boss of the NFT marketplaces. You can picture it as Amazon. Just like Amazon was created before the e-commerce boom, so was OpenSea unveiled before the NFT craze of the summer of 2021. They both also enjoy name recognition which makes them the first place you check out.
What NFT Should I Buy?
As of 2022, the most valuable NFT collections were Bored Ape Yacht Club, CryptoPunks, Doodles, The Sandbox, and Art Blocks.
Bored Ape Yacht Club and CryptoPunks are constantly making the news with a new item being sold for millions of dollars. In fact, even we own a CryptoPunk – isn’t she pretty? Drop them comments below!
Of course, you can buy NFTs that are not a part of a certain collection, but stand alone ones.
The market is too young to make accurate predictions and you shouldn’t trust anyone who claims they are 100% sure on this topic. A year ago, most people hadn’t even heard the word NFT.
There are detractors who claim NFTs are actually worthless and they only have value because we gave them one. This is opposed to … what exactly? Gold doesn’t “naturally” have a cost, neither does the Mona Lisa. Not even carrots. NFTs are not in any way different from anything else that we spend money on.
So, invest if you feel like it and you can afford it, don’t if you still don’t trust it, but either way, continue to do your research, to make sure that you know exactly what you are doing.
Conclusions
The NFT community is already a pretty big one and it is only expanding. According to most recent data, the NFT Market surpassed $40 Billion in 2021, thanks to hundreds of thousands of supporters of this new artform. The number of NFT holders could grow to millions sooner than expected.
NFTs aren’t just pretty things on a blockchain but they also have their utility as they can work as access keys for some groups, and they even have a role in the metaverse.
NFTs will be able to be used as the main avatar of their owners in the metaverse and some social media companies have announced they will soon be used as profile images thus increasing their utility.
Since the market is expected to grow, some are using their funds to invest in them with the hope that the price will only increase over time. Indeed, purchasing a creation by Beeple, or an item from the Bored Ape Yacht Club could be quite an investment which in time could have huge returns – if you play your cards right.