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What is NFT? How do NFTs work and should you invest in them?


NFTs are the latest fad sweeping the internet. You may have already seen people selling their tweets, artwork, digital paintings, and more at exorbitant prices. So, what exactly are NFTs, and what is their significance in the creative world? Should you invest in them? Let’s discuss it briefly.

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What is NFT or Non-Fungible Token?

  • NFT or non-fungible token refers to unique tokens
  • It is a digital asset that refers to elements from the real world
  • It can be used to verify ownership or rights over digital work

NFT stands for filereplaceable symbol It helps verify ownership and rights over a digital work using the blockchain. It is a digital asset and can include artwork, music, videos, GIFs, tweets, or even unique memes that can be bought and sold.

For a better understanding, let us know the difference between “exchangeable” and “non-exchangeable” assets. The replaceable asset can be exchanged for another similar item. They are interchangeable and indistinguishable, for example, currency.

Fungi vs Non-Fungible Tokens

Your $100 is just as valuable as the $100 everyone else in the world keeps – there’s nothing unique about it. Additionally, you can exchange $100 for $50, making it interchangeable.

The same goes for cryptocurrencies, gold, stock shares, bonds, etc. On the other hand, NFTs are not replaceable. It is unique, which means that no two NFTs can be alike.

To give you perspective, anyone can download the image or make copies of the Mona Lisa, but there will only be one original painting in the world. Likewise, these tokens can be used to sell artwork online – the file can easily be copied and reproduced but not the ownership of the work.

NFT vs. Cryptocurrency

For starters, NFTs are based on similar programming as encryption. However, while cryptocurrencies like Bitcoin and Ethereum are exchangeable like regular currencies, every NFT is different.

One bitcoin has the same value as another and can be traded or exchanged easily. However, each NFT has a different digital signature and cannot be exchanged or traded at par with one another.

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How do NFTs work?

  • NFTs use secure blockchain technology
  • General ledger makes it easy to check and transfer ownership
  • Content creators can use it to sell, display, or rent artwork

NFTs use the same basic technology as the blockchain. Most of the NFTs are part of the Ethereum network. They are recorded in a decentralized ledger of transactions which is secure and cannot be changed.

Since anyone can review the public ledger, it is easy to check and keep track of NFT ownership. This allows designers to monetize their work and sell it globally without the need for physical paperwork or documentation.

Buy NFT

Creators can instrument NFT to sell, display or rent their artwork. They may retain the intellectual property rights unless they sell or license the copyright. The creator may also choose to acquire ownership rights each time the token is exchanged.

People can buy, sell or even trade NFT on online marketplaces such as Rarible, Foundation, and OpenSea. The creator can either set the price or choose the auction. Buyers must pay with cryptocurrencies, but some markets accept dollars as well.

Steps to buy and sell NFT
Credits: IdeaUsher

You can check out the steps involved in buying and selling NFT through the above flow chart. As mentioned, the creator signs up on the NFT platform, makes the NFT of their unique artwork, and puts it up in an auction where interested buyers can bid on and buy the token.

NFT as an investment – should you invest?

Since art is based on perception, there is no underlying origin or value in NFTs. This makes them very speculative investments. It may be suitable for people who like to collect fine art or artwork related to their favorite people but it can be a risky bet as an investment.

Buyers usually invest in NFTs to earn a higher value when reselling these digital collectibles. However, there is no guarantee of valuation – they may end up as mere bragging rights if not worthless.

Hence, you should be very careful about investing in NFTs. It is all about speculation and can be more risky than investing in stocks or even cryptocurrencies.

Scams or common scams about NFTs

Like crypto, there are a lot of scams and scams going around about NFTs in the market. From what we have known so far, you should be aware of the following things:

This is not me 100%. I thought the point of the NFT was that artwork and artists needed to be verified? It seems very easy to deceive people. What a joke that platform is. https://t.co/FrBy4zuhQy
  • Always check if the original creator is selling NFT and not someone trying to impersonate him.
  • Don’t buy NFT based on advice from strangers or Telegram groups only.
  • Some may sell and buy NFTs across accounts to show artificial hype and demand. Therefore, do not buy NFT just because it has been bought and sold many times.
  • Be wary of fake platforms that appear to sell art but actually steal credit card information.

NFT مستقبل future

NFTs have been around since 2014, but they didn’t start to gain popularity until recently. They are currently used for digital artwork and game collectibles but may progress further as the underlying technology advances.

It has many potential applications, such as the institution issuing the NFT for the degree, which employers can check to verify the applicant’s education, or the government issuing the NFT for birth/death certificates or ID cards.

Moreover, they can be used as security tokens for the ownership of physical assets such as property and vehicles, creating opportunities for new business models that did not exist before.

However, there are downsides as well. There have been cases of people selling stolen art on NFT platforms or trying to sell something as NFT, which it actually isn’t. Also, since cryptocurrency is the primary method of payment, there are concerns about negative environmental impacts.

Therefore, while NFTs have endless possibilities, they are still in very early stages with limitations and loopholes. As it has been corrected over time, only then will we have a clear view into the future of non-fungible tokens.

wrapping

So this was a quick summary of what NFTs are, how they work, and whether it’s wise to invest in them. I hope this helps you understand the basics of irreplaceable tokens and the underlying technology. Anyway, have you purchased any NFTs yet, or plan to buy any in the future? Do tell us in the comments below.

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