What are NFTs?

What are NFTs?
Author: Rakshita Jain

In the past few years, you must have heard the term "NFT" surfacing on various cryptocurrency updates and news headlines. NFTs, which stand for "Non-Fungible tokens", are winning the hearts of digital art connoisseurs in every possible form. Be it celebrities or businessmen, artists or collectors, NFTs are experiencing a tremendous craze. According to a report, NFT trading spiked to a whopping 21,000% in 2021 compared to 2020.

While the market of NFT art is growing by leaps and bounds, there still exists a lot of confusion about its existence and functionality. 

But not to worry, as we are here to clear all your confusion regarding NFTs. This blog will help you understand the NFTs and answer all your questions regarding them.  

Let'sLet's begin.

What are NFTs?

NFTs are one-of-a-kind digital arts bought, sold, and exchanged online through cryptocurrencies. An NFT art can be audio, video, image, artwork, or even any in-game item representing a real-world object. 

This digital art is secured with smart encryption and unique alphanumeric codes that are accessible only to their official owner. One very interesting fact about NFTs is that anyone can see/hear an NFT, but only its buyer will have its right of ownership.

Let'sLet's understand it with a very basic example of the famous Mona Lisa painting by Leonardo Da Vinci.

There can be multiple similar-looking copies of the Mona Lisa painting, making it difficult to check the authenticity of the original one. But it isn't the case with the NFTs, as each NFT comes with a unique smart contract transferred from the seller to the buyer at the time of its trading on any NFT marketplace. This smart contract is the authenticity proof of the original NFT, without which the NFT prize would be negligible.

What does "Non-fungible" mean?

To understand the meaning of "Non-Fungible", let's understand "Fungible" first. 

Fungible means something that can be traded for a similar thing. For example, you can trade a Dogecoin for another, you can trade a banana for another banana, and a 10 Rs note for another 10 Rs note because they all are fungible. But NFTs are different. You can not trade an NFT for something similar or the same. Each NFT art is unique and has a different digital signature that makes it impossible to be exchanged for another. If you ever trade an NFT with another on the NFT marketplace, you'd have something completely different because they are "non-fungible tokens".

How do they work?

NFTs let the users tokenize their unique digital arts. They operate on a blockchain that provides a public ledger to record its transactions. These blockchains allow only one official owner of an NFT at a time and make sure that no one can modify its ownership details or copy/paste a new NFT into the NFT marketplace. In other words, these non-fungible tokens act as a certificate of authenticity for digital assets. 

How are NFTs different from cryptocurrencies?

Both cryptocurrencies and NFTs are two different types of Crypto Coins and Tokens. One of the biggest differentiating factors between NFT and Cryptocurrency is fungibility. Cryptocurrencies are fungible, but NFTs are not. While non-fungible tokens address certifiable things like images, videos, and in-game items through an NFT marketplace, Cryptocurrencies are digital currencies built on a decentralized blockchain network to prevent double-spend problems.  

Why would anyone buy NFT?

There can be many reasons to make an NFT purchase. Its ability to establish ownership of a collectible digital artwork makes it highly desirable among art collectors. 

Many gaming communities incorporate NFTs into their video game to tokenize items like weapons, outfits, or special characters. Through NFTs, the buyer gets to be the sole owner of an in-game item and even the authority to trade, sell or hold it. 

Another big evolving market for NFTs in the Metaverse industry, which 

allows people to buy virtual goods, including real estate, items like cars, accessories, lands, and paintings through NFTs. This NFT-controlled access provides VIP access to the events organized on different metaverse platforms. 

Many collectors of unique art prefer NFT arts over physical artworks because they are highly secure, hassle-free to maintain, and do not acquire a physical space for storage. 

How to Buy an NFT?

You can buy NFTs through any NFT marketplace. Most NFTs are traded through the Ethereum blockchain and require ETH to buy and sell.  

How to make and sell an NFT?

Like buying an NFT, making NFTs also requires you to own cryptocurrency, which will be used to pay gas fees for minting an NFT in the Ethereum blockchain. There are also other popular options, like Tezos and Polkadot, for this same purpose. 

How to know which NFT is valuable?

One must check the upside value potential of the NFT he/she is planning to buy. Good market research is beneficial to determine if the NFT you are bidding in an NFT marketplace would be able to sell at a higher price in the future or not. Trends, past performance, uniqueness quotient, and the artist behind it are some most crucial factors in determining the value and profit expectations of NFTs.  

What are some most popular NFTs?

Pak'sPak's ''The Merge'' sold at $91.8m to 28,983 collectors, is the most expensive NFT ever sold. The First 5000 Days, a collage of 5k pieces created by renowned artist Beeple, is another most expensive NFT art ever sold to a single owner at $69.3 million. CryptoPunk #5822, CryptoPunk #7523, and Crossroads by Beeple are other super hit NFTs that were sold at millions of dollars. 

Are NFTs legal in India?

Presently there are no restrictions set forward by the Indian government for NFTs. However, the government does not yet regulate investment in NFTs. The government will probably give a better idea of this topic in the next few months.

What is the future of NFTs?

There are a lot of uncertainties associated with NFTs, but their skyrocketing popularity and ascending acceptance are giving a positive signal for their future. NFT art can be seen for tracking real estate ownership, voting, identification proof, professional licensing, and promotional activities very soon. All these things will take time to come to fruition, but the future of NFTs is up to our imagination.

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