What is NFT?
A non-fungible token, or NFT, is essentially data stored digitally in a ledger. And this data is representative of something specific. It could be a piece of art, or a song, or a book online, or even a clip from a long video. Owning an NFT does not mean you own the copyright to whatever NFT you purchased. It just means you own the rights to ownership. Let’s say you bought an NFT that represents a rare book from a distinguished author. Purchasing the NFT means you’ve purchased the right to own the book but the copyright to it still belongs to the writer. Or a better example would be if your favorite band decided to release NFTs of their never before seen music videos. You can claim ownership of the videos but the music and all that still belongs to your favorite band.
You might be thinking, well if their buyers can’t own the copyright, why do people (or artists for the most part) sell their art through NFT? And how did NFT become so popular?
One of the better known artists in the crypto world, Beeple, sold a digital art piece for almost $70 million. Several other artists that make crypto art have also made millions from selling their digital art collections. This is all happening through NFT. So the sellers are making money from this. But why are people willing to shell out hundreds, even millions of dollars for something that does not have a guarantee of appraisal?
Because when situations like the price of Bitcoin going up, and the pandemic making people divert their attention and wallets to all things web-related happen, it actually drives the value of NFTs up. So that NFT you bought for that piece of crypto art that cost you a thousand dollars can in turn be sold for ten thousand dollars. Because NFTs are non-fungible. This means that, unlike cryptocurrency where one bitcoin is equal to another bitcoin, NFT values vary. Meaning one NFT does not equal another NFT because each has their own unique digital signature. It’s like bartering your designer heels for a pair of knock-off sunglasses. It just can’t happen.
Apart from the profits to be made when selling off NFTs, another factor that makes NFT popular is the bragging rights. It’s not everyday one can claim to own ownership rights to a music video from their favorite band, or a popular GIF, or a collection of crypto art worth millions of dollars.
How do NFTs work?
NFTs were created by skilled developers in building and using the same kind of programming as cryptocurrency. So very much like how Bitcoin, Ethereum, or any other cryptocurrency platform works, NFTs exist on a blockchain. As a matter of fact, NFTs are held and supported typically by Ethereum. Though some blockchains also have their own version of NFTs.
NFTs can be anything digital: from tweets (yes tweets, those short haiku-like sentences you write on Twitter) to video game skins and avatars. The most popular ones though are the ones representing crypto art (hello $70 million dollar crypto art piece!). In fact, word around the crypto streets is that people want NFTs to be more about art collection than anything. A large portion of NFTs are dedicated to digital art.
Where does cryptocurrency fit into this?
Not only do NFT and cryptocurrency share the same platforms, but you actually need to use cryptocurrency to buy an NFT. Everything is on the blockchain. Even the ownership of an NFT is on it. Both cryptocurrency and NFT are immutable and easily authenticated. Both cannot be duplicated.
Are NFTs a form of cryptocurrency? Not quite. They function as a cryptographic token but because they are not fungible, they are not cryptocurrencies. Since, you know, one of the things that make a cryptocurrency what it is, is the fact that every unit has the same value.
So if NFTs are not cryptocurrency, but you can use cryptocurrency to buy them, how do you do it?
Well first off you’ll need to actually have cryptocurrency. To have that, you need to get yourself a digital wallet that lets you store both cryptocurrencies and NFTs. Depending on what kind of cryptocurrency the provider of your desired NFT accepts, buy yourself some cryptocurrency. Ether would be a good starting point because NFTs are stored in the Ethereum platform. You can buy them using your credit card. Once you’ve bought your cryptocurrency, store them in your digital wallet. One important thing to keep in mind, though, are the fees when buying crypto. Some platforms charge a percentage of your total per transaction.
Once you have your wallet all set up, you can start looking around the NFT shops for whatever catches your eye. The most important thing is to always do your research before purchasing anything.
Are NFTs a good investment?
It can be. People have turned a profit from buying and selling NFTs. It really depends on how the entire crypto market fares day in and day out. And it also depends on what you yourself consider valuable. Like with most other things, NFTs can be risky. If you want to play it safe, invest in small amounts at first and see how it goes for you.