What Is An NFT? Non-Fungible Tokens Explained
Recently, NFT is a concept that is constantly mentioned by the press and media. The term NFT has become the topic of discussion in many technology groups and has flooded the Internet.
What is NFT really? Why does NFT have such potential? Can investing in NFT yield quick returns? Let’s learn about one of the hot spots of Blockchain technology with HotQA!
What is NFT?
Non-fungible tokens (NFTs) are cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other. Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency. This differs from fungible tokens like cryptocurrencies, which are identical to each other and, therefore, can serve as a medium for commercial transactions.
To make it easier to imagine, usually for Fungible Tokens, we can completely exchange it with others because their value is equivalent. Cryptocurrencies are a prime example of a fungible token because each coin has the same value as any other coin of its kind at any given time. However, with NFT, each asset such as a painting, game character, etc. is unique and irreplaceable, thus creating a unique value for these assets.
Features of NFTs
- Unique – Each NFT has a unique property usually stored in tokens metadata. NFTs are unique in their character, and no two NFTs are the same. On the contrary, an original image .jpg file is the same as its copy, a .jpg file.
- Digitally Scarce resource – NFT is stored in the blockchain network. Hence, the certificate of ownership is available on multiple networks, making it possible to prove digital asset’s ownership.
- Indivisible – Most NFTs cannot be split into smaller denominations; you cannot buy or transfer a fraction of NFTs.
- Ownership– These tokens guarantee the ownership of the asset transferred.
- Fraud proof– They are easily transferable and fraud-proof.
Practical NFT Application
It is the de-facto application area where everyone is trying to sell a token in millions.
Not just GIFs and images, you can also mint music and videos into NFTs.
And just like with images, music and videos can be copied all over the internet. But the bragging rights to own the original remains with the legit buyer.
For instance, this short video of Gucci Ghost last sold for USD 3,600 seven months back.
Back then, its creator–Trevor Andrew–listed it for USD 200. Then it changed several hands, and presently it is listed for USD 16,300 by its now-owner Danny.
They have plenty of use cases other than digital arts. Some of them are:
- Tickets for an event (movie, live performance, soccer match, etc.) can be tokenized as NFTs. As every seat location is unique and no two can be the same.
- Legal Docs, Invoices, Signatures, etc. You can convert any legal property document into an NFT. It can help in identifying the actual owner. This will reduce the scams in real estate and ease the selling process. Additionally, it will reduce the necessity of middlemen (local administration). So, the transfer will be economical and quick for both the seller and the buyer.
Similarly, you can tokenize invoices and signatures. It’ll end the misuse and will hold a permanent record of every transaction.
- Supply Chain Management using NFTs can provide evidence about the originality of any product. For instance, you can check any medicine for its authenticity by tracking it to its genuine manufacturer.
- Anything distinctive can be converted into a non-fungible token to ensure fair use. For example, your college degree, driver’s license, personal ID, passport, etc., can be issued as an NFT to prevent forgery.
How to buy NFT?
Before you buy NFT, there are 4 questions you need to think carefully:
Buy NFT from which market? Which wallet to use to connect to the NFT marketplace platform? What cryptocurrency to use to load the wallet and use? How will the NFT you want to buy be sold? Auction? Limited sale?…
As you may already know, some NFTs are only available on certain platforms. For example, if you are going to buy NBA Top Shot, you need to open an NBA Top Shot account, create a Dapper wallet and deposit in the form of USDC tokens or other suitable tokens. You also need to wait for the product to be announced and buy it quickly before it runs out of stock
Limited sale is a method to increase the rarity of NFT by creating a customer group with strong buying demand. The sale often requires buyers to register an account and deposit money first to avoid missing the opportunity to buy NFT. These sales only last a few seconds, so you need to be prepared.
Some popular NFT marketplaces include:
- Nifty Gateway
- Axie Marketplace
- NFT ShowRoom
Risks of NFT
Non-Fungible tokens are making huge money for digital creators. There are plenty of artworks sold online every single day. It is even possible for a creator to earn millions in just a few seconds when their NFT is sold in the digital space. It is also visible that people are more enthusiastically buying, selling, and investing in the digital market rather than doing the same in the physical market.
This gives a considerable rise to the possibility of cyberattacks and online fraud. There are high chances of damage to the digital assets and the investors buying and selling NFTs in the market. Even though there is a vast potential for the NFT market, there are certain risks that one needs to consider.
If you are thinking about getting into the NFT market, then you should understand these risks and challenges with NFTs for a better idea.
Thanks to the “unique” and “limited” nature, NFT is being applied in a variety of fields such as gaming, art, digital asset, etc. As a result, NFT tokens promise to have a lot of potential to enhance in the near future. Besides the attractive potential, NFT also comes with risks as mentioned above. Therefore, investors also need to equip themselves with solid knowledge before deciding to put down money. Hope this article of HotQA has helped you better understand one of the most popular products of blockchain application. Good luck!