Confused about NFTs? You are not alone. Here’s all you need to know!

Okay, let’s go straight to the point! NFT (AKA non-fungible tokens) are tokens we use to represent the ownership of unique items. I understand it might be hard to understand, so let’s go ahead and break it down.

In economics, a fungible asset is an item that can be easily interchanged, and a good example is money. With money, you can swap a $20 note with two $10 notes, and it will have the exact same value, right? However, when it comes to non-fungible, interchanging for other items would be impossible because they have unique properties such as paintings or cryptopunks!

Many things can be tokenised, including art and collectibles. The tokens can only have one official owner at a time, and they are secured by blockchains like Ethereum Blockchain and Binance Smart Chain. These blockchains keep a record of ownership of the NFTs. No one can ever modify the record of the ownership or copy a new NFT into existence. The only thing that can change is the ownership of the NFT, in case it is sold. To sum up, an NFT is a crypto asset to represent something unique and collectible using blockchain technology. There are a few use cases for NFTs that are currently being explored.

I talk about all these aspects in my NFT course.

NFT is making waves with these exceptionally huge sales of visual artists and graphic designers. The most popular example that most people have heard of is the NFT called “Everydays — The First 5000 Days”, created by Beeple, auctioned for roughly 69 million US dollars. Another popular NFT example is the CryptoPunks, which I’m sure you’ve heard of. NFT is giving more power to content creators than ever before.

So now you understand what NFT is, let’s go through some of the things you need to know about.

How is an NFT different from a cryptocurrency?

NFT is generally built using the same core technology like cryptocurrency, such as Bitcoin: the blockchain. Since both cryptocurrencies and physical money are “fungible”, which means they are made to be equal in value, one Bitcoin is equal to another Bitcoin. Your one dollar is equal to my one dollar so that they can be traded or exchanged for one another no problem. However, NFTs are different. Since NFTs are “non-fungible”, each is unique, making it impossible to exchange for one another because they are not equal. For example, Jack Dorsey’s first Twitter post is not equal to your first Twitter post simply because they are both NFTs. Each NFT is unique, and they usually leverage the ECR-721 token standard.

How Does an NFT Work?

NFTs exist on the blockchain, which is essentially a distributed public ledger of transactions that is replicated and distributed across a huge network of nodes. The Ethereum blockchain, for example, has around 11 000 nodes. So NFTs are mainly held on blockchains like Ethereum and some other blockchains.

NFTs are “minted” from a digital object representing tangible or intangible items, including music, art, collectibles, videos, etc. So NFTs are like a digital form of collectible items, which only allows one owner at a time. The exclusive ownership rights are recorded on the blockchain so that no one can change them. The owner or creator of NFT can also store specific information, such as including the artists’ signature in an NFT’s metadata. Since these collectibles hold value, they can be bought or sold like other forms of art.

Why can’t I just right click and save the image of an NFT? Aren’t they the same?

Unfortunately, they don’t hold the same value as the originals simply because your downloaded files don’t hold the information that cannot be copied, which is the ownership of the work. A good example is anyone can buy a print of Picasso’s painting, but there will only ever be one person who owns the original.

What are NFTs used for?

NFTs provide a unique opportunity for artists and content creators to monetize their work by being able to sell them directly to the buyers as an NFT instead of having to rely on galleries or auction houses. With smart contracts, they could even offer the creators a cut of any future sale of the tokens by programming in royalties. This is very attractive as artists generally do not receive any future sales after their work are initially sold.

NFTs are revolutionizing the digital art ecosystem, but they have the potential to disrupt many other industries too!

How to buy NFTs?

The most popular NFT marketplaces include OpenSea.io, Rarible, Foundation, SuperRare, Nifty Gateway, to name a few. Be sure to always do your research before buying any NFTs, since some artists have already fallen victims to impersonators who have listed and sold their work without their permission. Since most NFTs are Ethereum-based tokens, most of these marketplaces only accept ETH tokens as payment. After you connect your MetaMask wallet to any of these marketplaces of your choice, you are ready to shop!

Is NFT a good investment?

Like any other kind of investment, you should always do your own research and understand the risks involved by understanding that you might lose all your invested money. An NFT’s value is entirely based on the amount someone else is willing to pay for it. The value should be related to the artwork itself and not the fact that it’s an “NFT” since the NFT itself is just like a piece of paper that says who owns what. What has value is the underlying asset itself. Therefore, demand is always the main reason to drive the price instead of the fundamental, economic or technical indicators. Also, be aware that depending on your location NFTs are subject to capital gain taxes. The cryptocurrencies used to purchase the NFT may also be taxed if their value is increased since you bought them.

Oh, and by the way, make sure you keep your NFTs secure! See here how!

🚀 Follow me if you like this context and also check my blockchain 🧱 and NFT course:

📖 The Complete NFTs Course

👨‍🎓 Unblockchain Course — The Brain-Friendly Blockchain Course

Source: https://medium.com/geekculture/confused-about-nfts-you-are-not-alone-heres-all-you-need-to-know-170ece901fcc?source=rss——-8—————–cryptocurrency