When Satoshi Nakamoto was creating Bitcoin, never in a million years would they have imagined that the world would be trading digital art using crypto in less than a decade? Alas! We’re in 2021, and everyone is talking about Non-fungible tokens, also known as NFTs.
What are NFTs?
NFT is a combination of two words: non-fungible and tokens.
When you say something is non-fungible, that means you cannot exchange it for another identical item. For example, a non-fungible Mercedes S-Class cannot be exchanged for another Mercedes S-Class.
Tokens in crypto represent digital assets that are built on a blockchain and allow holders to use them like they would use money. So, you can either buy something with a token or invest it.
Put together, Non-fungible tokens (NFTs) are digital assets that cannot be interchanged or replaced with a similar asset.
To simplify this, let’s assume you borrowed 10 dollars from a friend. You don’t need to pay back with the same note you received. Instead, you can pay back using another $10 note or two $5 notes. This is because the dollar, like most fiat currencies, is fungible. One dollar note can be exchanged for another dollar note.
NFTs are different because they are unique. If you lend 10 NFTs to the same friend, they have to return the exact NFTs. No changes. No long stories. They either give you back your NFTs or the both of you will fight.
What’s the fuss about NFTs then?
The excitement about NFTs comes from the feeling of owning something rare. For example, the Mona Lisa is one of the most famous paintings in history, created by the legendary artist Leonardo da Vinci. Now, imagine owning the original copy made by da Vinci himself. Exactly!
It’s hard to put that feeling into words. That is the basic concept behind NFTs’ “rarity and originality”. NFTs create value because each NFT is unique, and many artists have used NFTs to make cool money.
An artist named Beeple sold a digital painting as an NFT for $70 million in 2021. Beeple is one of the richest artists today, and all he does is create and sell images as NFTs. Pretty cool, right?!
Are NFTs any good?
NFTs are a cool innovation when you think about their potential in different fields. Some of them include:
In digital art, NFTs eliminate middlemen because artists and creators can now easily sell their work directly to clients. Art collectors can also be assured that the art collection is original and not a counterfeit
In gaming, NFTs have been applied for different purposes. For example, there’s a game called Axie Infinity where you can breed special NFTs called Axies to compete with other gamers. Its gameplay is similar to “Pokemon” as each Axie has different abilities.
What makes it unique is that you can trade Axies for real money. Many gamers in the Philippines have left their day jobs to play Axie Infinity as a means of livelihood.
NFTs are also useful in the world of music, entertainment and sports. Several musicians have issued NFTs as concert tickets and their use cases continue to increase every day.
Should you buy NFTs?
It is important to know that owning NFTs is not a get rich quick scheme. On the one hand, you can buy an NFT for $10 and resell it for $50,000 within a week. But there are also scenarios where an NFT is overvalued and subsequently drops in valuation. So it’s best to always do your research before purchasing an NFT as an investment asset.
Pro tip: A quick way to get involved with NFTs without spending too much money is to look for NFT-based games. They typically use a ‘play-to-earn’ model, where you earn more NFTs as you go further.
This is just the beginning. In our next edition, we’ll be exploring how to create (also known as ‘mint’) NFTs and the best places to trade them.
There’s more! Read part 2