You may have come across the term “non-fungible token” on the internet, but what exactly does it mean?
NFTs seem to be all the rage right now, with celebrities buying into the craze, others making millions from them, and the rest debating whether they’re all a big scam.
In reality, NFTs have been around for a long time, only recently exploding in the realm of digital art. But, exactly, what is an NFT? Should you purchase one? And are they here to stay?
What are NFTs?
NFT is an abbreviation for ‘non-fungible token.’ This is divided into ‘non-fungible’ and ‘token.’ Something fungible can be swapped out, so everything distinct is non-fungible. A painting, such as the Mona Lisa that you see in a museum or on the internet, a video you make, a tweet, or a piece of digital artwork.
The token section refers to its digital existence and the fact that it is secured using blockchain technology. To put it another way, an NFT marketplace development is simply a digital asset that cannot be replicated due to its existence on a blockchain (which we’ll discuss later).
While digital artwork is currently the most common example of an NFT, it could be anything. William Shatner GIFs, songs, videos, tweets, digital skins for games, and even headshots (yes, that is an NFT you could buy.)
In the blockchain, you are recorded as the owner of that product, just as you might be the owner of a physical painting, one-of-a-kind vinyl, or a poem that only you have a copy of.
How Do NFTs Work?
Now comes the tricky part. An NFT is supported by two pieces of technology: a blockchain and cryptocurrencies.
Blockchains are probably a term you’ve heard before because they quickly became a popular concept in the digital age. A blockchain is a shared electronic database with a distributed digital ledger.
It’s similar to Google Drive or Dropbox, except you can’t remove or edit anything. There is no such thing as a solitary blockchain, and there are a plethora of them, each of which operates in a slightly different manner.
To purchase NFTS, you must first obtain a cryptocurrency, typically Ether, which operates on the Ethereum blockchain. However, depending on where you buy your NFT, you may be able to use other digital currencies on different blockchains.
When you spend your Ether on an NFT, your transaction is recorded on the blockchain. Because no one else can change this, there is clear proof that you own the NFT in what is known as a ‘smart contract’ – a piece of data that shows ownership, how it was transferred, licence fees, and other key pieces of information.
Where Can I Buy NFTs?
So you’ve got some Ether (or another cryptocurrency for NFTs), where do you go to spend it? Unfortunately, the world of NFTs and crypto exchanges is similar to the Wild West: there are only a few legitimate places where you can purchase without getting ripped off.
OpenSea is the best-known platform. Most of the NFTs you’ve seen in the news were uploaded and purchased here. It is also one of the exchanges that receive the most support and regulation.
It is important to note that, like physical art, an NFT is only worth as much as its perceived value, which can fluctuate dramatically. So, if you buy an NFT painting today for £1000, it might not be worth that much tomorrow.
How Do You Pick NFTs To Invest In?
When considering purchasing an NFT as an investment piece, it is critical to evaluate the project holistically rather than solely on its appearance. The quality of the founding team, proven ability to execute and deliver and project roadmap are all important factors to consider when selecting crypto projects to invest in. The strength of the community that the project has managed to build is perhaps the most important and most difficult factor to measure. NFTs derive a large portion of their value from their communities, and projects with strong communities will be able to withstand downturns. We’ve even seen instances where communities have banded together and resurrected projects by delivering in areas where the founding team had failed.
The only way to truly assess a community’s strength is to be in the trenches with them; the quality of members is more important than the quantity. Join the Discord group and spend some time in the channels to get a sense of the members’ vibe. If the main topic of discussion is the floor price and the toxic environment, this is probably not the project for you.
It’s nearly impossible to keep up with all of the NFT projects released daily. One strategy is to follow the smart money and pay attention to projects that have piqued their interest; Nansen NFT dashboards can help. You can view transaction data for specific projects in “NFT God Mode,” minting data in “Mint Master,” and an overview of smart money activity over the last 24 hours in “NFT Smart Money.”
Does An NFT Grant Copyright Ownership?
When you buy an NFT, you may not be purchasing complete ownership of the product. Yes, you become the owner because it is now your property, and ownership is traceable on the blockchain, but copyright laws don’t always accompany this.
This means you might not be able to reproduce it, such as putting it on a T-shirt.
“The specific laws for each NFT vary depending on the smart contract used, but they can be questionable. Do you own the rights to a painting if you buy it? Can you claim to be the painter? Most likely not. Do you have ownership of it? Yes. So it’s the same concept as the NFT, “Ozair says.
However, this does not preclude you from profiting from your NFT, even if you did not create it or own the full copyright. “I can sell it if I own it. Again, like a painting, once you’ve purchased it, you can resell it because it’s yours to sell.”
Is NFTs A Scam?
While the core concept of an NFT is not a scam, and the vast majority are completely legitimate, this does not mean that they are all safe.
The underlying technology of NFTs is new and somewhat complicated, and some people are looking to capitalise on this ambiguity.
“It’s easy to get the wrong impression if you don’t understand the technology behind it and what it can provide. It’s easy to think it’s all scams and fraud, but that’s what people said about the internet when it first came out, “says Ozair
“People say it’s a fad, a gimmick, and many of them are scams – we know that, and I wouldn’t be surprised if many NFTs were scams. However, people should not be misled. The value of this technology exists; it is simply necessary to comprehend it.”
If you intend to buy an NFT, you should conduct extensive research first. Examine the marketplace you are purchasing, the collection it is a part of, and the rights you have with that NFT. It is also critical to remember that the value of NFTs is speculative. What you consider a fair price for something may not be the same as what others consider, and value may fall.
What Can An NFT Be Used For, And What Is The Future?
The majority of the examples we see in the news are art NFTs. These can be pictures, illustrations, GIFs, or other works of art created by people, but they aren’t the only form an NFT can take.
“The authentication is the strength of NFTs. When you think about it, everything in our economy is transaction-based; even an email, a payment, or sending money are all transactions that must be authenticated to be considered official, “Ozair says.
“In the traditional world, we use all kinds of intermediaries to make this work, whether you’re an artist trying to get authentication that your work is the original, a bank making a payment, or a marriage licence – all of these situations require a third party to declare their authenticity.”
While NFTs are currently used primarily for art and memorabilia, Ozair envisions a future in which they will be used primarily for transaction authentication, saving money, time, and confusion.\
Is NFTs Bad For The Environment?
Unfortunately, most NFTS are burdened by a fairly large carbon footprint.
“Ethereum consumes more energy than the country of the Netherlands.” More than 100TWh per year. “The blockchain has a larger carbon footprint than Singapore, around 50-60 million tonnes of CO2 per year, nearly twice as polluting as Europe’s largest coal-fired power plant,” says Dr Pete Howsen, a senior lecturer at Northumbria University Newcastle.
This is not to say that NFTs cannot become more environmentally friendly. “There is a push to use green energy such as solar or wind. Second, a shift from proof of work to proof of stake has been in the works for some time. These two factors, combined with less energy-intensive currencies, have the potential to reduce environmental impact, “Ozair says.
A blockchain transaction can be verified using either proof of work or stake. Proof of work is an older, more energy-consuming version, and proof of state is a newer, less energy-intensive option that most cryptocurrencies are adopting.
NFTs allow us to combine the advantages of the physical and digital worlds to create new distribution channels and monetisation models for creators. It provides us with new ways to engage and galvanise a community of like-minded individuals, and it has the potential to change the way we coordinate social groups. They enable us to describe better and determine the value of digital assets and give creators a larger share of the value they create. “Right-click and save” will always be a feature of the internet, but NFTs give creators and users the option to own and distribute their assets more effectively. Right-clicking and saving add value to the original copy rather than detracting from it.
The technology’s current implementation is limited and imperfect. However, this does not diminish the long-term potential and future use cases that will emerge. We are only in the early stages of the rise of virtual economies, and it is up to us to find new and exciting ways to capitalise on the advantages of NFTs.
If you are looking for a top NFT development company, Applify.co is the way to go.