The first NFT was created in 2014 by Kevin McCoy, but it wasn’t until 2021 that they actually caught rage. If you are familiar with the crypto world, you would have heard about the term. However, a person new to crypto might find it difficult to digest the craze surrounding this phenomenon.
From art to music, these digital assets are selling like exotic commodities. But, the point to ponder is that are they here to stay or another bubble poised to pop? Whether you believe in the potential of NFTs or not, there is no denying that they have taken the world by storm. Read on to find out more about them.
■ Understanding NFTs
Firstly, know that NFT stands for Non-Fungible Token. In literal terms, non-fungible means something unique and not replaceable with anything. For example, one USD is fungible – trade it with another USD. On the other hand, Mona Lisa is priceless. Why? Because it is one of its kind, and no other painting holds the same value.
Secondly, NFTs are verifiable digital assets representing real-life objects. They are easy to trade on blockchain since encoded with the same software as other crypto products. Owners can claim ownership of the digital resource and control how others use it.
■ How Do They Work?
You are most probably familiar with blockchain, a distributed public ledger that records all transactions. Usually, the Ethereum blockchain holds NFTs, but a few other networks also support them. They digitally represent anything that creates a frenzy in the physical world.
Only one person can own an NFT at a time, giving him sole rights to it. Blockchain technology makes it easy to track and verify ownership behind each of them. In simple words, enthusiasts collect non-fungible tokens and keep them for future trading. So, instead of owning a physical asset, the buyer possesses a digital file.
■ How Are They Different from Cryptocurrency?
While Ethereum is a cryptocurrency like Bitcoin, its blockchain also supports NFTs. The only similarity is that programmers use the same programming to create them. Be it physical money or cryptocurrencies – both can be traded for one another, making them fungible. Conversely, each NFT has a digital signature, making their exchange impossible.
One NFT is not equal to another NFT even by the same artist. A video by Beeple sold for $6.6 million, whereas the CEO of Twitter sold his first tweet for over $2.9 million. You can compare them with limited edition products. Simply put, they create scarcity for otherwise easily available objects, and there’s a certificate of authenticity to prove it.
While people are still unsure about the future of NFTs, they are making waves in the tech world, increasing their significance with each new development. As the world becomes more digital, the Metaverse and ownership of assets in the virtual world will become impossible without NFTs. Hence, they are here to stay, and their utility and worth will increase with time.