What You Need To Know About NFTs

If you are wondering what all the hubbub is about when it comes to NFTs and cryptocurrency, you’ve come to the right place. I’ll break down what you need to know about this interesting side of crypto and whether or not it’s worth your hard-earned dollars.

So, let’s get to it!

What Are NFTs, Anyway?

To put it simply: NFT stands for “Non-fungible Token.” And since fungible means interchangeable, non-fungible is the opposite: It can’t be interchanged with another. There’s only one. Token stands for a crypto coin. Put them together; you get this: An NFT is a unique, one-of-a-kind crypto asset.

Here’s a couple of examples:

Dollars are fungible. One $5 bill is the same as any other $5 bill. Using one as an exchange of value instead of another is equivalent economically. They are all the same. And even though one bill made has a different identifier – like a serial number – that feature doesn’t change the interchangeability.

On the other hand, an original work of art is non-fungible. There is only one, and it can’t be interchanged with another. So even if the artist were to paint a series of the exact same subject, each one would be different. And that uniqueness makes that work of art standalone economically.

Ok, now that we have that settled, let’s move on.

So, what kind of non-fungible, unique stuff can you make into an NFT? Here’s where it gets really interesting: The answer is pretty much anything you can put into digital form, from GIFs to collectibles to tweets.

But the current use case for NFTs revolves largely around digital art. And those are the NFTs we’ll focus on today. But before you shake your head, think about this: A digital collection of the artist know as “Beeple” (aka Mike Winkelmann) recently sold for a staggering $69 million.

That’s right: $69 million with an “m.”

And for all that money, the buyer doesn’t get a physical representation of the digital art. Not even a copy.

Each piece gets its own digital signature – a “token” – that says this is the original work.

But that “just” is a huge deal: With that NFT, the owner gets an authentic, one-of-a-kind work of digital art.

Now, you may say, “Well, I can download any of those images and have my own copy.” That’s true. But the fact is that’s just a copy. It’s like having the original Mona Lisa and a copy for $20. They might look the same to the average art enthusiast, but there is only one original. And buying an NFT of an original work is like owning the Mona Lisa.

The NFT also does more than prove authenticity and ownership. It can also give the owner “bragging rights” to the only original version of the work. And that can be huge for collectors. Imagine if you were the person that owned the Mona Lisa. That would be a heck of a topic of conversation.

How Do NFTs Work?

The vast majority of NFTs reside on the Ethereum network. In fact, if you take a gander at the 50 biggest NFT collections, they are all transacted with Ethereum. We’ve talked about the extraordinary uses for Ethereum. Crypto can fuel a wide range of transactions, including smart contracts and NFTs.

Because NFTs live on the Ethereum blockchain, they are a distributed ledger that’s copied and verified across a vast array of computers. They also used sophisticated cryptography and problem-solving puzzles to make sure the blockchain is secure and verifiable.

When a new NFT transaction is verified, it’s added to the blockchain and can’t be changed or altered. That makes NFTs pretty much like any other cryptocurrency. But the code embedded in the NFT also provides specific information about the creator. In fact, artists can digitally sign their artwork by including it in the NFT’s metadata. And because of the immutability of NFTs on the blockchain, there is no chance of an original ending up in a digital version of a thrift shop.

Blockchain technology also gives artists a chance to monetize their works. And it can do so without the need of galleries or art brokers. Royalty features can also be programmed into the NFT, so if it’s sold and resold, the artist will gain continue to get paid.

Should You Invest In NFTs?

If you like digital art, then NFTs are worth taking a look at. Some of the artwork is wonderful and well done. And to say you own an original could be a nice thing to be able to do. Plus, you could be championing an artist that is trying to make a go of it in a cramped, crowded, and often neglected marketplace.

And you wouldn’t be alone. At last look, the market cap for NFTs stood at $766 billion. And over a recent 24-hour period, a staggering $113 million changed hands.

But like any collector, there is risk in art ownership. You would be vulnerable to wide swings in price as the work of art itself would fluctuate in the marketplace. In addition, you would be exposed to the risk associated with Ethereum itself. And that risk can be considerable.

So, I would look at buying NFTs like buying a cool work of art: It’s nice to have for lots of reasons, but being a great investment isn’t one of them. At least not any more than any other work of art.

If you decide to take the plunge, you’ll need to get a digital wallet to store your NFTs and cryptocurrencies. Then you can head over to an NFT marketplace like OpenSea to shop.

Wayne Burritt
INO.com Contributor

Disclosure: This contributor may own cryptocurrencies mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

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