In recent months, NFTs have received a lot of media attention. NFTs have been almost inextricably linked to popular culture thanks to the likes of Bored Apes, CryptoPunks, CryptoKitties, and Reece Witherspoon’s ventures into the sector. NFTs are considered a must-have investment by some. To some, they’re nothing more than nerdy name-a-star vouchers. But what exactly are NFTs? And why are they so divisive?
What Are NFTs and How Do They Work?
Non-fungible token (NFT) is a term used to describe a token that is not fungible. An NFT is a transferable digital asset that is stored on a blockchain. Between cryptocurrency wallets, these digital assets can be purchased, sold, and swapped. Some NFTs are treated as traditional pieces of art, with one Beeple NFT selling at Christie’s for about $29 million.
What Are NFTs Used For?
Artists and content producers have a rare opportunity to monetize their works thanks to blockchain technology and NFTs. For instance, galleries and auction houses are no longer the only places to market art. Instead, the artist can sell it as an NFT directly to the customer, letting them to keep more of the sale price. Additionally, when an artist sells their work to a new owner, royalties can be programmed into the system so that the artist receives a percentage of the transaction. This is a desirable feature because, after their first sale, artists typically do not receive additional revenue.
There are other ways to profit from NFTs than the arts. Businesses like Taco Bell and Charmin have auctioned off themed NFT artwork to benefit charities. Both Taco Bell’s NFT art and Charmin’s non-fungible toilet paper (NFTP) were gone in a flash, with the highest bids coming in at 1.5 wrapped ether (WETH), or $3,723.83 as of this writing.
A 2011 GIF depicting a cat with a pop-tart body named Nyan Cat sold for about $600,000 in February. And as of late March, NBA Top Shot produced more than $500 million in sales. LeBron James highlight NFTs cost almost $200,000 for just one.
Even well-known figures like Snoop Dogg, Lindsay Lohan, Amitabh Bachchan, and Salman Khan have jumped on the securitized NFT bandwagon and released special memories, works of art, and moments.
How to Buy NFTs?
You’ll need to purchase a few essential products if you want to begin your own NFT collection:
A digital wallet that lets you store NFTs and cryptocurrencies is the first thing you’ll need to get. Depending on the types of payment your NFT provider supports, you might need to buy some cryptocurrency, such as Ether. Coinbase, Kraken, eToro, PayPal, and even Robinhood now allow you to purchase cryptocurrency with a credit card. Then, you’ll be able to transfer it from the exchange to your preferred wallet.
When researching your alternatives, keep fees in mind. When you purchase crypto on an exchange, the majority of them charge at least a portion of your transaction.
NFT Markets that are Popular
After setting up and funding your wallet, there are a tonne of NFT sites to choose from for your shopping. Currently, the following are the biggest NFT markets:
The self-described “purveyor of rare digital items and collectibles” on this peer-to-peer platform. You only need to register for an account to browse NFT collections to get started. To find new artists, you may also sort the artwork by sales volume.
Rarible, which is a democratic, open market similar to OpenSea, enables artists and producers to issue and sell NFTs. The platform’s RARI tokens allow holders to comment on aspects like fees and community regulations.
Here, in order to upload their artwork, artists must first get “upvotes” from other creators or invitations from them. The community may showcase higher-caliber artwork due to its exclusivity and high admission barrier (artists must additionally pay “gas” to mint NFTs). For instance, Chris Torres, the developer of the Nyan Cat, sold the NFT on the Foundation platform. It may also mean higher pricing — not necessarily a bad thing for artists and collectors trying to capitalize, if the demand for NFTs continues at current levels, or even increases over time.
Be sure to properly conduct your research before buying even if thousands of NFT makers and collectors are represented on these sites and others. Impersonators have listed and sold certain artists’ works without their consent, causing some of them to suffer losses.
Additionally, different platforms have various verification processes for creators and NFT listings; some are harsher than others. For example, OpenSea and Rarible do not demand owner identification for NFT postings. It may be wise to remember the proverb “caveat emptor” (let the buyer beware) when looking for NFTs because buyer safeguards seem to be minimal at best.
A Non-Fungible Token’s Anatomy
To comprehend NFTs, you must first comprehend the blockchain and cryptocurrencies. There are hundreds of cryptocurrencies available today, which can be classified into two categories: crypto coins and tokens.
Tokens vs. Crypto Coins
Bitcoin is the most well-known cryptocurrency. In the Bitcoin introductory paper, the pseudonymous creator Satoshi Nakamoto characterized Bitcoin as a “pure peer-to-peer version of electronic cash.” Bitcoin is made possible via a proof-of-work system that runs on its own blockchain. In and of itself, a bitcoin is a digital asset that symbolizes the underlying value.
Bitcoin and other similar currencies are fungible in theory. The value of one bitcoin or satoshi (a fractional unit of a Bitcoin) is the same as the value of another bitcoin. Things aren’t quite as straightforward in practice. As John Carvalho, former product designer for Bitrefill explained, “Each satoshi is its ledger history just as much as a unit of account, and none of them can be interchanged with another as they all have distinctive histories, permanently.”
Because of this traceability, coins with an unknown past may be considered less valuable than those that have been “freshly mined” and never been moved.
Tokens vary from other cryptocurrencies; in that, they do not have their own blockchain. Instead, they run on top of a pre-existing blockchain like Ethereum. A token is moved from one address to another when it is spent by a user.
Some tokens are purchased and sold in the same way that cryptocurrencies are, and they function as a currency. The fungibility of these tokens is taken into account. Others, on the other hand, are thought to be non-fungible.
It doesn’t matter which crypto coin you have when it comes to crypto coins; all that matters is that you have one. Non-fungible tokens, on the other hand, are unique to the person who holds them.
The Ethereum Blockchain now hosts the most well-known NFTs, although they’ve represented differently than currencies thanks to the ERC-721 standard, which states: “A non-fungible token (NFT) is a type of token that is used to uniquely identify something or someone. This type of token is ideal for platforms that sell collectibles, access keys, lottery tickets, and numbered seats for concerts and sporting events, among other things.”
Each NFT has its own unique identifier and a finite supply. A person or organization might create a single token to represent a one-of-a-kind piece of art, or 100 tokens to represent show tickets. The tickets can then be moved from one location to another.
“A non-fungible token (NFT) is a type of token that is used to uniquely identify something or someone. This type of token is ideal for platforms that sell collectibles, access keys, lottery tickets, and numbered seats for concerts and sporting events, among other thing.”
On the Ethereum system, one of the most intriguing features of NFTs is the ability to add more functionality in the form of smart contracts. Developers can use this feature to provide royalty options.
If an NFT were to represent a work of art, the artist could negotiate a smart contract with the buyer in which the artist earns a percentage of the sale price in royalties anytime the NFT changes hands.
What are the current applications of NFTs?
NFT technology is still in its early stages, and most projects on the market are focused on digital collectibles.
The increasing popularity of art collections like the Bored Ape Yacht Club propelled NFTs into the public consciousness in 2021. The concept, on the other hand, has been around for much longer.
Games with Virtual Pets
The CryptoKitties game, for example, was one of the first to adopt the ERC-721 standard, launching in 2017.
According to Garrick Hileman, a computer researcher and visiting scholar at the University of Cambridge, the game, which allowed users to breed and exchange virtual kittens, was so popular that the volume of cats being traded overloaded the Ethereum network.
Axie Infinity is another well-known NFT-based game. Players create teams of Axies and utilise them to battle other players, similar to Pokémon, and each Axie is a unique tradable NFT.
Although the entry barriers to Axie Infinity might be extremely high, it is commonly known as a play-to-earn game.
NFTs are commonly used for trading digital art outside of video games. The following are a few examples of collections that have gotten media attention:
- Bored Ape Yacht Club
- Flower Girls NFT
When consumers buy an NFT, they’re not so much buying an image as they are joining an exclusive club. This is especially evident with the Bored Ape Yacht Club, where customers are given a QR code that allows them to join private parties.
What Does the Future Have in Store for NFTs?
NFTs, according to blockchain advocates, may be used for more than video games and digital collectibles. Collecting royalties for musicians, managing ownership and supply chain difficulties, and expediting ticket sales with the purpose of decreasing scalping are all possible use cases.
Several companies are exploring the possibility of tokenizing performance and play tickets. NFTs, according to developer Kasper Keunen, might “make trust-free and friction-free ticket trading conceivable.” He described how to make an NFT that can generate a ticket-like time-locked QR code.
According to a recent study published by Cornell University, up to 70% of cryptocurrency trading volume on major exchanges is false.
NFTs have a lot of potential in a wide range of industries. However, there are a few drawbacks to the innovation.
Cryptocurrency markets, unlike traditional financial sectors, are still mostly unregulated and plagued by wash trading. According to a recent study published by Cornell University, up to 70% of cryptocurrency trading volume on major exchanges is false. It’s difficult to know whether the prices of popular NFTs aren’t artificially boosted by wash trading because NFTs are bought and sold using bitcoin wallets — and big platforms don’t require traders to authenticate their identities.
The environmental impact of NFTs is a major problem. According to data collected by Statista, the Ethereum blockchain, a key NFT player, uses an estimated 104 terawatt-hours per year. A large number of miners work in countries that rely on nonrenewable energy sources.
Is it a Good Idea to Invest in NFTs?
The choice to invest in NFTs is mostly a personal one. It can be worthwhile to consider if you have extra cash, especially if the item has special meaning.
However, bear in mind that the value of an NFT is totally dependent upon the price that another party is prepared to pay for it. Therefore, demand will determine the price rather than fundamental, technical, or economic data, which often have an impact on stock prices or at the very least serve as the foundation for investor demand.
It follows that an NFT might sell for less than you paid for it if it is resold. Alternatively, if nobody is interested, you might not be able to sell it at all.
Remember that taxes may apply to both NFTs and the cryptocurrency used to buy them. NFTs and cryptocurrencies should be included in the list of virtual digital assets that would be subject to withholding tax under the Indian Budget 2022 proposal, which would go into effect on July 1. Another suggestion is a tax deduction at source. Since it is unclear how the taxation will operate, you might wish to consult a tax expert before considering adding NFTs to your portfolio.
In light of this, treat NFTs as you would any other investment: do your homework, understand the dangers, including the possibility that you could lose all of your invested rupees, and if you decide to proceed, do so with a healthy dosage of caution.
- What are NFTs?
NFTs or non-fungible tokens are digital assets that are used to represent real-world objects like art, video, music, etc. These tokens are unique and help represent ownership of a particular item. They are usually bought and sold with cryptocurrencies.
- How can I buy NFTs?
A lot of NFTs can be purchased with cryptocurrencies like Ether. So, you should own some crypto in your crypto wallet. You can browse through NFTs on many NFT marketplaces like OpenSea, Rarible, Foundation, etc.
- Which is the most expensive NFT ever sold?
The most expensive NFT in history was actually purchased in December of last year for a staggering $91.8 million. The Merge was produced by well-known digital artist Pak, whose works have brought in more than $350 million.