What is NFT And How It Works: Is it a good investment?

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A new cryptocurrency phenomenon has gone mainstream: Non-fungible tokens, or NFTs. NFTs have suddenly gained global attention after Christie’s auction house sold the first NFT for $69.3 million last week. A collage of images by digital artist Beeple sold for the highest price at the auction.

What exactly are NFTs?

A non-fungible token (NFTs) is a piece of digital content linked to the blockchain, the digital ledger underlying bitcoin and Ethereum technologies. These assets differ from NFTs through the fact they are fungible, meaning they can be substituted with another identical one of the same value, much like a dollar bill. Conversely, NFTs are unique and cannot be interchanged with one another, so no one NFT is the same.

Imagine pieces of rare Pokémon cards and rare coins, or even a limited-edition pair of Jordans — NFTs create scarcity among otherwise endlessly available personal property, and they even have a certificate of authenticity to prove it. Digital artwork is typically purchased and sold by NFTs as GIFs, tweets, virtual trading cards, photographs of physical objects, video game skins, and virtual real estate, among other forms.

The simplest way to explain how NFTs work is that they convert digital collectibles and other works of art into useful, verifiable properties that can be traded on a blockchain. The payoff for many artists, musicians, influencers, and the like has been huge as a result of the NFT process, with investors spending tens of thousands of dollars apiece for NFT versions of digital images. A Twitter post from Jack Dorsey is now worth over $2 million, while a video clip of LeBron James slamming a shot went for over $200,000, and a decade-old GIF of “Nyan Cats” fetched $600,000.

Despite its prevalence, NFTs aren’t just new. CryptoKitties, the first NFT, which allowed people to purchase and sell virtual cats stored on the Ethereum blockchain, was among the original NFTs.

 Then how do NFTs work?

It is widely believed that traditional artwork, only found in paintings, is highly valued because it is unique. Digital files, on the other hand, can be easily and endlessly reproduced. Digital certificates of ownership can be created in NFTs, which makes it feasible for an artwork to have endeavoured for sale.

As with cryptocurrency, a shared ledger known as the blockchain maintains a record of who owns what. Thousands of computers maintain the ledger, and as a result, the records cannot be falsified. NFTs may also be created with smart contracts giving the artist a portion of future sales.

 How it helps artists and art creators 

There are likely some who hope so — such as the person who paid over $390,000 for a 50-second video by Grimes, or the person who paid $6.6 million for a video by Beeple. The famous auction house Christie’s auctioned one of Beeple’s pieces.

That’s where things start getting awkward. You can copy a digital file or the artwork attached with it as many times as you’d like, including the artwork that came with it.

The advantage of NFTs is that the ownership of the work cannot be copied, just as with physical artwork, although the artist can hold copyright and reproduction rights. If it were to be compared to physical art collecting: anyone can buy a print of Monet, but only the original can be owned by one person.

Artists who want to sell their work may be interested in NFTs because they give them a method to sell work where there would otherwise not be much of a market. Furthermore, there is a feature on NFTs that will allow you to receive a percentage of the selling price every time the NFT changes hands, meaning that if your work becomes extremely popular, and then balloons in value, you will receive a piece of that benefit.

On the other hand, for buyers, one of the obvious advantages to buying art is that you are financially supporting artists that you like, and this is true with NFTs. A buyer of an NFT can also receive some basic usage rights, such as the ability to post the art online or use it as their avatar. Plus, there are the bragging rights of owning the art and a blockchain record to prove it.

A non-fungible trust can work like any speculative asset, where you invest in it and hope that one day the value of that trust rises so that you can get a profit. 

 What’s the point in it for Buyer?

The meaning of NFTs is technical in the sense that each token is unique on a blockchain. A trading card may have 50 or hundreds of consecutively numbered copies of the same work, but it could also be like a van Gogh, where there is only one copy.

For what amounts to a trading card, why would anyone pay hundreds of thousands of dollars?

The messiness of NFTs is partly due to that fact. Some people treat them as if they are fine art that should be collected, but then some people view them as if they were virtual Pokémon cards, accessible to everyone but also a playground for the super-rich. 

 Is NFT a good investment?

According to the CEO of VaynerMedia, Gary Vaynerchuk, digital assets such as the Network of Things are operating in a bubble, but this doesn’t mean they will not survive.

Vaynerchuk explained, “A lot of people say the internet is a fad, but it is a revolution of technology, though early projects were exaggerated on the excitement.”

As Winkelmann himself concedes, NFTs could be overinflated.

“If you want to be a bubble right now, you’re going to be because there are so many people trying to get a piece,” Winkelmann told CoinDesk.

A person buying an NFT gains the right to the unique token, but only on the blockchain. However, if someone buys an image or meme, they have no control over the distribution of that specific image or meme.

The most common way to acquire an NFT is through a Token which ties your name to the creator’s artworks on the blockchain.

But the same deflationary principles apply to these digital tokens as Bitcoin. An NFT is invulnerable, authenticable, and immutable, but it is impossible to determine if its value will remain constant over time.

 

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