A Complete Beginner’s Guide to Understanding NFTs

Share on facebook
Share on twitter

What are NFTs?

NFT stands for non-fungible token. The term non-fungible means unique and cannot be interchanged with something else. For example, something fungible can be a $10 note being exchanged with ten $1 coins – the value does not change. Whereas something like Vincent van Gogh’s “The Starry Night” painting is non-fungible, it’s one-of-a-kind and cannot be replaced.

For something to be an NFT, it has to be in digital form. In a broad sense, it can be anything (photographs, drawings, music etc.). That being said, the current hype is centered on digital art and the metaverse.

How do NFTs work?

Original tangible paintings by famous artists are valuable because they’re one-of-a-kind. NFTs intend to serve a similar purpose in a different, non-tangible way. It’s been compared to an evolution of art collecting, in the form of digital art.

Most NFTs are part of the Ethereum (one of the most popular cryptocurrencies in the world) blockchain. As such, many collectors/investors use ether (ETH) – Ethereum’s native currency, to purchase NFTs. When you purchase an NFT, you get the digital certificate of exclusive ownership rights as well. Say for example you buy an NFT of a sunflower, no matter how many times it is saved, duplicated and distributed all over the internet, only you own the original sunflower. Every NFT has a unique identifying code that proves its authenticity as the original, thus giving it value.

What’s the allure of NFTs?

Arguably the most famous NFT “EVERYDAYS: The First 5000 Days”was created by a digital artist known as Beeple and sold at the well established British auction house, Christie’s, for a whopping $69 million.

For many artists and creators, NFTs allow them to make direct sales to the buyers, enabling them to retain a larger cut of the profits as compared to going through other third party means. In addition, NFTs have a feature that allows artists to program in royalties, so they can continue to make money every time their work is sold off to a different owner, even after they’ve first sold it.

Essentially, one of the greatest allures of NFTs is its seemingly limitless monetizing potential.

Should I invest in NFTs?

The answer is it depends. NFTs are still relatively new and it’s hard to say what they’ll become in the years to come. Also as we’ve established, NFTs are not created equal. Each individual NFT’s value is solely dependent on what a buyer is willing to purchase it at. So yes, there is the possibility of buying an NFT at $100 and flipping it for a hundred times its price but it is also possible that nobody is keen on buying it – not even for $1. So if you do decide to invest in NFTs, remember to do your research, be cautious in your approach and calculate the type of risk you’re taking.

Top Image credit: Bored Ape Yacht Club

Share on facebook
Share on twitter


%d bloggers like this: