NFTs Explained
For an average person who is acquainted with the basics of financial digitalization and is even marginally internet savvy, terms like metaverse, cryptocurrency, blockchain, NFTs, and more might have emerged more than once on their news or social media feeds. As the frequency and dominance of such jargon across all information channels increases, it becomes essential to understand or know what they mean and their roles in our lives and this world.
This article touches upon the basics of NFTs, the NFT market, and a few key trends that have surfaced in the past couple of years.
Let us first establish a basic understanding of the term- NFT.
Basic Understanding of NFTs
NFTs, short for non-fungible tokens, are digital assets; where non-fungible means that these tokens cannot be substituted by an identical item. Each NFT is a unique and irreplaceable token that can be bought, sold, and transferred from one owner to another but cannot be replaced by any other different or identical item.
In other words, these digital assets are created, sold, and owned digitally, where their value appreciates or depreciates based on a few factors mentioned in the article later.
So, unlike coins, like Bitcoin or Dogecoin, that can be replaced by other Bitcoins or Dogecoins, NFTs are unique digital assets, where each NFT possesses a different individuality and value.
Different Forms of NFTs
NFTs can exist in many forms like audio files, documents, art, clipart, drawings, and many more. As NFTs are predominantly artwork, no defined shape, form, or structure is common for all NFTs. They can exist in any form, but most NFTs are digital artworks, including pictures, videos, GIFs (Graphics Interchange Formats), or music. People have also attempted to recreate their brain mechanisms using AI (Artificial Intelligence).
How NFTs Work
NFTs are digital assets that majorly exist on blockchain technology; this separates them from other digital assets like pictures and videos, that are available for use and purchase on websites like Shutterstock.
NFTs can be purchased using cryptocurrency or other digital financial modes, and they exist on blockchain technologies. Most NFTs are a part of the Ethereum blockchain.
The Glaring Loophole
Concerning the purchase and ownership of NFTs, there is a loophole that has not only caught everyone’s attention but has also surfaced as a nuance for some NFT owners.
As NFTs are primarily digital artworks created and put up for auctions by people globally, most of these artworks have digital copies that are available online to view and download by other people.
Some NFTs have been sold for thousands of dollars, whereas a few others have surpassed the million-dollar mark. As digital assets, their values are determined by a few factors like the time and energy gone into creating them, the potential to recreate the art, the demand, and also the artist’s value.
When people pay such hefty prices to attain the ownership of NFTs, the need for keeping them for personal use or limiting their availability for public access becomes imperative. However, the internet has massive potential and reach, leaving limited options for such obligations.
If NFTs can be copied and are available for public viewership, then, why do people see them as assets?
The Real Value
The real value of NFTs does not lie in the complexity of the art or the skills involved, but the true value lies in the ownership of the original piece. Anybody could go ahead and download videos made into NFTs by Grime and Beeple however, the original video is only one in number and has only one owner. This barrier separates the NFT-owners from the general public that has access and ownership of the copies.
All activities about NFT transfers and transactions are stored and kept in the blockchain ledgers, which leave no space for ambiguity about the ownership rights. All NFT transactions and transfers are automatically updated and stored digitally, regardless of the number of times an NFT is transferred from one owner to another.
The Biggest NFTs
March 2021 saw Beeple owning the NFT center-stage by selling an NFT for a stupendous value of $69 million. Ever since this success, the ball of NFT sales has started rolling by attracting millions of people globally to create, auction, sell and purchase NFTs. NFT projects like the Bored Ape Yacht Club have seen terrific success where the price of joining the Ape community is more than $314,000.
Celebrities globally have shown immense interest in this new fad where their investments in the Ape NFTs have been for millions of dollars.
The Growth of NFTs
After the original peak in sales last year, the sale of NFT have since plummeted. While saying that, it is also essential to point out that the NFT industry has just slowed and not failed, as May 2022 itself saw the NFT sales volumes shoot beyond $3.7 million.
By far and large, the NFT market has slackened since its first peak in 2021, but it is still steadily gaining ground. The blockchain technologies like Ethereum have also experienced a sharp descent in the past few months, owing to which the entire crypto market has witnessed a negative impact.
But this slack in the market has not deterred crypto and NFT investors, who continue to grow their portfolios, making the best of the bullish crypto market.
