These are just a few examples of digital collectibles being sold as non-fungible tokens, many of which are at bargain prices. NFTs have become a hot commodity among crypto investors and celebrities who brag about their purchases on night television as well as social media – making some critics think about financial interests.
NFTs work just like Bitcoin and other cryptocurrencies, but with one key difference: each NFT is unique and indivisible. This allows them to serve as proof of ownership of items, which themselves can be easily copied and posted online.
NFT allows people to claim, “This particular copy is the true original, and that’s who owns it.” While NFT sales are not immune to fraud and other crimes, the tokens themselves are extremely reliable as records of ownership.
Still unclear details? Here are some of the basics.
How does it all work?
Non-fungible tokens are bits of data that represent items, whether digital or physical. In many cases, tokens simply point to a specific thing. stored somewhere else – on a computer server, say, or in the mayor’s office.
What makes them special is how they are protected from copying and counterfeiting. NFTs are secured with strong encryption and then written to a digital ledger known as a blockchain – in most cases on Ethereum.
The point of blockchain technology is to keep records without relying on a central authority such as a bank or government. Instead, information is distributed among thousands of computers that perform mathematical operations that support and add to the blockchain.
Adding an NFT to the blockchain creates an immutable record of who owns the item associated with that token. The blockchain will also record future sales to keep track of who owns the item, with an encryption key system that keeps all participants anonymous.
What is the purpose of the NFT?
Offer proof of authenticity in a world where illegal copies look exactly like the real thing.
Let’s say I want to sell a digital photo of an amazing sunset that I took. To add value, I could promise the customer that I would not make any more copies of the photo. But that won’t stop other people from making copies if the buyer posts the photo on Facebook or Instagram.
However, if I create an NFT of the photo, the buyer can now be sure that his or her copy is the only legal copy – provided, of course, that I don’t turn around and create another NFT of the same photo. And then the new owner will be able to assure future buyers that the painting is genuine.
This is important if buyers value the original version of the product more than the perfect digital copy. Ultimately, the market will have to decide. But NFTs also attach to unique items in the physical world, such as paintings, ownership as well as insanely expensive sneakerswhere proof of authenticity is critical.
Another feature of NFTs is the ability to require subsequent buyers to pay royalties to the original seller. This feature is built into some types of NFTs, such as basketball games. But standard way of collecting royalties are only now emerging and need to be widely implemented to be effective.
However, it is the flexibility of blockchain contracts that makes many people with digital assets look at NFTs as a way to create new streams of income. music industry in particular, it is exploring the opportunities offered by the NFT, such as new music options and merchandise sales. And for artists, tokens offer another way communicate with fans directlycontrolling their intellectual property.
But really, why do people buy them?
Judging by the remark of one member of the group that paid $69 million for a JPEG collage by graphic illustrator Beeple, it’s all about cheddar. “Someday it will be a billion dollars,” NFT collector and cryptocurrency investor known as Metacowan. told Artnet.com.
Metakovan said the work is valuable not because it is an NFT, but because it took 5,000 days to create one illustration per day. “Skills are transferred and technologies become obsolete. The only thing that cannot be hacked is time, and this thing represents 13 years of time,” the collector said.
However, it is hard to ignore how much the value of some NFTs has risen from sale to sale. For example, edge noted the case of an investor who bought another Beeple NFT for $66,666 and then sold it four months later for 100 times the price.
In this sense, the appeal of NFTs is similar to that of cryptocurrencies. Items are scarce, and as long as demand remains high, you should be able to find someone who will pay more for your NFT than you paid to buy it. And if you pay for NFTs in crypto, as is often the case, you can use the profits from one to cover the rising cost of the other.