What are NFTs and why should you be concerned?

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NFT is an acronym for non-fungible token, and it’s a term that’s become more popular in the last year.

If you’ve been keeping up with the latest tech headlines, you would have definitely heard of terms like Bitcoin, blockchain, and, more recently, non-fungible tokens (NFTs).

To truly comprehend what NFTs are, it is essential to begin by deconstructing the name itself and explaining what it stands for, how it works, and why you should be interested. Let us begin by disassembling the concept of NFTs.

 

What is an NFT?

In economics, a fungible asset is something having easily interchangeable units, such as money. With money, you can exchange a ₦1,000 note for five ₦200 notes and the value would still be the same.

However, if something is non-fungible, this is impossible and it is because it has unique features that prevent it from being interchanged with anything else. Non-fungible refers to something that is one-of-a-kind and cannot be replaced one-for-one.

It could be a house or a one-of-a-kind painting, such as the Mona Lisa. You can photograph the painting or purchase a printed version, but there will only ever be one original Mona Lisa.

 

How does an NFT work?

It’s worth noting that non-fungible tokens aren’t a new concept. The journey began about a decade ago with proto-NFT, which was developed on the Bitcoin blockchain with the basic premise of using the blockchain to store information about assets like collectibles, corporate shares, or coupons. Today, most NFTs are built on Ethereum, the same blockchain that powers the Ether cryptocurrency.

An NFT is minted or “forged” from digital artifacts that represent both tangible and intangible commodities, such as art, music, GIFs, videos, sports highlights, collectibles, virtual avatars, and so on. Tweets are not left behind too. Jack Dorsey, the co-founder of Twitter, sold his first-ever tweet as an NFT for over $2.9 million.

NFTs are basically digital collector’s items, similar to physical collector’s items. Instead of acquiring an actual oil painting to hang on the wall, the buyer receives a digital file.

 

What is the use case for NFTs?

The use case for NFTs is straightforward, and I’ll try to explain it as simply as possible.

Assume you’re the creator of something fairly well-known, such as a piece of digital artwork that has made its way into popular culture and is easily recognized. Millions of people have seen your artwork, and it has almost certainly been copied and replicated whether you wanted it to be or not. In comparison to physical artworks, it’s perhaps even more difficult to limit a piece of digital art to a single copy, and this is the selling point of NFTS. Thanks to NFTs, You don’t have to worry.

With an NFT, you can insert specific information about your artwork onto the blockchain and sell it as a non-fungible token. The information in there includes coded metadata about your artwork — its name, a description, a signature, and a link to a server hosting the original artwork file.

However, keep in mind that the information you enter into the blockchain will not include the real artwork. Notwithstanding, it nonetheless still serves as proof of ownership, a document that certifies that file is yours. The unique data of NFTs makes it simple to verify ownership and transfer tokens between owners.

NFTs also allow you to specify a percentage that will be paid to you as royalties on any subsequent sales. This is conceivable because, once you sell an NFT, the person who owns it can sell it to someone else, resulting in a continual inflow from each future selling.

 

Do NFTs appreciate in value when bought?

The way in which an NFT collection accumulates value is determined by the NFT in question. In many respects, these NFT collections become valuable in the same way that traditional art does: through the artist’s reputation and the NFT’s historical relevance. While this is true, many NFT collections also provide value in ways that traditional art cannot.

For starters, having a high-end NFT provides owners with exclusive access to various investment opportunities. Owners of the Bored Ape Yacht Club (BAYC) have been airdropped NFTs worth thousands of dollars simply for having a piece of the BAYC collection. Furthermore, Adidas provided Ape holders with early access to their NFT line, allowing them to make hundreds of dollars from the secondary market release.

Social capital is another benefit that adds value to non-fungible coins. Holders of high-value NFTs are sometimes regarded as affluent, crypto-savvy investors who are early adopters.

Furthermore, NFT collections can be viewed as an exclusive club, akin to conventional members-only clubs in the real world. The major distinction here is that instead of paying an annual membership fee, you merely need to hold an NFT from the collection –– which may turn out to be profitable. The Bored Ape Yacht Club is home to several celebrities and high-net-worth individuals, including Mark Cuban, Shaquille O’Neal, Snoop Dogg, Adam Draper, and Jimmy Fallon.

 

How to buy NFTS

If you want to build your own NFT collection, you’ll need to acquire some key items.

For starters, you’ll need to create a digital wallet that allows you to store NFTs and cryptocurrencies. Depending on the currencies your NFT provider allows, you may need to purchase some cryptocurrency, such as Ether. On Coinnest Africa, you can easily buy cryptocurrency, and it will be transferred to your preferred wallet within minutes.

 

Where to buy NFTs

Once you’ve set up and funded your wallet, there’s no shortage of NFT sites to choose from. Currently, the largest NFT marketplaces are OpenSea, Rarible, Nifty Gateway, VIV3 and Foundation.

 

Can just anyone make an NFT?

Technically, anyone can create a work of art, convert it to an NFT on the blockchain (a process known as ‘minting’) and sell it on their preferred marketplace.

Because of what they call “lazy minting” mechanisms, both OpenSea and Rarible allows you to mint NFTs on Ethereum without paying anything. Lazy minting allows you to create an NFT and sell it without it actually being written on the blockchain, hence reducing fees.

 

Potential Risk of Investing in NFTs

As with any speculative investment, the investor bears some risk. The market value of an NFT may rise or fall, and the existing owner may or may not find interested purchasers when the time comes to sell their investment.

 

Conclusion

Whether you’re a digital artist, a content creator, or someone looking to invest in the newest, NFTs should be of interest to you. We’ve already seen insanely expensive NFTs sell, and the number of NFT collectors is growing.

 

Written by: Shola Ayeotan

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