NFT

What is NFT (Non-Fungible Token)? Free Guide 2021

Non-Fungible Tokens (NFT) are the new cool investment options. From time to time, asset classes and investment options keep increasing. The moment something new comes into this investment world, it usually takes a boom. For example – during the last decade of the 1900s, stocks and bonds took a boom. The period of 2010-2018 saw the boom of cryptocurrency and other digital assets.

Now, in 2021, the NFTs are on a roll. Solving the long-sought problem of not having a purely digital asset investing option, NFTs are here to stay for at least a decade. Amongst all this chaos and hoorays, people wonder if the hype of NFT is legit. What is creates a bubble, and one random day bursts shattering all hopes? Well, let us find out.

What is an NFT?

NFT

An NFT (Non-Fungible Token) is a crypto-based digital asset that investors are buying in exchange for cryptocurrency. The exchange is done majorly in the crypto, Ethereum. This digital asset includes some of the real-world objects and are exchanged by handing out a token. The token represents the originality and ownership of the asset.

Let me explain it to you with an example – The digital asset I am talking about can represent things like art, some form of music, game items, etc. Say I created a digital art and sold it as an NFT. The person who buys it gets the token as proof of ownership of that art. I, in exchange for the art, get compensated in cryptocurrency.

Like crypto-currency, NFTs are also secured with encoding. The form of encoding used in NFTs and Cryptos is almost the same. Although the NFT came around 2014, it took seven years for people to notice it. Since the November of 2017, a whopping $174 million worth of business has been done in NFTs.

What’s been sold and bought in NFT?

  • Videos
  • Images
  • GIFs
  • Art
  • Music
  • Tweets/Posts
  • Game items, etc.

Fungible v/s Non-Fungible

Many people try to compare NFTs with Cryptocurrencies and other asset classes. One of the clearest differences between other asset classes and NFTs is that an NFT is non-fungible while others are fungible.

Fungible is an item that can be exchanged for another similar item. For example – A bitcoin can be exchanged with another bitcoin, a $5 note can be exchanged with another $5 note.

 Non-fungible is an item that is original and can’t be exchanged with another similar copy. For example – you may see the same photo all over social media, but the original is with the one who clicked the photo. He would be the owner unless he sold it to someone else. No matter how many copies one creates or circulates, the original will be the only original.

This argument can also be used against the people who think NFTs are useless as one can have many copies of the same digital product. However, I personally find it a bit awkward. The hobbies of rich people really is one of a kind. 

A small video by Beeple was sold for a whopping $6.6 million, which I can download anytime I want. Well, I know I’d be downloading a copy, and the original is with the person who spent six million dollars. But won’t I see the same thing? But there is a real flex in owning the original one. At least the one who bought it thinks so. I don’t. Rude, but sorry.

Is NFT the same as Smart Contract?

Smart Contract

But first, what is a Smart Contract? 

A smart contract can be termed as the smartest feature of blockchain technology. As we know, a contract is an agreement. Similarly, a smart contract is a digital agreement, the terms of which are in encoded form. Blockchain technology, sometimes vastly decentralized, such as cryptocurrency. This sense of decentralization is also applicable in the case of Smart Contracts.

For example – I buy an NFT from you. This transaction is carried out by me paying you the price and obtaining the asset. But we know that NFTs can be copied and circulated. So how do I ensure that mine is original? By smart contracts! When I buy the NFT, I get a digital certificate that I have the original piece, and this is what Smart Contract does.

How does an NFT work?

Most of the NFTs are bought and sold with Ethereum cryptocurrency. This is because the majority of NFTs are like a part of a Blockchain system like Ethereum. One can say that the Ethereum blockchain itself supports NFTs.

This has majorly increased the market capitalization and popularity of ETH (Ethereum) coins. Rich celebrities, investors, normal people, everyone can be involved in NFTs, and anything can be bought and sold. You can sell and buy Instagram posts, some tweets, digital art, collectibles, anything. Literally anything!

You won’t believe that the Founder of Twitter, Jack Dorsey, sold a tweet for $3 million! However, the NFTs are more inclined towards digital arts. Say it is a way to boost art appreciation or maybe build a collection of digital art.

We have seen rich people buy paintings and art to hang on their walls. The same is with Art NFTs but only digital. 

One more example – Logan Paul sold a video clip for $20K. His cards are being sold for thousands of dollars. What I feel is, instead of the value of the asset, the prices are set because of the big name. If I try to sell the same cards, I won’t be making more than a hundred while Logan makes 20-30 thousand in a single go. It’s all name!

No hate but a bit awkward and ridiculous. Anyways, that’s the digital era for you.

Should you buy NFTs?

Everything is to be bought, but does that mean we should buy everything? No. What you buy and what you don’t buy is solely upon your interest and decision. Moreover, in the case of NFTs, neither can you decide its future, nor is it in my power to do so. All we can do is assume.

Since NFTs are one of the newest asset classes, I recommend you to just try it for now. Try using small amounts that you can bear to lose. However, the final decision is yours to take. Remember, I’m not a financial advisor, neither am I an expert.

Think and act upon your own will. Now –

How can you buy NFTs?

From telling people how to buy stocks and funds, I never knew such time would come when blogs will be written on how to buy certain new asset classes. Now, about the NFT –

First of all, you need a crypto wallet. Preferably a wallet that allows you to store both cryptocurrency and non-fungible tokens (NFT). You can start with ETH coins as most of the NFT sellers accept ETH. However, you can diversify based on different sellers and buyers too.

Remember that you’ll have a nominal fee for your transactions and may also require to pay an upfront fee for creating an account.

Some NFT Marketplaces to Dive-in

I guess, now, there is no need to tell you that you need Crypto Currency to get into NFTs. If you wish to hop in the NFT market, fund your crypto wallet and sneak into the marketplaces. Here I am going to mention a few popular NFT marketplaces –

OpenSea.io 

It is a peer-to-peer platform where you can buy and sell NFTs. All you need as a pre-requisite is an account and a funded wallet. However, there is no fee for those who only wish to browse. People like me!

Foundation

This one has the strictest community. If you wish to register here as a creator and sell your art, you need the approval of fellow artists. You will need an upvote or an invite from other creators as a proof that you are a legit artist. You will also have to pay some fee of membership and exclusivity. 

Well, do not count these as a downside. Because all this gives you the tag of being an authentic artist, and this automatically increases the chance of selling at higher prices.

Rarible

Rarible is similar to the Opensea platform. One big difference we can see here is that along with buying & selling NFTs, and one can create them too! From buyers & sellers to creators & artists, this platform serves all. Moreover, one has to obey the community rules and bear some fees too!

Although all of the creators here are legit, and the marketplaces are well known for NFT exchange, I advise you to do your own research. Because, you know, there are all kinds of people in this world. You get it, right? Carry on with your exchanges but with a matter of precautions and cautions.

Conclusion

conclusion

What about conclusion now? I don’t know how to conclude this topic! NFT is what it is and it is on a boom right now. It is hard to say whether it is a bubble or a legit trend. However, if you are highly interested to be a part of it, I recommend starting with a significantly less amount (amount that you can afford to lose).

Till then, for more Personal Finance lessons, you can check out our category here. Contact us via twitter and shoot your questions –
@sushrutkm
@roshan_rks28

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