Recently, there has been a new term being thrown around online and in social media, NFT. If you are here, it means you aren’t, able to grasp this new phenomenon. Don’t worry, like every other piece of news on cryptocurrency, it took me awhile to get it as well. To help you out, here is a short article to explain to you want exactly is a NFT the easiest way possible.
What is an NFT?
NFT stands for, non-fungible token and can be anything digital such as drawings, tweets and many other types of digital files.
Something that is fungible means that it an asset that is readily interchangeable. For instance, one can trade a $2 note for two $1 coins.
However, since NFT’s are non-fungible, this is impossible. Every NFT has its own set of unique properties. This can be compared to Van Gogh’s, Starry Night painting. For example, one can own post cards, posters and photos of the Starry Night yet there will only ever be one original painting. If you own an NFT, you are an owner of a digital only, one-of-a-kind asset.
How do NFTs work
NFTs can be traded and bought exactly how traditional pieces of art would be traded since an NFTs are one of a kind. Yes, we know that anything digital can be copied and replicated. Although this might be true, NFTs exist on digital ledger called blockchains where information is stored in a way that makes it impossible to duplicate or forge.
Currently most NFTs exist as part of the Ethereum blockchain, which is responsible for the Ethereum or ETH cryptocurrency. Each NFT store a little more information than Ethereum coins which essentially is responsible for making them non-fungible.
Are people paying top dollar for NFTs?
Yes, as crazy as it sounds but, I’m sure your already knew that. However, the amount of money people forks out just to own an NFT is unreal. A Gif of the 2001 meme, Nyan cat, sold for 300 Ethereum coins (valued at over 1 million SGD at the time of writing) on February 20th.
If that is not mild blowing enough, an NFT of the first ever tweet was sold on March 23rd for 1630 Ethereum coins which is close to 6 million Singapore dollars!
Is buying an NFT worth it?
There has always been a great risk when investing in alternative markets be it traditional paintings, shoes or NFTs. The ration or risk to reward is just not comparable to placing money in more mainstream places such as equities. Not to mention, cryptocurrencies tend to have dramatic price fluctuations. Evidently, this happened with bitcoin, which can go for around $50,000 today. A year ago, it was worth less than 1/5 of that.
Since NFTs exist on the blockchain, not only the popularity of the work will affect its value but also the blockchain it’s based on. The prices of NFT’s are soaring now but it might just be the ‘hype’ that is propelling it and came all come crashing down leaving many people with major losses.
That being said, would you consider buying an NFT after understanding what it all means? If you are interested in buying an NFT I would recommend reading up more on the blockchain and learning about the various other fungible cryptocurrencies first. You can do that here.