What Are NFTs? An Easy Explanation For Anyone
22 November 2021
Are people really paying hundreds of thousands of dollars for 5-second videos of LeBron James’s latest dunk?
Grimes, a Canadian musician and record producer, recently sold approximately $6 million worth of digital artworks at auction, including a one-of-a-kind video featuring her music.
A digitally remastered edition of the iconic Nyan Cat GIF also sold for $600,000.
People are even shelling out hundreds of thousands of dollars for clipart of virtual rocks.
And that’s just scratching the surface of NFTs, the latest trend in the cryptocurrency world.
If you’re wondering what is driving all the interest in NFTs, you’re not alone – so I wanted to write a little primer explaining what NFTs are and why they’re gaining popularity right now.
What Is an NFT?
NFT stands for non-fungible token. Each NFT is a unique cryptoasset that can’t be replaced with an identical item.
An NFT is minted as a representation of a digital or non-digital asset. NFTs could represent:
- Collectibles like trading cards
- Legal documents
- The deed to a car
On the other hand, bitcoin is fungible. You can trade one bitcoin for another, and you’ll have exactly the same thing. Copies of .mp3 or .jpg files are also fungible.
How Do NFTs Work?
Each NFT can only have one owner at a time, and ownership is managed using a unique ID and other metadata that can’t be replicated. Smart contracts assign ownership and manage the transferability of the NFTs. Currently, the largest NFT marketplaces are OpenSea.io, Rarible, and Foundation.
Most NFTs are part of the Ethereum blockchain. Ethereum is a cryptocurrency, like bitcoin or dogecoin, but Ethereum also supports NFTs that store additional information. Other blockchains can implement their own versions of NFTs, and some of them already have.
Why Would You Purchase an NFT?
So why the hype around NFTs right now? Why would you want to purchase an NFT?
One of the benefits of buying art is that it lets you support artists you like – and the same is true for non-fungible tokens. Buying an NFT also gets you some usage rights, like being able to post an image online or on social media.
NFTs also work just like other speculative assets. You could buy an NFT and hope the value goes up so you could sell it for a higher price.
The biggest benefit of owning an NFT, however, is the bragging rights that come with it. You have ownership of a completely unique virtual asset, authenticated by a digital token that lives on the blockchain.
With more artists, creators, and entrepreneurs jumping on this hot new trend, you’re sure to see even more NFTs hitting the market every month. Whether you decide to invest is up to you!
For more information on emerging tech trends like NFTs join my newsletter and subscribe to my YouTube channel, where you can watch videos like this one about how Glenfiddich sold a super-rare whisky as an NFT:
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