Non-Fungible Tokens: everything you need to know about NFT

Written by Evgenia Sidorova
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Non-Fungible Tokens

Do you know that NFT has become Collins Dictionary’s word of the year for 2021? Why is NFT so popular nowadays?

Collins Dictionary Names "NFT" as the Word of the Year

Collins Dictionary Names “NFT” as the Word of the Year

The concept of NFT seems to be a weird thing not only for those who are not close to the crypto world. Even some investors (especially, newcomers) do not always understand properly what a non-functional token is as tokens are often associated with fiat money and are taken as its analogue. Some more sophisticated users speak about financial tools other than money like stocks or bonds. But NFTs are something so completely different that can be identified rather as valuable assets. So let’s try to make it clear what NFT is and how to invest in NFT.

What is NFT?

Fungibility in its financial meaning is the ability to be substituted for any other piece of this class. But non-fungible assets cannot be replaced by any other piece as they are designed to be unique. NFTs represent tokenized real-world objects. In fact, nearly any object can be tokenized by means of digital technologies, and this token will be a proof of your ownership if you’ve bought it.

Most often, these are pieces of art, videos, music, in-game items. Since entering the blockchain space in 2014, they can be bought and sold online, like Mike Winklemann’s “EVERYDAYS: The First 5000 Days,” which was sold for $69.3 million.

Since November 2017, the fans have spent a spectacular sum of $174 million in this market. Potentially, the low supply shall raise the demand, and this explains readiness to invest such large amounts. It might seem a little strange but some NFTs are available online for free. For example, it is not so difficult to download some videos that have been already tokenized or make a screenshot of Winklemann’s masterpiece. What makes people spend millions on objects that can be easily found and watched for nothing?

The most obvious answer is that these individuals value the very fact of their ownership, the right to be called an owner more than an opportunity to use the item. And NFT provides them with this right.

What is the difference between NFT and cryptocurrency?

The key difference between these two blockchain phenomena lays not in methods of encryption. This difference is conceptual and is based on the fungibility mentioned above.

When it comes to blockchain technologies, most cryptocurrencies are fungible and mainly they behave similar to fiat money and are used as a means of payment. They can be traded and exchanged. There is no difference between one BTC or another as this BTC that belongs to me is absolutely equal to any other BTC that is owned by any other person. It doesn’t matter if you have this very ETH or that one, in any case, you have one that can be spent online.

But you cannot find NFTs that are the same. And if you want to be an owner of an NBA Top Shot clip, you won’t agree to replace it with a painting just because both pieces are NFTs. You pay for this piece and will refuse to pay for another, and its price depends only on demand, but not supply as it is one-of-a-kind.

The use cases of NFTs

The currently existing NFTs mainly perform on the Ethereum blockchain but other blockchains like Binance, Polkadot, Tezos, etc. can also deal with them.

Today, NFT can represent various digital objects, and potentially, such types of assets can cover various spheres like

  1. art
  2. fashion
  3. videos
  4. music
  5. gaming
  6. collectibles
  7. sports
  8. certifications, etc.

Some creators manage to tokenize and sell completely unexpected things. For example, Twitter co-founder Jack Dorsey obtained over $2.9 million for the NFT of his first tweet. Such immensely huge sums paid for nonphysical and ephemeral objects with ambiguous and doubtful value may be indicative of a new stage of digital community development. Digital community members may also act like collectors though they collect tokenized online objects instead of real antiques, paintings, or books getting a digital file instead.

witter CEO Jack Dorsey sells NFT of first tweet for $2.9M

Another principal reason for such NFT’s popularity is that the number of cryptocurrency owners is constantly increasing. And their crypto assets go up in value. At the same time, there are not so many opportunities to spend all these coins as commonly food, clothes, or real estate cannot be bought for cryptos. As Kenny Schachter, a self-proclaimed nonfungible tokens evangelist, has so appropriately pointed out that the demand is crazy and now crypto owners have something to buy at least.

What are NFTs used for?

Blockchain offers new approaches and chances for artists to monetize their creative activities attracting more potential buyers and art enthusiasts. Often, auction houses and galleries put forward abusive conditions, and lots of artists are dissatisfied cooperating with them. But now they can perform without an interlayer and offer their masterpieces directly. Selling them as NFTs will provide them with more profit. Even more, it is possible to program in royalties so artists will get a percentage of sales if this piece of art is sold to somebody else. Of course, this option seems very attractive to authors.

Not only individuals but also brands have quickly recognized the advantage of making money with NFTs. For example, Charmin offered their own, toilet paper-themed NFTs called “NFTP” (non-fungible toilet paper.) They promise to donate all proceeds to Direct Relief, a humanitarian organization that provides emergency medical assistance.

How can NFT be bought?

To make such a purchase, you obviously need some crypto. There are several ways to obtain it, the most common are mining, airdrops, or crypto exchanges. Frankly speaking, the quickest, simplest, and most resultative (though the most expensive) way is to buy crypto on cryptocurrency exchanges.

Not all exchanges accept fiats and payments via credit cards. So you need to find the one that allows such payments. You’d better turn your attention to reliable platforms with a good reputation.

Create a wallet before purchasing coins as you need to store your crypto. Then choose what crypto to buy depending on what currencies are used by your NFT provider. Don’t forget about transaction fees, you’ll get a bit fewer coins than you may expect.

Well, now you are ready to make a major step into the NFT world. Let’s see the places where you can become a happy owner of a non-fungible token.

Where can you buy NFTs?

There can be found a number of platforms that try to cope with the increasing demand for digitalization. Some of them are specialized and deal with a definite category like art or games while others perform as marketplaces.

The list of the most popular marketplaces includes OpenSea, Rarible, SuperRare, Foundation, and Nifty Gateway. Some of them are open for any creative person who wants to sell their pieces of art (e.g., OpenSea and Rarible) while others like Foundation require invitations from fellow creators.

Though the idea of NFT is relatively new, this market also suffers from impersonators. That’s why be attentive when searching for a piece you want to buy.

The Foundation respects the intellectual property of others, and we encourage our users to do the same. If you believe that your work has been copied, or your intellectual rights have been otherwise violated, you should contact the Foundation for guidance accordingly. The Foundation will analyze and investigate the alleged intellectual property infringement episode in accordance with the Digital Millennium Copyright Act (DMCA) and other relevant laws and regulations.

From the rules of the Foundation online platform

Should you invest in NFT?

This is a very interesting question. Of course, you have ample opportunity for buying such tokens but is the thing worth the effort? Is it a real breakthrough or just a temporary hype?

There is no definite answer to these questions. Arry Yu, the CEO and founder of GiftStarter, thinks that NFTs are rather risky as they are a new phenomenon and their future is indefinite yet. She offers to invest small amounts in them to see what will happen to them then.

So it’s up to you if you want to have a try, especially if this very item matters something to you. Sometimes people win millions in a lottery, and you also have a chance to find yourself amidst those who were smart enough to anticipate a new trend.

But don’t forget that NFT doesn’t have an absolute value. It is based only on demand that can change over time.

And last but not least, many of the world’s most influential countries have already adapted cryptocurrency taxation models. NFTs are considered to be property and are also subject to taxes. By buying and selling them, you create a taxable event. That’s why you’d better take some time to study your local laws.

NFT is a “terra incognita” even for the not well-established crypto world. Is it risky? Yes. But everybody knows that fast money can be received in such spheres if you are able to demonstrate good reaction and instincts to know when it’s time to stop.

The bottom line

No doubt, blockchain technologies have changed our world forever and they continue to change it. And every day they offer something new to their enthusiasts encouraging them to try, keeping them motivated and loyal.

NFT is one of the most popular trends in the current crypto space. It seems to be promising, though the entire instability of the blockchain reality can raise some doubts about its future. But we believe that NFT will become an integral part of our everyday life, and each will know then how to invest in NFT.

By the way, you can invest in NFT Index with ECOS!

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