Understanding NFTs
Shaking up the Art World
So I've been asked by a bunch of colleagues and friends, so how do NFTs actually work? And what are they exactly? Is it really the future of digital online trading? No one really knows, but they are gaining momentum… and that is something to keep an eye on.
So what are NFTs?
NFTs or non-fungible tokens where they run on the blockchain, just like cryptocurrencies, but they can not be traded or exchanged (fungible) at equivalency.
They represent a unique digital asset, such as art, in-game items, videos, and more. They are bought and sold online, frequently with cryptocurrencies. Collectors where initially sorting to NFTs, as their value initially soared (following the Gartner Hype technology for emerging Technologies).
NFTs allow you to own the original item, hence why many people started creating their own digital creations of that already exists in some form elsewhere, such as a video clip of an NBA game.
Difference with a cryptocurrency, as briefly mentioned above, is that cryptocurrencies are fungible, so they can be exchanged or traded for one another. Whereas, NFTs hold a specific digital code or a unique cryptographic token, making them impossible to be traded.
Tokenizing digital items, make them more secure to buy or sell.
In conclusion, NFTs are a great way to represent digitally a physical asset. And as they run on the blockchain, they can remove intermediaries and allow direct trade with artists and customers.
Going back to the Gartner Hype Cycle, emerging technology fall into three main categories:
1- Evolving/expanding immersive experiences
2- Accelerated artificial intelligence automation
3- Optimized tecnologist delivery
Emerging technologies are disruptive by nature, without a well-known or proven competitive advantage. To capture the opportunities, it’s critical to understand the potential use cases and the technologies’ paths to mainstream adoption — which can be as little as two years or as long as 10 years or more.
NFTs are falling on 1- as they provide new ways to reach customers, new revenue stream opportunities.
So how do NFTs work?
- NFTs representing digital or physical artwork on a blockchain remove the need for agents and allow artists to connect directly with their audiences.
- NFTs exist on a blockchain, which is a distributed public ledger that records transactions.
- They get exclusive ownership rights (NFTs can only have one owner at a time) = easily verifiable as they run on the blockchain
- Artists no longer have to rely on galleries or auction houses to sell their art
- You can buy NFTs normally with Ether, as NFTs typically run on the Ethereum blockchain. You can buy Tether, on any cryptocurrency exchange platform such as Coinbase, Kraken, eToro, and even Revolut (only some currencies available). They can be found on online NFT marketplaces, such as Open Sea, Rarible, Binance or Niftygateway, amongst other.
There can be some confusion in that NFTs are non-fungible (meaning unique), but what about trading cards?
Who would pay hundreds of thousands of dollars for what basically amounts to a trading card?
Well, that’s part of what makes NFTs so messy. Some people treat them like they’re the future of fine art collecting (read: as a playground for the mega-rich), and some people treat them like Pokémon cards (where they’re accessible to normal people but also a playground for the mega-rich).
Speaking of Pokémon cards, Logan Paul sold some NFTs relating to a million-dollar box of the — The Verge
Could NFTs also democratize investing? And real estate?
The most exciting possibility for NFTs lies in the creation of new markets and forms of investment. NFTs can work like any other speculative asset, where you buy it and hope that the value of it goes up one day, so you can sell it for a profit. So, it can grant more access to people.
Real estate trading, a complex and bureaucratic affair, can be simplified by incorporating relevant metadata into each unique NFT.
Additionally, the fact that NFTs are running on the blockchain, they are difficult to hack, and more easily tradable and accessible.
Main question: Should you buy NFTs?
“NFTs are risky because their future is uncertain, and we don’t yet have a lot of history to judge their performance. Since NFTs are so new, it may be worth investing small amounts to try it out for now.” Arry Yu, chair of the Washington Technology Industry Association Cascadia Blockchain Council and managing director of Yellow Umbrella Ventures.
In my opinion, approach it as any other investment decision: Do your research, don't spend more than what you can't afford to lose, and be aware of the risks.
Risk Disclaimer: Investing involves risk of loss.
