Certain technologies emerge from time to time that make a lot of noise. Some of them succeed and live up to their expectations, but others fail and disappear. Even the Internet faced many critics in the second half of the 1990s, but now it's a vital part of people's and businesses' daily lives.
Blockchain is, without a doubt, an exciting technology. It can change business models and could be applied to a wide range of applications and services. Despite its huge potential, though, it's too soon to give a final verdict about how successful it will be and if it's going to play a decisive role in the future of technology.
In this article, we will discuss NFTs, or non-fungible tokens, a blockchain-based technology that's gaining a lot of popularity lately, and we'll try to understand the ins and outs.
What Exactly Are NFTs?
NFTs are a non-exchangeable type of cryptocurrency where each token has a unique value, as opposed to exchangeable assets like Bitcoin, where each token has the exact same worth. NFTs can take the form of GIFs, tweets, virtual transaction cards, physical objects, video games, real estate, etc. As opposed to an actual, tangible collectible, investing in digital assets such as an NFT offers the benefit that the information it contains allows you to verify the creator and reduces the possibility of fraud. NFTs are the only data units that contain information about the ownership of a property stored in a secure encrypted global chain of entries(blockchain).
NFTs are the collectibles of the future. They can represent almost anything, and their rarity and popularity are two of the main reasons they are sought after by individual traders, players, millionaires, and celebrities. None of these tokens are alike, and each one has only the value you assign to it.
How Do NFTs Work?
NFT can be created and published using a variety of frameworks. ERC-721 is the most important of these. This is an Ethereum blockchain template for creating and selling non-tradable assets.
The ERC-1155 is a more modern and updated standard. It enables the inclusion of both flexible and non-exchangeable currencies in a single contract, bringing up a whole new world of possibilities. The standardization of the NFTs version allows for greater interoperability, which benefits users in the long run. It essentially means that unique assets can be easily shared across multiple applications.
It's worth remembering that NFTs can't be copied or transferred without the owner's permission. Not even from the NFT's own publisher. NFTs can be traded on open exchanges like OpenSea. These marketplaces bring buyers and sellers together, and each badge has its own value. Naturally, NFT prices fluctuate in reaction to market supply and demand.
But how can these items be valuable? The price of any object is determined by the number of individuals who value it. In essence, value is a subjective concept. Whether it's money, precious metals, or a vehicle, these items have worth because people believe they do. Every valuable item becomes valuable in this way, so why not digital collectibles?
What Was the Origin of NFTs?
NFT began making noise in early 2020, and by 2021, NFT sales had reached over $25 billion as the technology skyrocketed in popularity. In February 2021, an animated GIF of Nyan Cat, a 2011 meme depicting a flying cat, sold for more than $500,000. A few weeks later, musician Grimes sold some of her digital work for over $6 million. Art is not the only thing that can be sold. Jack Dorsey, the founder of Twitter, has started an NFT of the first tweet ever, with bids topping $2.5 million.
How Can You Buy NFTs?
First of all, to be able to buy an NFT, you will need some cryptocurrency in a digital wallet such as Metamask or Coinbase Wallet. When an NFT is created, it is usually inserted into an NFT market.
OpenSea is by far the most popular NFT market. Foundation and Rarely are also marketplaces for Ethereum NFTs. Solanart and TopExpo are marketplaces for the Solana and Flow blockchains, respectively, and Coinbase recently launched its marketplace.
To buy an NFT, you need to connect your wallet with the market. In OpenSea, you can link your wallet by clicking on "My Profile" and selecting your wallet. After connecting your wallet, you have two options to get an NFT. The first is to purchase NFT immediately at the listed price with the Buy Now option.
On the other hand, Bid indicates that you are bidding on an NFT, and it depends on the NFT owner to determine whether or not to sell it to you at the price you bid. If you want to participate, you'll first need to exchange your ETH for WETH (wrapped ETH) via OpenSea or any decentralized exchange. When the conversion is complete, you should have WETH in your wallet that you may use to make an offer on an NFT.
When you purchase an NFT, it is added to your digital wallet. A sales receipt is posted to the blockchain, allowing everyone to know who currently owns the NFT and how much they paid for it. This ledger is also visible from the market entry for this particular NFT.
What Can You Do With NFTs After Buying Them?
There are several things you can do after you have bought an NFT. Some people display their digital artwork on large screens. By using NFT, others can purchase virtual land where they can create virtual galleries, museums, etc. You can also visit virtual worlds like Decentraland and explore other people's collections.
Most users find the appeal in buying and selling, as with any other asset category. The collector who sold Beeple for $ 6.9 million paid less than $ 70,000 to acquire it initially. More and more mainstream artists have also been involved in the field, especially from the world of music. Kings of Leon, a well-known rock band from Nashville, Tennessee, announced that their next album would be in the form of multiple NFTs. Depending on which of the two a fan buys, various privileges will be unlocked - such as alternative covers, limited edition vinyl, and even a "gold ticket" for a VIP concert.
What Makes NFTs So Expensive?
In contrast to traditional art, where the artist retains the rights to his work and therefore can produce and sell copies of it, the NFT buyer has something like a certificate that proves they are the actual owners of the original piece.
Since NFTs are based on cryptographic technology that does not allow copying, their value automatically increases because they are rare. Another reason is that the NFT market determines its price. The price will increase if more people seek to purchase something considered a unique offer.
Other factors that affect the price of an NFT and, in many cases, make it a desirable investment include its usefulness, property history, buyer perception, liquidity premium, and projected future value.
NFTs Intellectual Rights and Royalties
NFTs may pay royalty payments to their creators when resold. Though this idea is still under development, it has the potential to be a game-changer. The original owners of EulerBeats Originals earn 8% royalties each time the NFT is sold. Some platforms support their artists' copyrights, like Foundation and Zora. Currently, calculating royalties is manual and inaccurate, and many creators are not adequately compensated. However, if your NFT has an intellectual property right, you will never end up losing.
Do NFTs Pose A Fraud Risk?
As with any technological innovation, NFTs can pose risks and hidden pitfalls. Due to blockchains' distributed nature, hacking and breaching them is harder than usual, but still, it's not impossible. Fraud may occur if the buyers don't properly verify that the account they will purchase the work from belongs to the legitimate creator or owner. Additionally, if the hosting platform is down, you may lose access to your NFT, and there's always the risk of social engineering attacks. However, cryptocurrencies and non-exchangeable tokens that use blockchain technology are generally safe, which also adds to their increasing popularity.
NFTs are the new kid on the block, and while they are currently puzzling to most people, they are expected to dominate the future of investment and change the way people buy things. NFTs enable direct purchases without the need for intermediaries, which is groundbreaking. Content creators will be able to connect with their audiences, create one-of-a-kind artwork, and sell it as exclusive content, thanks to NFTs. It can be an excellent way for fans to keep something very personal and unique from their favorite musicians. This is a trend that appears to be here to stay. Many industries, ranging from the arts and media to education and real estate, already see potential applications and want to use NFTs to expand their offerings.
Solwey Consulting understands tech trends and can leverage innovative solutions to help your business grow.