NFT(Non-Fungible Token) & It’s Works?
Hello Guys,
What’s up?
So, Today we will look into What is NFT and How it Works with Cryptocurrency.
So, Before we start do you know what is a cryptocurrency?
A cryptocurrency is an encrypted data string that denotes a unit of currency. It is monitored and organized by a peer-to-peer network called a blockchain, which also serves as a secure ledger of transactions, e.g., buying, selling, and transferring.
WHAT IS AN NFT? WHAT DOES NFT STAND FOR?
Non-fungible token.
That doesn’t make it any clearer.
Right, sorry. “Non-fungible” more or less means that it’s unique and can’t be replaced with something else. For example, a bitcoin is fungible — trade one for another bitcoin, and you’ll have exactly the same thing. A one-of-a-kind trading card, however, is non-fungible.
An NFT is a digital asset that represents real-world objects like art, music, in-game items and videos. They are bought and sold online, frequently with cryptocurrency, and they are generally encoded with the same underlying software as many cryptos.
Although they’ve been around since 2014, NFTs are gaining notoriety now because they are becoming an increasingly popular way to buy and sell digital artwork. A staggering $174 million has been spent on NFTs since November 2017.
NFTs are also generally one of a kind, or at least one of a very limited run, and have unique identifying codes. “Essentially, NFTs create digital scarcity,” says Arry Yu, chair of the Washington Technology Industry Association Cascadia Blockchain Council and managing director of Yellow Umbrella Ventures.
This stands in stark contrast to most digital creations, which are almost always infinite in supply. Hypothetically, cutting off the supply should raise the value of a given asset, assuming it’s in demand.
But many NFTs, at least in these early days, have been digital creations that already exist in some form elsewhere, like iconic video clips from NBA games or securitized versions of digital art that’s already floating around on Instagram.
Anyone can view the individual images — or even the entire collage of images online for free. So why are people willing to spend millions on something they could easily screenshot or download?
Because an NFT allows the buyer to own the original item. Not only that, it contains built-in authentication, which serves as proof of ownership. Collectors value those “digital bragging rights” almost more than the item itself.
How Is an NFT Different from Cryptocurrency?
NFT stands for non-fungible token. It’s generally built using the same kind of programming as cryptocurrency, like Bitcoin or Ethereum, but that’s where the similarity ends.
Physical money and cryptocurrencies are “fungible,” meaning they can be traded or exchanged for one another. They’re also equal in value — one dollar is always worth another dollar; one Bitcoin is always equal to another Bitcoin. Crypto’s fungibility makes it a trusted means of conducting transactions on the blockchain.
NFTs are different. Each has a digital signature that makes it impossible for NFTs to be exchanged for or equal to one another (hence, non-fungible). One NBA Top Shot clip, for example, is not equal to EVERYDAYS simply because they’re both NFTs. (One NBA Top Shot clip isn’t even necessarily equal to another NBA Top Shot clip, for that matter.)
How do NFTs work?
At a very high level, most NFTs are part of the Ethereum blockchain. Ethereum is a cryptocurrency, like bitcoin or dogecoin, but its blockchain also supports these NFTs, which store extra information that makes them work differently from, say, an ETH coin. It is worth noting that other blockchains can implement their own versions of NFTs.
What’s worth picking up at the NFT supermarket?
NFTs can really be anything digital (such as drawings, music, your brain downloaded and turned into an AI), but a lot of the current excitement is around using the tech to sell digital art.
Do people really think this will become like art collecting?
I’m sure some people really hope so — like whoever paid almost $390,000 for a 50-second video by Grimes or the person who paid $6.6 million for a video by Beeple. Actually, one of Beeple’s pieces was auctioned at Christie’s, the famou —
Sorry, I was busy right-clicking on that Beeple video and downloading the same file the person paid millions of dollars for.
Wow, rude. But yeah, that’s where it gets a bit awkward. You can copy a digital file as many times as you want, including the art that’s included with an NFT.
But NFTs are designed to give you something that can’t be copied: ownership of the work (though the artist can still retain the copyright and reproduction rights, just like with physical artwork). To put it in terms of physical art collecting: anyone can buy a Monet print. But only one person can own the original.
No shade to Beeple, but the video isn’t really a Monet.
What Are NFTs Used For?
Blockchain technology and NFTs afford artists and content creators a unique opportunity to monetize their wares. For example, artists no longer have to rely on galleries or auction houses to sell their art. Instead, the artist can sell it directly to the consumer as an NFT, which also lets them keep more of the profits. In addition, artists can program in royalties so they’ll receive a percentage of sales whenever their art is sold to a new owner. This is an attractive feature as artists generally do not receive future proceeds after their art is first sold.
Art isn’t the only way to make money with NFTs. Brands like Charmin and Taco Bell have auctioned off themed NFT art to raise funds for charity. Charmin dubbed its offering “NFTP” (non-fungible toilet paper), and Taco Bell’s NFT art sold out in minutes, with the highest bids coming in at 1.5 wrapped ether (WETH) — equal to $3,723.83 at the time of writing.
Should You Buy NFTs?
Just because you can buy NFTs, does that mean you should? It depends, Yu says.
“NFTs are risky because their future is uncertain, and we don’t yet have a lot of history to judge their performance,” she notes. “Since NFTs are so new, it may be worth investing small amounts to try it out for now.”
In other words, investing in NFTs is a largely personal decision. If you have money to spare, it may be worth considering, especially if a piece holds meaning for you.
But keep in mind, an NFT’s value is based entirely on what someone else is willing to pay for it. Therefore, demand will drive the price rather than fundamental, technical, or economic indicators, which typically influence stock prices and at least generally form the basis for investor demand.
All this means an NFT may resale for less than you paid for it. Or you may not be able to resell it at all if no one wants it.
NFTs are also subject to capital gains taxes — just like when you sell stocks at a profit. Since they’re considered collectibles, however, they may not receive the preferential long-term capital gains rates stocks do and may even be taxed at a higher collectibles tax rate, though the IRS has not yet ruled what NFTs are considered for tax purposes. Bear in mind, the cryptocurrencies used to purchase the NFT may also be taxed if they’ve increased in value since you bought them, meaning you may want to check in with a tax professional when considering adding NFTs to your portfolio.
Pros of Non-Fungible Tokens
1:- NFTs Foster Marketplace Efficiency.
2:-They Can Be Used to Fractionalize Ownership of Physical Assets.
3:-The Blockchain Technology Behind NFTs Is Very Safe.
4:-NFTs Can Provide Diversification Benefit to an Investment Portfolio.
Cons of Non-Fungible Tokens
1:-NFTs Are Illiquid and Volatile.
2:-NFTs Do Not Generate Income.
3:-NFTs Can Be Used To Perpetuate Fraud.
4:-NFTs Can Harm the Environment.
In the next article, we learn about the Pros and Cons of NFT in details and also the future use of NFT. Until then
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