Everything You Need To Know About Non-Fungible Tokens (NFTs)
Over the last few weeks, you might have come across news like these.
And, perhaps you found yourself wondering — why are people buying images that could be downloaded for free at such ridiculous prices? And what exactly is a Non-Fungible Token (NFT)? Well, we’re here with an easy explanation.
What Exactly Is A Non-Fungible Token?
Firstly, let’s breakdown the technical terms. Non-fungible tokens are a kind of cryptocurrency asset. An asset is considered fungible when you’re able to exchange it for something with a similar value. Think of Nepali currency. If you have two Rs 5 notes, you can exchange it and receive a single Rs 10 note. It’s the same thing with virtual currencies like bitcoin.
But things are different with Non-Fungible Tokens, as the name might suggest. You can’t exchange NFTs in a similar fashion because, ideally, no two NFTs are alike. Each NFT holds unique extra information.
A Revolution In Digital Arts?
Another key feature that separates Non-Fungible Tokens from your traditional cryptocurrencies is its ability to hold extra information. It’s this extra information that allows NFT to take the shape of digital art in form of MP3, GIF, JPG etc. And lately, the market for these artforms is exploding with money. Take for instance the NFT of the iconic Nyan Cat GIF, which was sold for almost $600,000 back in February.
At this point, if you’re thinking of downloading the GIF and proclaiming yourself to be a crorepati, let us stop you right there. NFTs come equipped with unique digital signatures. So, even if you downloaded the original Non-Fungible Token of Nyan Cat GIF, you wouldn’t be able to get the ownership of the work that makes it so unique.
Think of it this way — you could create an exact replica of Mona Lisa. As good as the replica might be, though, it won’t be nearly as valuable as the original piece by Leonardo DaVinci. There’s only one Mona Lisa and it can only be owned by one person. The same analogy stands true for NFTs.
I've been drawing since I'm like 6 years old. NFT is my real chance of making a living out of what i love.— Marcos.NFT (@95M_rac) April 30, 2021
So, essentially, NFTs are digital collectible items whose value is determined by its demand in the market. Which also brings us to the problem posed by NFTs.
Since the values of these Non-Fungible Tokens are getting hyped at ridiculous rates, experts from Wall Street are worried that this might be just another bubble waiting to be popped. Caitin Ostroff, markets reporter from The Wall Street Journal explains:
“In reality there needs to be a buyer for there to be a seller. People might decide all of a sudden to cash in their profits. And someone’s going to be stuck holding the bag.”
Finally, another problem is that it allows for stealing of creative work. For instance, Sam could claim Dan’s digital work to be his own and offer it in online marketplace for sale.
Well, that's a simplified version of it anyway. So, do you think NFTs will revolutionarize the art sector? Or is it just another fad that'll die in no time? Follow us and let us know your opinions in the comment sections below.