You might be hearing a lot about some NFTs fetching huge returns to their creators and investors, even some celebrities have come up with their own NFTs. Everybody wants to keep up with the trends, and this brief article will help you in Understanding NFTs and How NFTs work, How it’s related to Cryptocurrency and Blockchain and Why are they so expensive.
In this article, we are going to address all these questions in easy-to-understand language with real-life comparisons and examples.
By the end of this post, you should be able to explain What NFTs are and how they work to your friends with ease.
So what is NFT?
NFT stands for Non-Fungible Token. A quick google search can give us the meaning of the term “fungible“.
What does Fungible mean?
Fungible are items or things which can be exchanged for something similar or identical and has the same worth.
For example, Each banknote of a country looks the same (though separated by a unique number) and has the same worth anywhere around the world and it can be exchanged with another banknote of the same Country.
What is Non-fungible?
Anything that is not Fungible i.e things or items which cannot be exchanged for anything having the same worth and are unique is called Non-fungible.
This is the most important thing to remember in Understanding NFTs and How NFTs work.
For example– The Mona Lisa. The original artwork by Leonardo da Vinci is priceless. It’s one of a kind, unique and cannot be exchanged for anything else.
Ok, but can’t we download Mona Lisa from the internet?
Why would I buy the priceless Mona Lisa if I can download a copy from the internet and frame it? Doesn’t that make it fungible?
NO, STOP Right there. There are a few things you need to keep in mind before thinking in that direction which will help you in Understanding NFTs and How NFTs work.
First: The original Mona Lisa is a painting done by hand, with brushes and colors. There is an originality in the thought process of the painter.
Second: It was painted by Leonardo Da Vinci, the renowned painter from the 15th Century, it’s a piece of history and a window to life & culture from the past.
Your downloaded version doesn’t provide any of that and it’s just a cheap copy of the Original.
But why are NFTs so expensive?
Because of the nature of NFT, its history, the artist behind it, its uniqueness, etc. It attracts potential investors who are willing to pay any amount to own a piece of it.
And due to its uniqueness, its price keeps on increasing as more and more people hear about it and try to own it.
Classic demand and supply cycle.
Limited Supply, High Demand
Ok, but how is NFT related to Blockchain / Cryptocurrency?
With the evolution of science & technology, people now have different mediums to create their art forms. With the increasing use of computers in our daily life, artists from around the world have a hell lot of tools at their disposal to bring their art to life.
Artists now create digital art forms and exhibit them on their social media channels and have created a cult of their own. But there was one thing missing in this whole cycle. How to validate who is the original artist? Though the copyright is one way to prevent your creation from being copied, that’s a lengthy process and can be difficult for amateur artists who have just started to get the copyright.
Enters the blockchain, which is a Decentralized System of Database maintaining a ledger of all the transactions made in the system. This system is secure, hackproof, and transparent where anyone can see all the transaction history over its network.
It’s now very easy to create art and become the owner of the same, which can be verified by checking the Blockchain transactions. With just a couple of clicks, you can now submit your artwork as a transaction in the Blockchain (such as Ethereum, Solana, Flow, Tezos, etc.) by investing very little amount (around cents or for Free), all within a couple of mins.
Thanks to the decentralized nature of Blockchain. Anyone with an internet connection can validate the authenticity of the NFT and its owner.
What can be an NFT?
An NFT is a digital asset that represents real-world objects like art, music, in-game items, and videos. They are bought and sold on NFT Marketplaces like OpenSea, with cryptocurrency.
Lately, NFTS are getting many use cases in Game items & Metaverse, where virtual lands are sold.
When was the First NFT created?
The first NFT “Quantum” was created on 3rd May 2014 by Kevin McCoy even before the word NFT was coined. Quantum is a pixelated image of an octagon shape filled with dynamic colours. It sold for $1.47m in June 2021 during its “Natively Digital” auction.
What are the Top NFTs ever sold?
Pak’s ‘The Merge’ — $91.8m
Everyday: The First 5000 Days — $69.3m
Clock — $52.7m
Beeple’s HUMAN ONE — $28.985
CryptoPunk #5822 — $23.7m
CryptoPunk #7523 — $11.75m
CryptoPunk #4156 — $10.26m
CryptoPunk #3100 — $7.67m
CryptoPunk #7804 — $7.6m
Beeple’s Crossroad — $6.6m
We hope now you have a pretty clear idea about NFTs and the history around them. You should now feel confident in sharing this knowledge with your friends and family.
Conclusion
NFTs can be used in many places like Games, Event tickets, Metaverse, Legal Documentation, etc. Given a solid use case, NFTs have great potential to grow and be accepted by the masses.
In the past few months, NFTs have seen a lot of ups and downs. Will they be able to stand the test of time?
I hope this article helped you in Understanding NFTs and how NFTs work. You should now be able to explain the same to your friends with ease.
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