What is an NFT? How do NFTs work? -Forbes | Jewelry Dukan

Non-fungible tokens (NFTs) appear to have exploded from the ether this year. From art and music to tacos and toilet paper, these digital assets are selling like exotic 17th-century Dutch tulips — some for millions of dollars.

But are NFTs worth the money – or the hype? Some experts say they’re a bubble about to burst, like the dot-com craze or Beanie Babies. Others believe NFTs are here to stay and will change investing forever.

What is an NFT?

An NFT is a digital asset that represents real-world objects such as art, music, in-game items, and videos. They are bought and sold online, often with cryptocurrency, and are generally encoded with the same underlying software as many cryptos.

Although they’ve been around since 2014, NFTs are now gaining notoriety as they become an increasingly popular way to buy and sell digital artworks. Since November 2017, a staggering $174 million has been spent on NFTs.

NFTs are also generally unique, or at least very limited edition, and have unique identifying codes. “Essentially, NFTs create digital scarcity,” says Arry Yu, chair of the Cascadia Blockchain Council of the Washington Technology Industry Association and executive director of Yellow Umbrella Ventures.

This is in stark contrast to most digital creations, which are almost always infinitely available. Hypothetically, supply cutting should increase the value of a particular asset, assuming it is in demand.

But many NFTs, at least in those early days, were digital creations that already existed in some form elsewhere, like iconic video clips from NBA games or authenticated versions of digital art already floating around on Instagram.

Famed digital artist Mike Winklemann, better known as “Beeple,” for example, made a compilation of 5,000 daily drawings to create perhaps the most famous NFT of the moment, “EVERYDAYS: The First 5000 Days,” which sold for a record at Christie’s . Breaking $69.3 million.

Anyone can view the individual images or even the entire image collage online for free. So why are people willing to shell out millions for something they can just scan or download?

Because an NFT allows the buyer to own the original item. In addition, it includes built-in authentication that serves as proof of ownership. Collectors value these “digital bragging rights” almost more than the object itself.

How is an NFT different from a cryptocurrency?

NFT stands for Non-Fungible Token. It is generally created using the same type 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 are also equal – a dollar is always worth another dollar; a 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 interchanged or equated (therefore not fungible). For example, an NBA top-shot clip doesn’t equal EVERYDAYS just because they’re both NFTs. (By the way, an NBA top-shot clip is not necessarily the same as another NBA top-shot clip.)

How does an NFT work?

NFTs exist on a blockchain, which is a distributed public ledger that records transactions. You are probably most familiar with blockchain as the underlying process that enables cryptocurrencies.

In particular, NFTs are usually held on the Ethereum blockchain, although other blockchains also support them.

An NFT is created, or “minted,” from digital objects that represent both tangible and intangible things, including:

  • Videos and sports highlights
  • Virtual avatars and video game skins

Even tweets count. Twitter co-founder Jack Dorsey sold his very first tweet as an NFT for more than $2.9 million.

Essentially, NFTs are like physical collectibles, only digital. So instead of having an actual oil painting on the wall, the buyer will receive a digital file instead.

You also get exclusive ownership rights. Correct: NFTs can only have one owner at a time. NFTs’ unique data facilitates verification of their ownership and the transfer of tokens between owners. The owner or creator can also store certain information in it. For example, artists can sign their artworks by including their signature in the metadata of an NFT.

What are NFTs used for?

Blockchain technology and NFTs offer 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, also keeping more of the profits. In addition, artists can program royalty payments in so that they receive a percentage of sales when their art is sold to a new owner. This is an attractive feature as artists generally do not receive future proceeds after their art has been sold for the first time.

Art isn’t the only way to make money from NFTs. Brands like Charmin and Taco Bell have auctioned themed NFT art to raise funds for charities. Charmin dubbed his offering “NFTP” (non-fungible toilet paper) and Taco Bell’s NFT art sold out in minutes, with top bids coming in at 1.5 Wrapped Ether (WETH) – equivalent to 3,723 at the time of writing, $83.

Nyan Cat, a 2011 GIF of a cat with a Pop-Tart body, sold for nearly $600,000 in February. And NBA Top Shot grossed more than $500 million at the end of March. A single LeBron James NFT highlight grossed more than $200,000.

Even celebrities like Snoop Dogg, Lindsay Lohan, Amitabh Bachchan and Salman Khan are jumping on the NFT bandwagon and releasing unique memories, artworks and moments as NFTs.

How to buy NFTs

If you want to build your own NFT collection, you need to acquire a few important items:

First, you need a digital wallet that allows you to store NFTs and cryptocurrencies. Depending on what currencies your NFT provider accepts, you will likely need to purchase a cryptocurrency such as Ether. You can now buy crypto with a credit card on platforms like Coinbase, Kraken, eToro, and even PayPal and Robinhood. You can then move it from the exchange to the wallet of your choice.

You should keep the fees in mind when looking for options. Most exchanges charge at least a percentage of your transaction when you buy crypto.

Popular NFT marketplaces

Once you have your wallet set up and funded, there is no shortage of NFT sites to shop from. Currently, the largest NFT marketplaces are:

  • OpenSea.io: This peer-to-peer platform describes itself as a provider of “rare digital items and collectibles”. To get started, all you need to do is create an account to browse NFT collections. You can also sort pieces by sales volume to discover new artists.
  • Rarely: Similar to OpenSea, Rarible is a democratic, open marketplace that allows artists and creators to issue and sell NFTs. RARI tokens issued on the platform allow holders to balance features such as fees and community rules.
  • Foundation, endowment: Here, artists must receive “upvotes” or an invitation from other creators in order to post their art. The community’s exclusivity and entry prices—artists must also buy “gas” to mint NFTs—mean it can boast of higher-quality artwork. For example, Chris Torres, the creator of Nyan Cat, sold the NFT on the Foundation platform. It can also mean higher prices – not necessarily a bad thing for artists and collectors looking to capitalize, provided demand for NFTs remains at current levels or even increases over time.

Although these platforms and others are home to thousands of NFT creators and collectors, make sure to do your research carefully before purchasing. Some artists have been victims of impersonators who have listed and sold their work without their permission.

Additionally, the review processes for creators and NFT records are not consistent across platforms—some are stricter than others. For example, OpenSea and Rarible do not require owner verification for NFT listings. Buyer protection seems sparse at best, so when buying NFTs it’s best to keep the old adage “caveat emptor” (let the buyer beware) in mind.

Should You Buy NFTs?

Just Because You Can Buy NFTs Does It Mean You Should? That depends, says Yu.

“NFTs are risky because their future is uncertain and we don’t have much experience to judge their performance,” she notes. “Because NFTs are so new, it can be worth investing small amounts to try for the time being.”

In other words, investing in NFTs is largely a personal decision. If you have money to spare it may be worth considering, especially if a piece is meaningful to you.

However, remember that the value of an NFT depends solely on what someone else is willing to pay for it. As such, the price is driven by demand rather than fundamental, technical or economic indicators that typically drive stock prices and, at least generally, form the basis of investor demand.

All of this means that an NFT may resell for less than you paid for it. Or you can’t resell it at all if nobody wants it.

Keep in mind that NFTs can be taxable as well as the cryptocurrencies used to purchase the NFT. India’s 2022 budget proposed imposing a withholding tax on the transfer of virtual digital assets – which should include NFTs and cryptocurrencies – effective July 1. A tax deduction at source is also proposed. It’s yet to be seen how taxation will work, and that means you might want to consult a tax expert if you’re considering adding NFTs to your portfolio.

However, approach NFTs just like you would any other investment: do your research, understand the risks – including the fact that you may lose all of your invested rupees – and if you decide to take the plunge, go with a healthy one Portion of caution.

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