What are NFTs?
For starters, NFT is an acronym for non-fungible tokens. It’s a new kid on the block that has caused lots of excitement among top trading brokers and traders alike. If you are keen on blockchain news, you will have heard about a Nyan Cat and Grimes being sold as NFTs with people earning millions of dollars from it. The most recent case in which an autographed tweet was put up for sale as a non-fungible token for millions of dollars. This might have left you wondering what exactly NFTs are and how it works.
The best online brokerage firms already have some discussions on NFTs. Being non-fungible means these tokens are unique, and you can’t replace or interchange them with anything else. Having mentioned blockchain, you might think that cryptocurrencies such as bitcoin are examples of NFTs. Unfortunately, they are not. For example, bitcoin isn’t unique because it can be exchanged for another bitcoin, so it’s fungible. Money is another fungible item. You can break it down into small units and it will still be money with the same value.
Understanding Non-Fungible Tokens
Let’s consider a piece of artwork. When it’s still intact, it will have some monetary value, but the moment you cut it down into smaller pieces, it will lose its value. Another analogy is a house. You can’t break your house into smaller useful units or fractions. Both the artwork and the house may have certificates of ownership. Consider NFTs as certificates of ownership for tangible or virtual unique objects.
Technology and NFTs
NFT tokens can change hands, and it’s proper to keep track of who owns them. That’s where technology comes in. Blockchain technology is used to keep a digital ledger of who owns an NFT at any point in time.
Blockchain is a distributed and decentralized technology in which thousands of computers keep track of and record all transactions. This means no one can forge an NFT ledger. To forge an NFT ledge would require an individual to re-do the original transaction and change all subsequent transactions that followed. This makes blockchain transactions safe.
Each NFT contains all information about it, including the identity of who owns it. It also contains a smart contract, which stores codes and executes them only when certain conditions are met. For example, if you are an artist, a smart contract can give you a percentage of proceeds when your artwork is sold.
If the token in question is a digital piece of art, the NFT ledger will only show the original owner (or the person who owns it at the moment) but does not stop people from copying the work of art.
Elon Musk Wades Into the NFT Craze
On 13th March 2021, Elon Musk, the SpaceX and Tesla CEO put up one of his tweets for sale as an NFT. This announcement caused an online bidding war with affluent tech aficionados offering to purchase the tweet. Just within four hours after Elon made the announcement, the bids had reached a whopping $1.1 million.
However, Elon later changed his mind saying it didn’t feel right selling the tweet. The guy who offered to buy Elon’s tweet was identified by his Twitter handle as @SinaEstavi. Estavi has over 82,000 followers on Twitter and is the CEO of CryptoLand, a cryptocurrency website.
NFTs have grown in popularity as many people are forced to stay at home courtesy of the coronavirus pandemic. In February, OpenSea, a popular NFT marketplace, saw its sales reach a staggering $86.3 million. The company made only $8 million in sales in January.
As people get more and more creative, more and more items are getting into the NFT market. That is why the best online investment brokers and the best online investment companies warn that the big money currently flowing into this market may cause a price bubble.