Non-Fungible Token (NFTs)


    In News 

    • The sales of Non-Fungible Token(NFTs )surged $25 billion in 2021 as the crypto asset exploded in popularity, fuelled by the rising interest of celebrities and tech evangelists.

    What is a Non-Fungible Token(NFT)?

    • It is a unit of data that is stored on a digital ledger (blockchain) and can be sold and traded.
    • NFT data units may be associated with digital files such as photos, videos, and audio.
    • Each NFT may represent a different underlying asset and can have a different value.
    • It is a unique digital asset that represents ownership of real-world items like art, video clips, music, and more.

    How do NFTs work?

    • Many NFTs are created and stored on the Ethereum network, although other blockchains (such as Flow and Tezos) also support NFTs. 
    • Because anyone can review the blockchain, the NFT ownership can be easily verified and traced, while the person or entity that owns the token can remain pseudonymous.
    • Different types of digital goods can be “tokenized,” such as artwork, items in a game, and stills or video from a live broadcast 

    Who can buy NFTs?

    • Anyone who holds a cryptocurrency wallet can buy an NFT. 
      • That is the only prerequisite to purchasing an NFT. You don’t need any KYC documents to purchase art. All you need is a cryptocurrency wallet powered by Metamask and an NFT marketplace where you can buy and sell NFTs.
      • Some of the largest NFT marketplaces are
        • Touted as the largest NFT marketplace, you can find digital art, there are collectables including game items, domain names, even digital representations of physical assets at OpenSea.
          • Essentially, the platform is like an eBay for NFTs with millions of digital assets organised into hundreds of categories.
        • Rarible: Quite similar to OpenSea, Rarible is also one of the largest NFT marketplaces that enable artists and creators to issue and sell NFTs.
        • Foundation: This is a unique NFT marketplace where artists must receive “upvotes” from fellow creators to post their art. 
          • Artists list NFTs for auction at a reserve price, and once the first bid is placed, a 24-hour auction countdown begins. If a bid is placed within the last 15 minutes, the auction extends for another 15 minutes.

    Why Are Non-Fungible Tokens Important?

    • Non-fungible tokens are an evolution over the relatively simple concept of cryptocurrencies. 
    • Modern finance systems consist of sophisticated trading and loan systems for different asset types, ranging from real estate to lending contracts to artwork. By enabling digital representations of physical assets, NFTs are a step forward in the reinvention of this infrastructure.
    • 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.

    Associated Risks 

    • In the recent past, several incidents of NFT scams have been reported including the emergence of fake marketplaces, unverified sellers often impersonating real artists and selling copies of their artworks for half price.
    • Another risk associated with NFTs that cannot be swept under the rug is the unquestionably negative impact on the environment.
    • Trading NFTs involves technical processes that are sometimes misunderstood — and that can lead to investors not knowing quite what they are dealing with.
    •  In order to validate transactions, crypto mining is done, which requires high powered computers that run at a very high capacity, affecting the environment ultimately.

    What’s the difference between NFTs and cryptocurrency?

    • NFTs and cryptocurrencies rely on the same underlying blockchain technology.
    • Cryptocurrency is a currency and is fungible, meaning that it is interchangeable.
      •  For instance, if you hold one crypto-token, say one Ethereum, the next Ethereum that you hold will also be of the same value. 
      • But NFTs are non-fungible, which means the value of one NFT is not equal to another. 
        • Every art is different from others, making it non-fungible, and unique.

    What is Blockchain?

    • A blockchain is a distributed database that is shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format.
    • Blockchains are best known for their crucial role in cryptocurrency systems, such as Bitcoin, for maintaining a secure and decentralized record of transactions. The innovation with a blockchain is that it guarantees the fidelity and security of a record of data and generates trust without the need for a trusted third party.

    Source: IE