NFTs and cryptocurrencies are frequently misunderstood, but how can the distinctions be explained
We recognize that “non-fungible tokens” might be a lot, which is why it is often abbreviated as NFT. But what precisely are they, how do they work, and what are their advantages?
In this article, we will look at the science underlying it and refute some prevalent myths.
NFTs and NFT stocks are now hot topics. The NFT for Nyan Cat, a 2011-era cat GIF, sold at auction for about $600,000, in 2021, with NBA Top Shot NFTs selling for over $500 million by March and a single LeBron James highlight NFT selling for more than $200,000. According to Coindesk, roughly $174 million has been spent on NFTs since November 2017.
However, blockchain variants have been in the news for the past decade or so. What makes NFTs unique, and why are they causing investors to sit up and take notice?
What exactly are NFTs?
NFT is an abbreviation for non-fungible tokens. Fungibility refers to the interchangeability of the component elements that comprise a thing or commodity. No matter how you divide it up, four quarters, ten dimes, and a dollar bill are all worth one US dollar. Currency is fungible because it doesn’t matter which dime you have; it’s still worth a dime, and there’s nothing fundamentally more value in one dime than another. A non-fungible object is defined as anything that is one-of-a-kind – for example, furniture, jewels, artwork, and so on – and is thus valued separately.
As a result, an NFT is a digital asset that symbolizes a one-of-a-kind thing, such as digital art, music, or video game items. Consider a sword that your WoW character created and sold to another player for virtual gold. The sword only exists in the digital realm, but it can’t be interchanged with any other digital object, and it has real-world worth.
What is cryptocurrency?
Cryptocurrency is a type of digital currency that is encrypted and does not rely on banking institutions to validate transactions. A digital wallet is where cryptocurrency is kept.
Anyone may make and receive money using this peer-to-peer system, which uses blockchain technology. When a person sends a bitcoin, the transaction is recorded on a public ledger.
Several businesses have created their cryptocurrencies, also known as tokens, that allow users to trade particularly for the product or service that a firm offers. To acquire goods or services, an individual must convert actual dollars for cryptocurrency.
Among the most well-known cryptocurrencies are:
- Bitcoin is a cryptocurrency that was launched in 2009. People may purchase and sell bitcoin in marketplaces known as bitcoin exchanges using various currencies.
- Ethereum is a blockchain-based software platform that allows programmers to design smart contracts and distributed applications. Ether is the Ethereum network’s cryptocurrency.
- Litecoin is an open-source, peer-to-peer cryptocurrency that allows anyone to make payments without the involvement of a bank or other third party.
- Tether is a stable coin whose value is closely related to the value of the fiat currency it symbolizes, such as the US dollar, Euro, or yen. This is in contrast to Bitcoin and Ethereum, whose prices vary significantly.
Why are people investing in NFTs?
NFTs enable private ownership of digital objects, so establishing a system of ownership and something that can be traded allows individuals to extract value from digital items. Digital assets are simple to distribute but difficult to hold in the absence of NFTs.
You may make digital art, but when you share it on social media, it becomes the property of the site (unless you negotiate a deal otherwise). Moreover, anybody can reproduce the artwork and distribute it through their methods. This is still possible with NFTs, but the channel will not own the artwork. NFTs enable the owner to express, brag about, and exercise distinctive ownership in ways that were previously impossible.
NFTs establish ownership of a work of art or any digital asset, letting users freely sell and acquire them and creating new value. A print of a Van Gogh painting, for example, is available to everybody, but the original is valuable. Similarly, anyone may post a meme copy on social media, but the original is valuable. A key component of what makes physical art valuable is the ability to consistently establish ownership of work and show it somewhere, which has never been more true in the digital age.
Because NFTs are in short supply, their value fluctuates according to demand and interest. They may be “minted” on the blockchain and can represent either tangible or immaterial entities, such as:
- Limited edition sneakers, such as Kanye West’s Kanye West x Adidas Yeezys, may fetch more than $1,000.
- Beeple sold digital art including such “EVERYDAYS: The First 5000 Days” for $69.3 million.
- Music tracks
- Jack Dorsey’s first tweet sold for more than $2.9 million.
How are NFTs different from crypto?
NFTs and cryptocurrency are both constructed on the blockchain, employing the same technology and ideas. As a result, they tend to attract the same kind of people. NFTs may be viewed as a subset of the crypto culture, and to purchase and trade NFTs, you often require bitcoin.
The fundamental distinction, though, is highlighted by the name. Cryptocurrency is a type of currency. It has just economic value and is fungible, just like any other currency. That is, inside a certain cryptocurrency, it makes no difference whatever crypto token you hold; it has the same value as the next one, 1 $ETH = 1 $ETH. NFTs, on the other hand, are non-fungible and have a value that extends well beyond economics.
What can NFTs do?
Initially, the advantage of NFTs was that they allowed for actual ownership of digital goods that mirrored those of the “real world.” However, NFTs are capable of much more. NFTs enable creators to continue earning royalties when their art is resold, which is not feasible with a tangible painting, for example. Celebrities such as Snoop Dogg, Grimes, and Paris Hilton are releasing one-of-a-kind souvenirs, art, and experiences as NFTs, realizing the value they provide.
NFTs, offer to cut out the middlemen in digital publication, allowing artists of all genres to sell directly to their followers and fans to serve as patrons. In this sense, NFTs may pave the way for a return to an older form of the art community, in which people support the artists they like.
With NFTs, you may not only invest money in an emerging artist by purchasing their early work and then profiting as the work’s value grows, but you can also invest time spreading their reputation and still gain when their value rises. “Now, creators can not only engage, but also transact with their fans directly: the community can voice their opinions and have a better chance of being heard, perks can be designed to reward members who add the most value, and the community can gain through token ownership and redeemable real-world rewards.
Though leaders propose that NFTs might serve as the foundation for virtual nations in which every NFT holder has an equal say in governance. In contrast, today’s social media platforms function like dictatorships, with a tiny number of people able to evict members on the spur of the moment. With the convergence of NFTs and cryptocurrencies, entire economies might one day be constructed on digital assets.
Should You Buy NFTs
While metaverses are still in their infancy, several firms are already playing in the digital sphere. The metaverse represents a huge opportunity for cryptocurrency.
Because NFTs are so new, it may be worth investing in tiny sums to test them out for the time being. In other words, investing in NFTs is mostly a personal choice. If you have some extra cash, it’s worth thinking about, especially if the artwork has sentimental value to you.
However, keep in mind that the value of an NFT is entirely determined by what someone else is prepared to pay for it. As a result, demand will drive the price rather than fundamental, technical, or economic factors, which often impact stock prices and, at best, serve as the foundation for investor demand.
All of this means that an NFT may be resold for less than what you paid for it. If no one wants it, you might not be able to resell it at all. Do your homework, understand the dangers (including the possibility of losing your whole investment), and proceed with care if you decide to go forward with it.
Disclaimer: This blog has opinionated information which does not make us liable for anything.
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