Most people know that NFTs are Non-Fungible tokens, the question here arises is what does this term mean. Starting with the word fungible that means things that can be exchanged. There are other similar things of the same kind of cryptocurrency which are how to trade as beginners on this particular method.
If we look around, we can see hundreds of examples of fungible things such as the U.S. dollar. Now coming to digital currencies, the majority of the cryptocurrencies are fungible for instance a Bitcoin is a Bitcoin and it does not matter which Bitcoin you are holding.
Now coming to the non-fungible things in this physical world such as cars and houses are non-fungible. These are non-fungible because they have distinct and unique properties. You cannot just exchange them for others no matter what their type is.
In the crypto world, tokens are units of value that are stored on blockchains. Various cryptocurrencies are tokens including Bitcoin, Ether, and Dogecoin.
In simpler words, non-fungible tokens are just like cryptocurrencies but unlike crypto assets, they have unique properties and are sometimes not even used as money. For purchasing NFTs you can go to Axie Infinity, Decentraland, or MakersPlace, and for cryptocurrencies.
Defining NFT:
An NFT is also a digital asset just like cryptocurrencies but represents real-world products and goods such as art, music, real estate, videos, etc. such objects are purchased as well as sold out online. Moreover, these are usually encrypted with the same core software as many cryptocurrencies have.
Although the NFTs have been in the world since 2014 but are now gaining infamy as they are becoming a popular way of purchasing and selling digital art. NFTs are considered one of their kind and have a pretty limited run. They use unique codes for identification.
How Can We Say NFTs Are Different From Cryptocurrencies?
As we have discussed, NFTs are non-fungible tokens but are developed on almost the same sort of programming as cryptocurrencies such as Bitcoin and Ethereum. This is the point where the similarity ends.
Fiat money and cryptocurrencies are fungible which means they can be easily traded or exchanged for one another. These fungible objects are also equal or the same in worth. Indeed, one dollar is always worth one dollar in the same way one bitcoin is always equal to another bitcoin.
On the other hand, NFTs are different. Each of the NFT owns a distinct digital signature that makes every NFT unique and non-exchangeable.
The Working of an NFT:
Just like various cryptocurrencies, NFTs also exist on the blockchain. Blockchains, we all know, are distributed public ledgers that store, hold, and record all the transactions and related data. NFTs are particularly held on the blockchain of Ethereum, however various other blockchains also support them.
NFTs are created, designed, or minted from virtual objects that display both tangible as well as intangible goods such as graphic art, GIFs, videos, sports highlights, collectibles, virtual avatars, video game skins, designer sneakers, music, etc. even you can count tweet as an NFT as Twitter co-founder Jack Dorsey sold his first-ever tweet as an NFT.
NFTs are just like physical collector’s items but only digital. What people do is instead of purchasing an actual painting to hang on their walls, they go for a digital file instead. These people get exclusive ownership rights too.
NFTs can only keep one owner at once the blockchain technology plays a huge role here by verifying the ownership and transferring tokens among the owners. The creators also have the authority to store or keep specific data in an NFT’s metadata. To offer a better understanding here is an example, artists can sign their artwork or any other object or work by mentioning their signature in the file.
Bottom Line:
NFTs are quite risky as the future they hold is uncertain and unpredictable. Also, they haven’t performed much in the past and hence hold no great record. Do approach NFTs if you are looking for investments but make sure to do proper research and understand all the related risks.
Even if you are all set to take the plunge, go with it with a full healthy dose of caution. You may also observe that the resale of NFTs does not bring many gains for you or even sometimes you might not be able to resell it.
