What are NFTs?
- February 11, 2022
- Posted by: Forward Edge Consulting
- Categories: Business, CryptoCurrencies, Investment
You may have noticed the word NFT has been all over the news in recent times. More than ever before, people are eager to wrap their heads around the concept.
It has become so common to hear these words from people “What are NFTs” with some level of curiosity in their voices or faces.
Why would that not be the case when in 2021 we saw acquisition of things that you would never a few years ago have believed could be valuable.
Is it Jack Dorsey’s Tweet that was sold at around $2.9 million?, or Beeple’s Collage of Artworks for $69 Million? or Paks “The Merge” that sold for $91 Million?
So what are NFTs?
NFT is a short form for Non Fungible Token. They are tokens that live on a blockchain and represent ownership of a unique copy of an item.
This unique items could be
- Artworks,
- Tweets,
- Domain Names,
- Concert Tickets etc.
Just about anything unique that needs a proof of ownership. I know it still sounds a little complicated, so I am going to further break it down. I will start by explaining what the word Fungible means in NFTs.
Fungible
When you say something is Fungible, it simply means it is interchangeable or replaceable. If however you say something is Non Fungible it means it’s irreplaceable and not interchangeable. So we can as well now call them Non Interchangeable Tokens.
Again is that all? Definitely not. We need to know what the Tokens are in NFT. Before we go ahead to explain what Tokens are in this context, we need to first discuss the Blockchain. Don’t worry I will simplify it as much as possible for the purpose of understanding.
What is the Blockchain?
The banks have done this for a very long time and they have been fairly reliable. However, there have been a few times they have failed. In fact there are draw backs to using banks for our frequent money transactions with others. A lot of people have pointed hands at some banks as stealing their money in tiny fractions while some just don’t enjoy the charges that come with these transactions.
The rise of the internet has got people wondering how it is possible to do these transactions without the Middle Man (The Bank) in a secured way. This is what brought about the birth of the Blockchain.
How the Blockchain Public Ledger Works
What’s the relationship between the Blockchain and NFTs?
This shows us two things:
- NFTs are not a proof of uniqueness or of exclusivity
- NFTs simply represent ownership of a Unique Copy of an Item
To further explain value of NFTs, let’s take the example below.
Imagine you had the opportunity to buy a Collectible Loafers that was made around 40 years ago.
You walk into the store and you are shown two copies of the same Loafers and you were told both shoes are the same.
The attendant further explains that one was worn by Michael Jackson to perform his signature Moonwalk, while the other was worn by a relatively unknown banker. You then ask about the price and you were told both sell for $12,000 each.
Which are you likely to buy at that price as a Michael Jackson lover? It’s most likely that of Michael.
As a matter of fact, the store would not price both Loafers the same way, even though they are the same exact product but with different serial numbers. The one from Michael Jackson would most likely scream VALUE VALUE VALUE and that’s definitely going to have a huge impact on it’s price.
Another thing I want to point out is this, NFTs should ordinarily be made by the Copyright owner of the Digital Item (which could be the creator of the item or the person they passed the copyright to).
For example Beeple Created 5000 Artworks daily from the Year 2007 till 2021 when he sold the Collage for around 69 Million USD. There are chances that someone else will be able to make an NFT out of Beeple’s Collage, but it’s not likely he would ever be able to sell that NFT to anyone as the Art is well known. Even if they are able to sell, it will never be like the unique copy Beeple sold off. That copy remains openly registered on the Blockchain.
In NFTs the Digital Item is not what Is Stored in the Blockchain, it’s the Token that’s stored there, it cannot be tampered with.
NFT TOKEN
The Token is made up of
- A Token Name
- A Unique Fingerprint
- A Token Symbol
Now that we know a lot about these Tokens and why they are Non Fungible, lets highlight some of its features below:
- These Tokens are stored in the BlockChain and you remain the owner as long as an authrorization don’t come from your end to sell them.
- Their worth is determined by how much people are willing to pay for them at every point in time.
- It can be programmed to give Royalties to the Creator each time it exchanges hands.
I hope this article has helped you get a clearer picture of what NFTs are. If you like the article please share with your friends on social media by clicking on the buttons below or by using any other means you can to share.
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