Non Fungible Tokens have taken the world by storm due to its ability to assign value to everything from art to music to a simple selfie.
What is Non Fungible Tokens?
- A non-fungible token (NFT) is a non-interchangeable unit of data stored on a blockchain, a form of digital ledger, that can be sold and traded.
- Types of NFT data units may be associated with digital files such as photos, videos, and audio.
- Because each token is uniquely identifiable, NFTs differ from blockchain cryptocurrencies, such as Bitcoin.
- NFT ledgers claim to provide a public certificate of authenticity or proof of ownership, but the legal rights conveyed by an NFT can be uncertain.
- NFTs do not restrict the sharing or copying of the underlying digital files, do not necessarily convey the copyright of the digital files, and do not prevent the creation of NFTs with identical associated files.
- NFTs have been used as a speculative asset, and they have drawn increasing criticism for the energy cost and carbon footprint associated with validating blockchain transactions as well as their frequent use in art scams and claimed structure of the NFT market to be a ponzi scheme.
How does NFT transaction take place?
- NFT transactions are recorded on blockchains, which is a digital public ledger, with most NFTs being a part of the Ethereum blockchain.
- NFTs became popular in 2021, when they were beginning to be seen by artists as a convenient way to monetize their work.
What is the difference between fungible and non-fungible tokens (NFTs)?
- Both fungible tokens — like Bitcoin, Ether, Doge and other cryptocurrencies — and NFTs are a form of digital assets.
- While cryptocurrencies carry monetary value, NFTs are valued as per their uniqueness, akin to a collector’s item.
- NFT is one of a kind asset can be bought and sold similar to any other piece of property
- They however have no tangible form and exist in form of certificates only
- NFT can not be broken down into small values and unlike most currencies cannot be exchanged for an equal value
- The NFTs have unique value and they cannot be duplicated
- NFTs can always be traced back to their original user/supplier
- The value of NFTs increased from 66 million dollars to 250 million $ over the past year
What makes NFTs so valuable?
- Blockchain technology allows NFTs to be publicly authenticated, serving as a digital signature certifying the ownership and originality. NFTs cannot be exchanged for a like-for-like basis as each one is unique in contrast to fungible assets like dollars, stocks or bars of gold.
NFTs can have only one legal owner and are secured by the Ethereum Blockchain, i.e. ownership records cannot be modified.
An art collector, Pablo Rodriguez Fraile, bought a 10 seconds video clip by an artist for $67,000 (approx. Rs.50 lakh) and sold it for $6.6 million (approx. Rs.48 crore). Founder of Twitter, Jack Dorsey, sold his first-ever tweet from 15 years ago through NFT.
- NFTs can be various digital forms like drawings, music, a game, any art, etc. NFTs can be digital artwork and sports cards, also pieces of land and virtual environments.
- However, currently, the popularity of these tokens have gained to sell digital art using blockchain technology. You can copy the digital file as many times as you want, including the digital art, through Non-fungible Tokens. However, NFT’s are mainly designed to give the ownership of such digital art, whereas the artist can retain the copyright with himself but sell its ownership.
- Every NFT is like a unique token on the blockchain network. NFT could be one unique piece without copies, whereas it could also be a trading card with hundreds of copies of the same artwork.
- As mentioned above, NFTs can have only one owner. This ownership is managed using a unique ID and metadata that is unique to a particular NFT. NFTs are executed through smart contracts, which assign ownership and transferability of the tokens.
- The creator of the NFT can decide the scarcity of the asset. For example, consider a ticket to a concert. The creator of the NFT can choose how many tickets will exist. Sometimes the tickets could be precisely similar, just having a ‘general admission’ permit. At the same time, they can be slightly different, like having seat numbers assigned to each ticket.
- Most of the NFTs are a part of the Ethereum blockchain. Ethereum is one of the types of cryptocurrency, but its blockchain also supports Non-fungible Tokens, which store extra information and work differently. Other blockchains networks can also implement their versions of such tokens.
Source: Indian Express