Everyone’s talking about NFTs, from Super Bowl Commercials to radio talk shows. But, what are NFTs? How do they work? And, should you buy them? If you are new to the NFT game, we’ll tackle some of your big questions here.
What are NFTs?
NFT stands for “non-fungible token.” Ethereum, the cryptocurrency blockchain that helped create the idea, says, “NFTs are tokens that we can use to represent ownership of unique items. They let us tokenize things like art, collectibles, even real estate. They can only have one official owner at a time and they’re secured by the Ethereum blockchain – no one can modify the record of ownership or copy/paste a new NFT into existence.” Talking about what NFTs are is a bit complex, because the term itself is sometimes used to describe the token, and sometimes used to describe the item the person holding the token has purchased.
Perhaps the simplest way to think about NFTs (the token) is that they are a certificate of ownership for a digital item, like a piece of art, music, or a famous tweet. These items are hard to effectively possess, because they exist in the digital world, and can be shared easily, but with an NFT ownership is provable, traceable, and sellable.
How do NFTs work?
To create an NFT, the creator of a digital item, like those described above, will “mint” an NFT (token). Minting means creating the token and registering it on the blockchain so that the record is solid and intact. Then they will list that token of ownership on a marketplace where it can be purchased. If they find a buyer, the creator of the token (presumably the rightful owner of the digital item) makes money. That creator can also dictate a royalty on their item every time it is sold in the future. So if you minted an NFT for a digital drawing of a monkey, then you’d get paid every time that token of ownership trades hands.
Why are NFTs valuable?
NFT’s are valuable if there is a buyer willing to pay the desired price to buy it–just like the valuation of any piece of art or any other product. While the digital item still remains available in the metaverse for anyone to see, Forbes says that NFTs are valuable because “an NFT allows the buyer to own the original item. Not only that, it contains built-in authentication, which serves as proof of ownership. Collectors value those “digital bragging rights” almost more than the item itself.” That drive for bragging rights is a key part of what NFTs are, and how NFT’s work.
Are NFTs a good investment?
Whether NFTs are a good investment or simply a fad is a matter that is being hotly debated. In Forbes, Arry Yu explains, “NFTs are risky because their future is uncertain, and we don’t yet have a lot of history to judge their performance.” Like many other types of investment, including cryptocurrencies, stocks and bonds, or real estate, investment in NFTs is risky.
For digital creators and collectors though, what NFTs are is a great deal of promise, and a potential payday.
Want to learn more about breaking into the NFT game? Start here.