NFTs – A BEGINNER’S GUIDE TO NON-FUNGIBLE TOKENS
Over the years, people have gasped at how absurd certain technology has taken over the digital market. On March 2021, thousands of jaws dropped as Malaysian businessman, Sina Estavi, bought Jack Dorsey’s first tweet for $2.9 million. Certainly, this doesn’t make sense to a lot of people. How does this work? Why is it so expensive? What even is an NFT? This article contains all you need to know. Let’s walk through a beginner’s guide to NFT.
What is NFT?
NFT is a unit of data that stands for ‘Non-Fungible Token’. Before diving into what NFT is, something important must be understood. A peculiar trait of NFT is its lack of fungibility. An asset is said to be fungible when it can be interchanged for other assets or currency of the same value. For example, if you owe someone $1000 and they pay back with $1000 worth of Bitcoin, it is approved because they share the same value. Consequently, a Non-Fungible asset is that which has its unique value and cannot be easily traded for something else like other fungible assets. NFTs represent real-life assets like art, ticket, music, fashion items, and so on. Digital collectibles like memes, gigs, sneakers, and clothing items have sold tremendously. The emphasis on the human value of things accounts for the outrageous cost of NFTs. Non-fungible things hold more value because of their scarcity. And scarcity is a huge determinant of value. Another important thing to be understood is ‘token’. A token is a denomination of cryptocurrency. It is often built on an existing Blockchain. So in hindsight, tokens are dependent on Blockchain.
Tokens and Blockchain
To describe this, we’ll be using the banking system as an example.
When a transaction is made using your debit card, your bank is notified. The bank then bears the responsibility of approving the transactions depending on various factors. A major factor to be considered is the amount of money in your account. If the money to be withdrawn is less than the money in your account then the bank approves. Provided that this is the case, we can understand how the bank bears the onus of checking for the eligibility of its users.For Blockchain, the reverse is the case. Unlike banking systems, Blockchain is decentralized. There is no middle man or interference from any party. In the bank’s case, the transaction is between you, the bank, and the party you are transacting with. But in Blockchain, the transaction is public. In a decentralized system, there are multiple central owners. Different computers are connected and transactions that go on in this system are made public to the computers. Let’s take an example. If Sally decides to send eight digital coins but does not have up to that amount, other systems connected will notify her that her transaction is not possible.
Blockchain and NFT- How are they connected?
When linking Blockchain to NFT, it is important to understand that in this scenario, Blockchain is not applied to money or a currency. It is connected to a unique and irreplaceable item. In the discourse of NFT, Blockchain is often mentioned. This begs the question: What is the connection between NFT and Blockchain? To answer this question, we’ll take another example. A businessman named Joe takes interest in a valuable piece of painting. Assume Joe offers the owner of the painting $500,000 worth of coins for the NFT. What this means is that Joe is offering $500,000 worth of coins for a digital certificate that the painting now belongs to him. This digital certificate claims complete ownership of an asset to its withholder. What is the role of Bitcoin in this transaction? It’s simple. Blockchain ensures that Joe has up to $500,000 worth of coins. Decentralized computers around the world check if the transaction would be possible depending on the number of coins he has. Upon verification, his transaction gets approved. There will now be an unalterable public record that Joe owns the painting. This example clearly explains NFT. The token in question (the painting) is the only one of its kind and cannot be replaced.
Why is NFT so successful?
People have marveled at absurd NFTs in existence as well as the cost. This has happened so quickly that it is now wondered how successful it has become. NFTs pride success in the value that people have given certain assets. For the longest of time, when a large group of people validates something, value is given to it. No matter the asset. That is why NFTs like gifs and tweets have sold for thousands of dollars; they have received tons of validation, hence, creation of value. This has been going on for years even before the advent of sophisticated technology. Now, intricate technology has been designed for this to happen.
Future of NFT
This fast-growing digital technology created in 2015 has made it possible for several transactions to occur. Some people argue that like many rising digital technologies, NFTs will be short-lived. But experts have debunked this claim. NFT is still at its infancy stage so definitely, the excitement that has come with it is quite notable. If the adoption of NFT happens, transactions would be more normalized. NFTs will also create opportunities for individuals and businesses. Individuals will easily sell their art, records, and digital collectibles. NFTs will also take away the tussle of acquiring property ownership like lands, houses, and vehicles. NFTs create a digitalized and easier world. With the growth and incredibility of this development, it will be no surprise to what next will be placed before us.