Cryptocurrency Explained: What Is an NFT?
As Bitcoin and other cryptocurrencies continue to rise in popularity, people have begun to apply the technology behind our favorite coins to something other than finance. Blockchain technology has found a place in gaming, art, celebrities, sports; you name it — there is probably an NFT out there for it.
Many say that 2021 is the year of the NFT, and if you have taken a look at crypto headlines over the past few months — then that sentiment rings true. Over the last few months, everyone from the NBA to Snoop Dogg has hopped on the bandwagon to secure their place on the blockchain.
Essentially, NFTs are tokens used to prove ownership of unique items - allowing people to tokenize anything from art, collectibles, and even wedding rings. Today, I'm breaking down everything you need to know about NFTs.
What is an NFT?
NFT stands for non-fungible token. A non-fungible token is a digital asset stored on the blockchain to represent a wide range of things that can exist digitally or tangibly, including digital art, sports cards, gaming add-ons, and so much more. They are bought and sold online, frequently using cryptocurrency (mostly ETH).
NFTs are collectibles for the digital age and can be used to tokenize just about anything. One of the main advantages of owning a digital collectible versus physical is that each NFT contains unique information encoded on the blockchain. This information makes each NFT distinct and easily verifiable, eliminating the distribution of fakes because now all collectibles can be traced back to the original issuer. Data stored using blockchain technology is immutable - meaning that it can not be changed or erased. This means that anything recorded on an NFT is here to stay and cannot be tampered with or faked.
Most NFTs are built based on Ethereum blockchain standards that make it easy for software developers to create NFTs and ensure they are compatible with the broader ecosystem. If you are purchasing an NFT on the Ethereum blockchain, you must buy with ETH and pay the required gas fees.
While NFTs use the same technology as cryptocurrencies, they are not the same. One bitcoin is virtually the same as any other bitcoin, meaning bitcoin is fungible or is easily replaced with another identical item. NFTs are non-fungible, meaning they are not interchangeable because no two NFTs are identical. Each token has different attributes encoded into it on the blockchain.
The best way to think about an NFTs is like a concert ticket — most concert tickets look the same, but the barcode on the ticket contains specific information that is unique to the purchaser, the date of the event, the venue, etc. This data makes it impossible for all concert tickets to be traded interchangeably. Some ticket companies even require you to use their software to digitally transfer concert tickets when selling, eliminating the risk of being sold fake tickets.
To better grasp this concept, let's get right into some more of the most popular uses of NFTs.
CyptoKitties is one of the first uses of NFTs. In this blockchain-based game, you can purchase, collect, breed, and sell virtual cats with each CryptoKitty uniquely coded on the blockchain.
Have you ever tried to look up sports trading cards on eBay? Unique and rare cards can be sold for big bucks. The sports industry has upgraded its collectibles approach to be more modern and more difficult to fake with NFTs.
NBA Top Shot is a blockchain application from the NBA that has recently exploded in popularity. Each item in Top Shot is an NFT containing iconic video clips of a game moment instead of a photo like a regular trading card. Because it is an NFT, it has unique identifying information and a blockchain-based guarantee of authenticity.
Top Shot is an example of an NFT that does not use the Ethereum blockchain. Instead, it uses a blockchain from Dapper Labs created with the sole purpose of building NFTs. You can buy, sell, and trade your moments directly on the NBA Top Shot platform.
Art + Music
Since the dawn of time, the art world has been plagued with counterfeiters, thieves, and people taking credit for artwork they did not create. So far, the internet has only made it easier to steal other people's work. With the advent of NFTs, these problems are a thing of the past. NFTs are used to encrypt digital artworks with the artist's signature on the blockchain, which effectively verifies authenticity and ownership.
Music artists have been some of the world's most prominent champions of NFTs, with NFT projects popping up all around the industry. Among the world's top-selling NFT artists make music. The top 30 sellers include names like 3LAU, Grimes, Steve Aoki, Deadmau5, and Odesza. In March, Kings of Leon became the first band to release a new album as a non-fungible token.
NFTs have helped musicians find new ways to share their work during the COVID-19 pandemic. After more than a year of no concerts or in-person events, the music industry has taken a brutal hit economically. With artists forced to seek new ways of making money in a world that has become more digital, NFTs have been a perfect solution.
Why are NFTs so popular?
The popularity of NFTs has grown in tandem with the popularity of cryptocurrency. As more and more people learn about cryptocurrencies like Bitcoin, the value of blockchain technology in other areas of life is becoming more widely understood. For the first time, any item can have a clear record of ownership, proof of authenticity, and evidence of rarity.
NFTs also hold the promise of significant gains. For example, when NBA Top Shots packs are first released, they are priced anywhere from $9 to $230. The "From the Top" deck initially sold for $230, but a Lebron James Dunk from the pack was resold for $387,000. That's a huge profit.
The NFT hype of early 2021 may have settled a bit, but it is clear NFTs are here to stay. NFTs are extremely useful as an immutable record of ownership and authenticity and can be used for just about anything.
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