NFTs are revolutionizing the world of art, music and gaming, but what are non-fungible tokens (NFTs), how do they work and who is using them?
Non-fungible tokens (NFTs) are digital versions of real-world goods that collectors purchase and typically sell online. Blockchain technology, and frequently the Ethereum blockchain, underpins them.
Additionally, they have authentication at their core, which acts as ownership confirmation.
NFTs, like actual works of art or collectibles, are one-of-a-kind or have a limited run, therefore their value fluctuates over time, like a bin that sold for $252,000 in February 2022.
Market fluctuations are possible. For instance, Twitter's creator Jack Dorsey sold his initial tweet as an NFT for $2.9 million in 2021. Later, the Wall Street Journal article indicated that the item's price had dropped to $14,000.
How Do NFTs Work?
NFTs have been operating since 2014, but their sales have been increasing steadily; according to Reuters, they hit $25 billion in sales in 2021. Although the average price is between $100 to $1,000, some individual items have been estimated as high as $90 million.
Different nations have different adoption rates for NFTs, with 20 percent of adults in Thailand, Indonesia, the Philippines, and the United Arab Emirates owning one. However, only 3% of adults in nations like the US, UK, and Japan own an NFT, and 70% of Americans, 78% British, and 90% of Japanese do not even know what an NFT is.
For a potential buyer, the main value of NFTs is that they codify the ownership of anything, such as music or some form of art.
For creators, NFTs offer a way to sell their work that's more accessible than places like art galleries, or music streaming services, where consumers typically go for their favorite artists.
This enables artists to sell directly to their fans and continue to receive royalties when their art is resold.
What Is The Difference Between NFT And Crypto?
Cryptocurrency and NFT are built with same technology, blockchain, both follow the same rules of online commerce, and with cryptocurrency often used in NFT purchases, the same can attract digital players.
However, whereas each bitcoin has equal value, non-fungible tokens are unique, have individual value and cannot be traded for any other value.
How To Store NFTs?
With the growing interest in the digital art industry, so have the risks, as hackers find more ways to break into systems and steal data. According to data analysis by Slowmist, in the first four months of 2022, $52 million was lost due to NFT crimes. In 2021, this loss was $7 million, meaning a 667% increase in NFT-based cybercrime compared to last year.
It is recommended to use a secure crypto wallet to lower the elevated risk of NFT theft. A digital signature is issued to each NFT during creation. This signature, which is also a token that defines the type of asset (digital art, song, gif, etc.), is stored on the blockchain and establishes ownership of the NFTs.
However, the asset's associated file itself is stored on the NFT marketplace where it was purchased (ie OpenSea, Axie Infinity, Mintable, etc.).
Before buying or selling an NFT, a crypto wallet must be connected to the NFT marketplace in question. Although NFTs are not stored in crypto wallets, wallets provide access to investments held on the blockchain via a secret key.
The two main types of crypto wallets are hardware wallets and software wallets. Hardware wallets are offline, physical devices, software wallets are stored locally as an application on a computer's hard drive.
Due to their high security measures, hardware wallets are often the recommended storage choice for NFTs as hackers cannot access offline devices.
Who Creates And Uses NFTs?
Big brands like Coca-Cola and Marvel have started using NFTs which makes them more popular among their customers. Governments of various countries are also taking information about NFTs. The UK Treasury announced plans for the Royal Mint to create a national NFT by the summer of 2022, as part of an initiative to adapt the UK to new technologies.
Other uses of NFTs may include identity management – where a person's identity is digitally represented with an NFT – to improve the ability to perform identity verification checks. And smart contracts implemented through NFTs can promote more transparent and secure transactions.