Everybody is talking about NFTs in recent times. Lots of people are starting to trade them and traders are becoming richer and richer.
It is a real gold rush, with the exception that people are now looking into the digital realm.
The world is continuously evolving and NFTs are showing potential to be one of the most influential inventions of the century.
As history teaches us, revolutions are never welcomed at the beginning by most. Again, behind detached from the mass is the first step:
Those who can recognize the value of new inventions will understand them before the mass and eventually make the most out of their potential.
The world is made by inventors and visionaries. Successful traders and investors can see those things that will shape the society in which we live before everyone else.
In this article, we will explore the fundamentals of non-fungible tokens, necessary before engaging and trading NFTs.
For better results, it is recommended to have a grasp of the basics of cryptocurrencies.
Definition of NFT
Firstly, let’s definite NFTs into a clear statement.
An NFT is a non-fungible cryptographic token that can be stored, sold, bought, and traded.
It represents a digital document that is registered through blockchain technology.
Let’s revolve around these statements to have a complete understanding of the concept. We will now break down the keywords and dedicate a paragraph for each one of them.
What is a Cryptographic Token?
There are two types of cryptocurrencies in crypto — coins and tokens.
The difference between the two is the relationship with the blockchain that they are built on.
A crypto coin is a cryptocurrency that has its own blockchain.
A crypto token is a cryptocurrency that does not have its own blockchain, instead, it is built on top of another blockchain.
In other words, a token is a sub-currency inside a coin’s ecosystem.
These sub-currencies are generated purposely with a decentralized app that has been created and settled into the coin’s blockchain.
One of the main reasons why tokens are created on top of a coin’s blockchain is to have a hosting infrastructure that worries about keeping track of all the data and validating it.
Crypto tokens are mostly fungible. Fungible tokens facilitate the operations and transactions that are so written on the host’s blockchain.
Check out this article to deepen into the difference between a crypto coin and a crypto token.
Tokens can be fungible or non-fungible, each category with its different purpose.
For example, USDT is a fungible token built on the Ethereum blockchain. An NFT is a non-fungible token, and most of the time the host infrastructure chosen to build it (or mint it) is the Ethereum blockchain.
But what is “fungible” and “non-fungible”?
What does non-fungible mean?
Fungibility is at the fundaments of finance and capitalism, especially, behind the whole concept of money.
Financial goods can be split into two macro-environments: fungible and non-fungible.
Fungibility is the property of a good whose units are interchangeable and indistinguishable from one another.
Fungible units can be substituted, subdivided, and arranged to reach exchange of the same good without loss or gain.
For example, dollars are a fungible good. You can exchange a $100 bill with another $100 bill, or with two $50 bills, or with five $20 bills, and so on. Gold is also a fungible good: you can exchange an ounce of gold with an ounce of gold or subdivisions of it, as long as it has the same quality.
Cryptocurrencies are fungible goods: 1 BTC can be exchanged for 1 BTC or subdivisions of it without losing or gaining, and likewise, it can be done with fungible tokens as USDT, because each unit is indistinguishable and interchangeable.
On the other hand:
Non-fungibility is the property of units that are not interchangeable and that are distinguishable from one another.
A non-fungible unit can’t be substituted, subdivided, or arranged without incurring loss or gain in the exchange with another unit.
In simple words, while a fungible token is undistinguished from other tokens of its kind, a non-fungible token is unique.
Finally, we understood that the fungible tokens are used to facilitate the operations and the transactions relative to their dApps.
But what is the use of non-fungible tokens (NFTs)?
How can NFTs be used?
The value of an invention is always found in how it can be used to improve society and life. Essentially, the value of an invention resides in its utility.
A large part of this means resolving the existing problems that are limiting further progress.
The importance of the NFTs is that they resolve one of the greatest, if not the greatest problem that comes with the internet and the digital world:
NFTs provide a solution for the difficulty to produce and demonstrate digital authenticity and ownership.
This solution is only possible thanks to the blockchain: this is for sure the greatest invention in this matter because it gives birth to the various solutions that can be applied in today’s world.
Before NFTs, the crypto ecosystem was developed on fungibility, but it was lacking on the other side. With the invention of NFTs, crypto provides a solution for both worlds.
While fungible coins and tokens are destined to facilitate operations and transactions, NFTs are destined for producing and demonstrating the authenticity and ownership of unique goods and assets.
In simple words, with NFTs, society can now dispose of unique virtual units.
What applications have NFTs in modern society?
The main revolution that comes with NFTs is the rebirth of Art.
With the advent of the internet and the virtual world, the art industry has been severely damaged. Music is surely the industry that has suffered the most.
With NFTs, Art can now be efficiently transported into the virtual world without dismantling the value of artwork but preserving it indisputably through the blockchain. Moreover, NFTs can trigger royalty payments to their creator every time the token is sold.
But the art industry is not the only one that will benefit from the utility of NFTs.
NFTs can also be used to track and verify real-life documents. The complete traceability of historical ownership of these tokens opens the door to the tokenization of identity- related documents, but also of property certificates.
This means that a degree could be verified through its token, or a house could be possessed, purchased, sold, or traded through its token: all this having automated and secure management of the data.
There are many other circumstances in which the NFTs could be used to improve the way society works, such as the ticketing business. We are still at the beginning and there are a lot of realms to be discovered.
Being aware of the utility of an asset and its impact on society can give a solid perspective on the safety of the trading process.
The successful trader ALWAYS operates with safe and truly valuable financial instruments and resources.
Storing an NFT
Being in effect a cryptocurrency, it can be stored in crypto-wallets. You can use your software crypto-wallet, like MetaMask, or you can use cold storage wallets, like Trezor or Ledger.
However, regarding the media that is linked to the token, it can be stored in centralized storage or decentralized storage.
When you decide where to put the metadata or media of your NFT, it is recommended to use decentralized storage like the InterPlanetary File System, for security purposes. This operation may cost you transaction fees, but it is worth it.
Purchasing, selling, or trading NFTs
Currently, the most common reason to interact with NFTs is to collect them. Today NFTs are mostly used for artworks, therefore their primary role in this initial phase is to be collectibles.
There are NFTs marketplaces in which you can buy, sell or flip NFTs, which means to do buying and selling for speculative purposes.
NFTs marketplaces are the most used environment for trading NFTs at this time.
The most popular NFT marketplace today is OpenSea. Anyway, there are a lot of alternatives, such as Foundation and Rarible, that can suit better your interests and methodology of investment.
However, it is possible to receive NFTs from people, or the creators themselves, by transacting them without necessarily passing through a third-party host like marketplaces.
What to look for when trading NFTs
All art-related NFTs must be considered exactly as you would consider the work of an artist or a famous group or individual.
Trading NFTs today is all about finding the intrinsic value and the social impact of an NFT artwork and visualizing its potential in the future of the virtual world.
Plus, you also want to consider the newness of the technology itself, which adds to each artwork an important “promoter” component.
As in all artworks, the biggest value is found behind it:
• Who is his creator?
• Does he have potential or is he already famous?
• What’s the story behind this artwork?
• What kind of impact could this have in the future?
• What’s the probability of re-selling this artwork? In what timeframe?
Investing and trading NFTs must be assisted by a solid consciousness about the virtual world and its future. Remember that NFTs are inside it and will remain inside it, therefore you must look at the virtual Art differently from the tangible Art.
Society is now split into two different worlds: virtual and tangible.
Virtual Art does not substitute tangible Art, as tangible Art does not belittle virtual Art. They just belong to two different worlds.
Your trading and investing in virtual Art is backed by your belief in the rising of the virtual world in the future of our society.
Art is always present in man’s facts and worlds. What can guarantee fertile soil in new lands should be recognized.
In conclusion
After having grasped the key concepts in them, let’s repeat once again the main statements of this article:
An NFT is a non-fungible crypto token that can be stored, sold, bought, and traded.
It represents a digital document that is registered through blockchain technology.
This technology represents a revolution for the art industry, but its potential can expand to other fields in the future.
Traders have in their hands an environment with much speculative potential: being an expert from such an early stage will guarantee a spot among the big NFTs visionaries.
NFTs can scare beginners for the apparent complexity of their nature; in reality, it is all due to the fact that cryptocurrencies are a new technology.
Like all new revolutionary technologies, it requires some time before society fully internalizes and adopts the concept.
As successful traders and investors, we are interested in taking advantage of that time to study new inventions and try to see their potential impact on the world.
Shout out to
This valuable article on the potential of NFTs for logistics.
Kamya Pandey for having listed some of the practical applications of NFTs in this article.
This interesting article in Minima talking about storing your NFTs.
Everything described in this article has the sole purpose of being informative and providing general information. The author has no intention of providing any financial advice, legal advice, or tax advice. Do not rely on this article to make investment decisions. Seek professional help before making any such decision. The author does not take any responsibility for loss or damage of any nature. The use you make of the information contained in this article is your sole responsibility.