Decoding NFTs
In the pandemic-inflicted world of four walls, social media has been the primary outlet for nearly two years. Today, it is fairly easy to know what the world at large is thinking or heading towards, and guess what is trending on almost all social media channels lately? NFTs!
NFTs has been the rage among artist communities, and it has matured to such an extent that even non-artists are putting up their photographs or even tweets as NFT collectables on social media for millions of dollars! Since November 2017, $174 million has been invested in the NFT space, and it is clear that the world is definitely taking this new asset class seriously.
What is an NFT?
As with every new trend wave, NFTs are clouded with mystery. Technically, an NFT or a Non-fungible token is a unique digital asset with ownership rights. Unlike tokens such as bitcoins or real-world money, where each token is not unique and exchangeable with similar tokens, an NFT is non-fungible or non-comparable to any other token in existence.
An NFT could be any digital asset such as an art piece, a social media post, virtual land, and even this article could become an NFT. No one is stopping anybody from creating NFTs, but what is the process, and more importantly, what is the point of creating them?
Why create NFTs?
NFTs are created the same way as cryptocurrencies- through blockchain. They exist on the Ethereum blockchain, which simply put, is a distributed database of permanent records of transactions and ownership.
Imagine the significance of such permanence when it comes to art or any other asset that the creator wants to deem unique! The owner of the NFT goes down in the blockchain records as a permanent stamp, irrespective of all future transactions or exchanges in ownership.
As an example, if Leonardo da Vinci was a 21st-century artist, he could’ve created an NFT out of Mona Lisa, and here’s what would happen next:
- His name would permanently be linked to the NFT as the creator of the Mona Lisa
- He would watch bidders bid a crazy amount over the NFT until one breaks all limits and wins the deal with, say, $1 billion
- The winning bidder would be recorded in the blockchain as the owner of the Mona Lisa and receive a certificate that establishes the ownership
- Interestingly, Leonardo da Vinci will have two choices here:
a. Sell the NFT for $1 billion
b. Sell the NFT for $1 billion and turn on the royalties feature which will secure him a percentage every time the NFT exchanges hands and a new owner buys it from the previous one
It’s also fascinating that the attraction and overall trend of NFTs could actually inflate the value of digital assets. It is not a surprise that some contemporary art pieces are pumping more value compared to their classical counterparts.
How to create an NFT?
NFTs can be created, bought and sold on marketplaces such as OpenSea and Mintable. Creating an NFT is not rocket science and is almost as easy as putting up a descriptive social media post.
First, you simply need to link your crypto wallet to the marketplace and get started with the obvious “create” button that looms on these platforms. Once the details are filled in, and a few digital signatures are recorded, the NFT is all set!
The selling process is also fairly simple and requires the creator to choose between bids, fixed prices and royalty options. While buying and selling, it is critical to be wary of the marketplace you are choosing by comparing features such as liquidity and compatibility with other marketplaces.
As alluring as NFTs sound, there are also some challenges with NFTs, but that’s for another time!
