What is the meaning of NFT, and how does it work?

NFT is short for non-fungible tokens. These are digital assets, meaning you cannot physically see or touch them. They are only verified through blockchain technology. A fungible good would be something like a 10-dollar bill, meaning it has an assigned value and can be traded for any other 10-dollar note. 

An NFT is a unique asset and can not be swapped for another NFT. This is the reason why they are so unique and valuable. An NFT could be anything from a piece of art, a song or music, avatars, or even a meme. The possibilities are endless. Collectors pride themselves in owning one-of-a-kind assets, and with the uniqueness of NFTs, they would be ready to give large amounts of money for these collections.

NFTs are transferred through blockchain technology. The transaction leaves a digital trail that verifies the authenticity of ownership. Think of it this way. If you were an art collector and wanted to own the famous Monalisa painting, you would buy it from its current owner and have a certificate of ownership to prove that the transaction occurred. This is the same with NFTs, only digital. You buy the desired asset from the owner, and the blockchain technology trail acts as the certificate of ownership. With the advancements in this field, you can now create a digital signature for your assets.

So how does it work? Simple. Through marketplaces. The creators advertise these digital assets on popular market sites where collectors and investors can scroll through and view them. You must know that you must have cryptocurrency to buy NFTs or even create an account in the marketplace. This is the only form of currency that can be used.

If you are an artist, company, or celebrity, you can digitize your assets and sell them as NFTs. Digitizing is done by assigning a unique identification code and metadata that distinguishes it from other NFTs.

What are the uses of an NFT?

You can do pretty much anything. Once you own an NFT, whatever you do with it is up to you. Some people hold on to them and wait for them to appreciate the value and later resell them. This option is probably the best thing to do with it. For some NFTs like in-game assets, players use them to conquer challenges in online games or create unique quests. This move, in turn, makes them popular or puts them on leaderboards.

You can use NFTs to create sole ownership of an asset or mark it as intellectual property. For example, you could buy music or videos as NFTs and control how they are used or duplicated. 

It isn’t apparent at the start. Let’s say you’ve purchased a particular song. It doesn’t mean that other people can not listen to it. They still can, but they would require your permission for any other commercial use as you are the legally recognized owner of that song. This applies to all other forms of NFTs. You could also donate an NFT as an act of charity. In this case, all the proceeds generated from the NFTs go to the charity foundation you choose.

How to create an NFT artwork

NFTs are not created. They are “minted.” Minting is the act of changing a digital file into a blockchain-based NFT. This process is not free and is done with the help of marketplaces. Another mandatory requirement is a crypto wallet. The most common crypto used here is Ethereum, so you should create a crypto wallet that’s compatible with the Ethereum network.

The next move is to choose the right marketplace. Most marketplaces offer an easy step-by-step procedure for minting your digital art. You can select your preferred marketplace based on what you are minting. You can also make your decision based on the fees they charge for this process. Take your time here, as this will affect the possibility of getting a buyer for your NFT.

Once you have selected your marketplace, you will be required to pay a one-time activation fee for your account. This varies from one marketplace to the other. The next step would be to connect your crypto wallet to the market. The wallet must have cryptos in it, preferably in the form of Ethereum. Once connected, you will need to create a profile which must be verified through email or any other form. Upon completion of this, you can now click on the “create” button, which will direct you to how to upload your digital art. You will then set its fixed-price or auction option, after which you will proceed to list it in the marketplace. You have just minted your first NFT.

How to invest in NFT

Like forex trading, investing in NFTs requires you to buy an NFT asset and sell it to another collector at a higher price. The biggest challenge here is that NFTs have no assigned value. Experienced forex traders can sometimes predict the price changes of a currency and trade on it. But with NFTs, this is next to impossible. The price of an NFT is only estimated by its perceived value. Much more like a collector’s item. For example, anyone could buy an NFT of a painting. After several years, if the original painter dies, the image becomes a rare collection; hence, its value increases exponentially. But as you can see, such predictions are impossible.

Another way to invest in NFTs is through proceeds. This is where you receive proceeds when someone uses your NFT for their purposes. For example, if you owned an NFT to a video, you could get profits whenever it is played on-air or through other media. You could also charge a fee for duplication, or if you are the original creator of the NFT, you could get some proceeds every time the NFT is bought or sold. Most people, however, buy NFTs as a collection rather than an investment.

Buying NFTs through blockchain technology is one of the safest approaches to promoting your portfolio. It can also increase the value of your NFT over time by reducing the availability of the cryptocurrency. Some marketplaces provide their cryptocurrency tokens. When these tokens increase in value, so will the value of the NFT. 

This means that you can make money without having to sell your NFTs. The tokens are specially designed for rewards and governance. 

Furthermore, there is another option of investing in NFT stocks, which entails buying stocks with NFT exposure. You can also invest in companies dealing with NFTs and make profits from their sales.

How do I know if NFT is worth buying?

You don’t. There is no proven method of estimating the true worth of an NFT. It’s simply a leap of faith. It is based on instincts and the public perception of the NFT’s value. For example, an NFT from a celebrity has a higher perceived value than one from an unknown person. An NFT of a viral or famous asset, such as a tweet from Elon Musk or a popular meme, will also have a higher perceived value. 

All these decisions are based on assumptions. The best way to buy an NFT is by seeing its value yourself. Because that way you can advertise it and explain the reason behind buying it. You can also keep up with emerging trends and news to determine NFTs that are most likely to increase in value.

There are numerous cases where people have made millions from NFTs; therefore, do not be discouraged. However, do not just buy any NFT simply because it has been digitized. Do intensive research on the asset and its previous owners to have some knowledge on which to base your decision.

Is NFT a cryptocurrency?

No. NFTs are not cryptocurrencies. This is clear from the term non-fungible. An NFT cannot be traded for another. They, however, use the same blockchain technology for verification and can be bought with cryptos. A cryptocurrency is a form of digital currency, while NFTs are digital assets. Each NFT defines a unique asset with its characteristics and value, but one bitcoin is entirely the same and interchangeable with any other bitcoin in the world. Think of it this way. A Subaru and a Mercedes are both cars. 

But you cannot exchange the Subaru and expect a Mercedes in return. This is the same case with NFTs. You can, however, sell the Mercedes for a certain amount of money and use some of the money to buy the Subaru. The equivalent of this would be trading one NFT and getting cryptos in return, then using those cryptos to purchase a different NFT. In conclusion, you can exchange NFTs for cryptos and vice versa, but you cannot use NFTs as a cryptocurrency.

One key advantage of owning an NFT, or converting your digital art into NFTs, is that the blockchain technology used to signify ownership digitally can make an investor’s ownership of an asset more secure and transparent. It is considered safer than physical security.