Context:
NFTs are gaining massive popularity now because they are becoming an increasingly popular way to showcase and sell digital artwork.
Relevance:
GS III- Indian Economy (Money and Banking)
Dimensions of the Article:
- What are Non fungible tokens( NFTs)?
- How do NFTs work?
- Difference between NFT and cryptocurrency
- Risks associated with buying NFTs
What are Non fungible tokens( NFTs)?
- Anything that can be converted into a digital form can be an NFT.
- Everything from your drawings, photos, videos, GIF, music, in-game items, selfies, and even a tweet can be turned into an NFT, which can then be traded online using cryptocurrency.
- But what makes NFTs unique from other digital forms is that it is backed by Blockchain technology.
- For the uninitiated, Blockchain is a distributed ledger where all transactions are recorded. It is like your bank passbook, except all your transactions are transparent and can be seen by anyone and cannot be changed or modified once recorded.
- NFTs are gaining massive popularity now because they are becoming an increasingly popular way to showcase and sell your digital artwork.
- Billions of dollars have been spent on NFTs since its inception—which date backs to 2015
- Terra Nulius was the first NFT on Ethereum Blockchain, although this project was merely an idea which only allowed to customise a short message which was then recorded on blockchain.
- Then came Curio Cards, CryptoPunks and CryptoCats in 2017, before NFTS slowly moved into public awareness, then expanding into mainstream adoption in early 2021.
Who can buy NFTs?
- Anyone who holds a cryptocurrency wallet can buy an NFT. That is the only prerequisite to purchase an NFT.
- There is no need of any KYC documents to purchase an art.
- All you need is a cryptocurrency wallet powered by Metamask, and an NFT marketplace where you can buy and sell NFTs.
How do NFTs work?
- NFT works on blockchain as it gives users complete ownership of a digital asset.
- For instance, if you’re a sketch artist, and if you convert your digital asset to an NFT, what you get is proof of ownership, powered by Blockchain.
- In simple words, when you list your NFT on a marketplace, you pay something called a gas fee (transaction fee) for using the Blockchain, following which your digital art is then recorded on Blockchain, mentioning that you (your address) own the particular NFT.
- This gives you full ownership—which cannot be edited or modified by anyone, including the marketplace owner.
- An NFT is thus created, or as crypto enthusiasts say it is “minted”, to get exclusive ownership rights.
- NFTs can have only one owner at a time.
- Apart from exclusive ownership, NFT owners can also digitally sign their artwork and store specific information in their NFTs metadata. This will be only viewable to the individual who bought the NFT.
Difference between NFT and cryptocurrency
NFTs and cryptocurrencies are very different from each other. While both are built on Blockchain, that is where the similarity ends.
Cryptocurrency:
- It is a currency and is fungible, meaning that it is interchangeable.
- For instance, if you hold one crypto token, say one Ethereum, the next Ethereum that you hold will also be of the same value.
NFTs:
- These are non-fungible, that means the value of one NFT is not equal to another.
- Every art is different from other, making it non fungible, and unique.
Risks associated with buying NFTs:
- Emergence of fake marketplaces,
- Unverified sellers often impersonating real artists and selling copies of their artworks for half prices.
- Recently, pop culture icon Ozzy Osbourne’s NFT collection CryptoBatz went live. People complained about a potential phishing link shared by the artist that was draining their crypto wallets. At least 1,330 people had visited the fake NFT project. An Ethereum wallet address linked to the scammers had received a series of incoming transactions totaling 14.6 ETH ($40,895) on January 20.
- In order to validate transactions, crypto mining is done, which requires high powered computers that run at a very high capacity, affecting the environment ultimately.
-Source: Business Standards
