In this particular article, I will try to explain what NFTs are and make them more digestible and comprehensible in under 10 minutes.
If you are new to the crypto market you must have read a couple of posts and articles revolving around this specific topic. But what is NFT really and why are there people making millions of US dollars apiece from them?
What is NFT?
NFT or Non-Fungible Token is a unique unit of data in a blockchain used to represent a specific digital item/asset. NFTs can be any digital file that artists sell. It could range from any kind of digital art, music/audio, videos, online or video game rare items, digital professional player cards of basketball players, baseball players, football, etc. In short, they are the authentic digital copy of their physical asset counterparts. Some even are selling screenshots of epic tweets.
One of the best examples of NFT distributors is the SoRare platform. It offers various NFT cards of famous (active or not) football players in the world. You can get free NFT cards if you register here. Just follow the tasks appointed to you and you're good to go!
In theory, these NFT cards have the same value, or even more, as the football collectible cards in a physical form.
For Millenial and Gen Z people, it is like the digital form of acquiring Pokémon Trading cards. Remember buying and collecting these, especially the rare types?
What really puts up the value of these expensive NFTs? Why do they cost too much?
The answer is the Right of Possession and scarcity in the market.
For example, you, Mona Lisa, commissioned an artist named Leonardo Da Vinci to paint you a portrait. The portrait created will be yours only, depending on the artist. Anybody can take a picture or print it out on a sheet of paper and claim that they have a copy of the Mona Lisa but the ownership rights of the original and authentic painting is only for you.
As I've said, depending on the artist, and if they decided to create two of your portraits, then there will be two owners of them, if you ever let anybody else buy the other portrait, of course.
Now, how does that affect the insane amount of money that gives value to an NFT? It is because of the supply. There are two types of NFTs available in the market. NFTs were created using ERC-721 and ERC-1155.
What's the difference? Usually, the Ethereum in your crypto wallet is created using the ERC-2o code since it is the official protocol of the Ethereum blockchain. (Blockchain is a system of recorded information that completes the digital ledger of transactions that is spread across the entire network of the computer systems of a certain coin/token.)
To explain it furtherly, think of ERC-721 and ERC-1155 as two types of vending machines. ERC-721 has a finite item under an NFT coded item, whilst ERC-1155 lets you create infinite copies of a digitally coded item.
If you, an artist, created a digital art/audio/video with ERC-721, that specific artwork of yours is the only authentic copy of it, thus giving the bidder/buyer more bragging rights once they acquire it. Whilst ERC-1155 can make multiple copies of a specific art of yours and you can sell it to a specific individual or multiple persons.
In short, the lesser the supply of an item, the higher the value it holds. The scarcity is the main reason why most NFTs can be worth millions of dollars of cash.
It may sound insane for other people to think why a digitally coded art could amount to millions. One of the most expensive sold recently is this art which was sold for an insane amount of $69 million.
As of now, according to crypto analysts and enthusiasts, we are still in the early stages of NFT adaptation in the crypto world. Elon Musk even has taken interest in the world of NFT. Is this a signal to take interest in them too? What do you think about it? Let me know your thoughts on NFT in the crypto market.
