It's no secret that cryptocurrencies and blockchain technology are exciting topics to talk about and get involved with in the 21st century.
Ever since Bitcoin, the world's first cryptocurrency, got launched, millions of people globally have got excited about such innovative concepts. Of course, next-generation currencies and cryptography are constantly evolving and introducing new things to the world.
The latest examples are NFTs. You may have heard of NFTs in the past, but if you are unsure of what they are or how they fit in with the blockchain ecosphere, here's what you need to know on the subject.
An NFT is short for "Non-Fungible Token." In a nutshell, a non-fungible token is a unique unit of data stored on a digital ledger (a blockchain). An NFT aims to prove that a digital asset is unique and isn't interchangeable.
In contrast, you can consider a cryptocurrency coin such as a Bitcoin to be a fungible unit of data because you can trade a Bitcoin with another one. An NFT cannot be exchanged with another one as you would with cryptocurrency coins.
By now, you might be wondering what an NFT can represent. Put simply, NFTs are methods of certifying that digital assets belong to a specific entity on a blockchain. Examples of the digital assets they certify include:
One analogy might be to compare NFTs with vehicle titles. If you possess a vehicle title, you own a specific make and model of a car. There might be other cars like yours that look the same and have the same color, but only you are your vehicle's owner.
As you know so far, a blockchain NFT is simply a piece of data on a blockchain that provides certification that an entity owns a digital asset. Blockchains such as Ethereum, FLOW, and Tezos have NFTs, although other blockchains can implement them too if they wish.
But, how exactly do NFTs work? Websites like OpenSea enable individuals and organizations to buy and sell NFTs - the proof of ownership to digital assets like images or other multimedia.
When you buy an NFT, what you are doing is paying for the ability to transfer ownership of it to your digital wallet. It's a token that proves you own the original digital asset and not a copy of it.
There is only ever one quantity of a specific NFT that you can purchase. You can't have multiple NFTs for the same digital asset. It's an exciting concept and one that has exploded onto the scene relatively recently.
If you purchase some NFTs, or you create some for digital assets that you made, they get safely stored in your digital wallet alongside your cryptocurrency coins.
Your digital wallet could contain a mixture of Ethereum coins and NFTs as they can theoretically belong to the same blockchain or type of blockchain.
Unique NFTs exist thanks to an experiment by two people at a museum conference in New York City back in 2014. The idea was to create a digital, tradeable blockchain marker linked to a unique piece of art.
Back then, the concept seemed like an innovative idea at the time. A year later, the Etheria NFT project got launched at DEVCON 1, the first Ethereum developer conference in London, England, and only three months after the Ethereum cryptocurrency was launched.
The idea behind Etheria was to offer 457 purchasable hexagonal tiles that were also tradable.
However, the Etheria project didn't gain much traction until 2021, when a buying frenzy occurred. All the tiles got sold to other people, resulting in a total sale of US$1.4 million.
Mainstream awareness of NFTs didn't really happen until 2017, partly because Ethereum gained prominence over the Bitcoin cryptocurrency at the time. Today, many NFT projects exist, including ones created by well-known companies like Nike.
When you first started reading this page, you were undoubtedly wondering what are NFTs in blockchain technology. You now have a fuller understanding of the subject, and it sounds like an exciting idea if you want to sell or buy digital assets.
But, there are some downsides of NFTs that you need to know as well. They are as follows:
The first fact to note is that while NFTs themselves are unique, and it gives you proof that you own digital assets, it doesn't protect the digital assets themselves. For example, if you bought an NFT of a digital photograph, that image can get copied by other people.
It might seem pointless buying an NFT when you could potentially get copies of digital assets for free. However, the same thing happens in the offline world; people make copies of famous artwork all the time and even digitize them.
Another disadvantage of NFTs is the environmental impact. As you probably know, the processing of blockchain transactions uses up a lot of computing power which, in turn, consumes a lot of electricity.
NFTs are only meant to provide proof of ownership of digital works. For example, suppose a music artist recorded a new song on an analog tape. They couldn't create an NFT for their tape, but they could if they recorded their song on a digital medium, such as an MP3 file.
Lastly, an NFT doesn't necessarily transfer copyright to whoever purchases it and stores it in their digital wallet.
Copyrights always stay with the original artist or inventor of the digital assets unless they specifically state that ownership of copyrights gets transferred to the NFT owners.
There's no denying that NFTs are an exciting way to prove that you own a unique digital masterpiece. Plus, proof of ownership is secure as it gets stored in the blockchain. However, it's worth noting there are some criticisms of the concept.
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