What is NFT? And why should I care?
Sigma School
16th August 2023
Jack Dorsey, the co-founder and current CEO of Twitter, is now selling the first tweet as an NFT (non-fungible token). Dorsey shared a link in his recent tweet with a link to the digital bidding platform called “Valuables,” a platform for the buying and selling of tweets that’s been autographed by the original creator. The tweet up for bid is Dorsey's first ever tweet on Twitter and currently, the highest bid is $2.5 Million USD from Sina Estavi, CEO of Bridge Oracle.
This is Nyan Cat, a GIF of a rainbow casting feline was a viral meme back in 2011. In February 2021, the original GIF of Nyan Cat sold for about $580,000. Yes, you read that right, $580,000!
Anyone can look up and make a copy of the GIF, yet it sold for over half a million dollars.
An NFT is a unique digital token which can help to verify the authenticity and ownership. Basically, by purchasing the NFT, you have the ownership of the original code to the virtual item. However, a person can’t exchange one NFT for another unlike how we normally do with money or other assets. This makes each NFT unique and acts as the collector's item which can't be duplicated by anyone.
Back in 2018, the overall market for NFTs was around $41 million, however, when the pandemic started in 2020, according to the data collected from nonfungible.com, the overall market for NFTs ballooned to over $338 million!
NFT can be thought of as certificates of ownership for virtual or physical assets.
Like cryptocurrency, the ownership record is stored on a shared ledger known as the blockchain.
To have a better understanding of just how NFT really works, one must understand the word ‘fungibility’. In layman's terms, it’s the ability to exchange or substitute an asset with a similar asset of the same value. The most common example of fungible assets is currency.
Assume that you have five < bills in your wallet, but you don’t want to be carrying so much change. You’re able to exchange those five < bills into a single $5 bill, thus the value is still the same but in a different format. Non-fungible assets are quite the opposite, each one is unique and cannot be exchanged or substituted.
For example, just like the famous Mona Lisa painting, it can’t be exchanged for a poster of the Mona Lisa from a gift shop, because the value is completely different.
The idea behind an NFT is that you’d have this digital signature, just like a great piece of art that might have the signature of the artist. It’s as if you’re going to the original work and verifying that this is real and authentic.
While the GIFs or JPEGs in question still exist on the internet for anyone to copy, blockchain technology allows people to certify that they own the original.
An NFT can never be changed, never be adjusted, and never be stolen, thanks to the principles of cryptography that make the blockchain unique.
Although both NFT and Bitcoins are based on blockchain technology, the key difference goes back to cryptocurrency being fungible. You can exchange a Bitcoin for another Bitcoin, for example. However, you cannot do so for an NFT. A non-fungible token is tied to one particular digital asset and cannot be replaced.
Well, a non-fungible token is essentially a certificate of ownership for a digital asset. The value comes from the collectibility of that asset, as well as its potential future sale value. NFTs can be sold and traded.
Should I buy NFT right now? Am I missing out?
NFTs are a relatively new investment and it carries greater risk. NFT value’s largely based on what someone is willing to pay for it, so it's hard to say whether they will be a good investment long term.
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