NFT is short for non-fungible token. So what is an NFT and what can they be used for?
In simple terms an NFT is a digital asset that exists on the blockchain. Because it is on the blockchain it has built in authentication that proves ownership of the original item. There may be hundreds or even thousands of “copies” of the item but the blockchain proves who owns the original.
Proof of ownership of the original “piece” creates investment value for collectors as well as bragging rights for the owner.
This is why NFTs have become particularly popular in the art world…they can be many copies of a specific piece of artwork but the owner of the NFT is the owner of record of the original piece. This will prevent a forged copy being sold as the original which will protect the investment value of the piece.
How Do NFTs Work?
NFTs typically exist on the Ethereum blockchain. They are unique digital assets that can’t be exchanged in a like for like manner – thus non-fungible.
The digital file typically stores extra information about the item – artist name, owner info, etc. This extra information is what allows them to take many forms 0 art, photos, memories or music for example.
NFTs can be bought and sold just like physical items even though they exist only in a digital format. The fact that provenance can be proven by the blockchain adds value to the NFT. This insures the original item is not devalued by copies that exist on the blockchain the same way that prints of a physical piece of art piece do not devalue the original art piece.
What Can NFTs be Used For?
NFTs can be used to represent any digital object…including both tangible and intangible objects. This can include items such as:
- Video Clips
- Sports Clips
- Video Games
and many more items!
NFTs are a digital form of a collector item. The owner of an NFT is the exclusive owner…there can be only one! Because the NFT is unique ownership can be easily verified thus allowing the owner to transfer the token to a new owner if desired.
The creator of an NFT can add specific data to the NFT such as a signature or serial number. The owner can also add information to the NFT.
Can I Buy NFTs?
Yes! In order to buy NFTs you will need a digital wallet that allows you to store cryptocurrency in order to pay for the NFT. The digital wallet is also where you will store the token that proves ownership of the NFT after you purchase it.
Once you have your wallet set up you will need to go to a cryptocurrency exchange like Coinbase, Kraken, eToro, etc to buy cryptocurrency that you can then transfer to your wallet.
As a buyer you should be careful when buying NFTs as many marketplaces do not require the seller to prove ownership. This makes it easy for impersonators to sell illegal copies of digital works.
Should You Invest in NFTs?
The answer right now is maybe! Although they have been around for a few years now they are just starting to gain in popularity. There isn’t a long history that you can examine in order to get a feel for the market. Check out this article from Forbes for more info on investing including tax considerations of NFTs.