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NFTs Explained: What Is This Digital Asset That's Making So Many People Millionaires?

The NFT from Beeple that was sold for $69 million back in March. (Image Credit: Beeple)

The NFT from Beeple that was sold for $69 million back in March. (Image Credit: Beeple)

Non-Fungible Tokens are digital assets that are stored in a blockchain.

NFTs. There’s a lot of talk about NFTs these days. People are making millions of dollars via NFTs, and some strange things are being sold at unbelievable prices. For example, an image of a Llama is currently on sale on OpenSea for about 100,000 Ethereum coins. That is more than 2,100 crores rupees! Or a Grinch-like Sushi that is going for about 78,294 ETH coins. That is about Rs 1,700 crores!! Even Twitter founder Jack Dorsey’s first ever tweet was sold for $2.9 million (roughly Rs 21.71 crores) as an NFT earlier this year. Or a digital artwork collage from artist Mike Winklemann, who is known as Beeple that was auctioned at $69 million (roughly Rs 517 crores) at Christie’s earlier this year. This is stupid amount of money.

So, with something that doesn’t even exist in physical form generating this kind of money, there is naturally a lot of interest in NFTs. But what are NFTs and why are they deemed so valuable by people, and why do they have everyone including many celebrities involved? Let’s find out.

WHAT ARE NFTs?

So, in the most basic terms, NFTs or Non-Fungible Tokens are digital assets that are stored on a blockchain. Now, this can be anything - an image, a video, a graphic, an icon, even a single pixel or piece of text, or a tweet for that matter.

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The non-fungible in Non-fungible tokens means that the item is unique and one of its kind. For example, a smartphone that you own is a fungible item since it can be replaced with the exact same one, in case its sold or goes away from you. This makes the smartphone a fungible item. But, on the other hand, something like a Kohinoor diamond is non-fungible, because there’s only one of them and not every diamond is a Kohinoor diamond. So every non-fungible token is unique and one-of-its kind. NFTs can really be anything digital like a gif, a video, a photo, anything.

Now, in cases of a photo or a video, NFTs get a little complicated. For example, someone paid about $6.6 million (roughly Rs 49.42 crores) or just less than 49 crores rupees for a video by Beeple that anyone can just download from the internet. Similarly, anyone can copy an image if it’s online.

So why buy an NFT, since anyone can copy an image or a video? Well, buying an NFT gives you proof of ownership of that said digital asset. This means that on the certain blockchain network that the NFT functions on, everyone knows and can see that you are the owner of the said NFT or non-fungible token. This ownership can be sold to another person.

As with people copying and downloading an image or video, that is just a copy of the NFT that they are saving, not the actual thing. For example, there are a lot of copies of the Mona Lisa painting, but there’s only one real one. However, NFTs can and have been created in sets like trading cards where there’s 50 or hundred of the same exact NFT that are up for sale.

What is the point of NFTs

Now the point of NFTs can vary for different kinds of people. For example, if you are an artist, it offers you a platform for selling your art. For instance, if you are an artist and you come up with a really cool sticker idea, creating an NFT out of it is much better than like selling it on the iMessages app store.

For buyers, NFT works as a speculative asset. This means that people buy the thing and hope for its value to increase over time. This, apart from the idea of supporting your favourite artists. Another factor is that it gives you bragging rights that you own a piece of art. NFTs are being treated like the future of art collection, to put it simply.

Given that any digital thing can be an NFT, there are several use cases one can think of. One of the most interesting one we have found is Nike using an NFT system to verify the authenticity of sneakers.

How do we buy and sell NFTs?

So NFTs can be bought and sold very easily. There are many marketplaces that have opened up around NFTs. Some of the most commonly-used NFT marketplaces are OpenSea, Rarible, and Nifty Gateway. There are plenty of other NFT marketplaces where you can buy and sell NFTs.

How to Create NFTs

So creating an NFT is something that can get complicated. The first step is to pick an artwork or an item that you want to create an NFT out of. This can be any photo you took, or graphic you design, or a video you shot that you can claim ownership of. Secondly, since minting an NFTs costs money and most NFTs work on the Ethereum network, it requires you to have an Ethereum wallet.

Let us take an example of OpenSea since it allows users to join for free, and has no moderation on the content you can list. Now, OpenSea uses MetaMask as the Ether wallet. The process of creating an NFT via OpenSea is free but you still have to connect a wallet to create an account.

Now once you’ve created an account and connected your wallet, you can go on to create your NFT. The OpenSea website will show you a “Create" option, where you will need to create a collection by filling all the required information, and clicking save. Now you’re ready to start the actual minting process of a new NFT by loading your artwork onto the platform.

Mind you, minting NFTs will cost you money. Now, the price requested to create the NFT is highly volatile. Therefore, you will need an Ethereum wallet with some Ether coins in it. The safe way is to have about $100 worth of Ether coins in your wallet before you begin.

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first published:October 09, 2021, 09:00 IST