If the cryptocurrencies and Blockchain weren’t complicated enough to get a hang of, now we have another new-age instrument to tax our brains – NFT.
NFT stands for Non-Fungible Tokens.
And these are the latest craze in the crypto world.
What is NFT?
NFTs are exotic digital collectibles. Owning an NFT is like owning a one-of-a-kind piece of collectible. The only difference is that it is in digital form and not a physical one. These are claimed to be a form of new digital assets.
Being a cryptographic token, NFT represents something unique that tends to gets its value because of its uniqueness. Or in digital terms, it gets its value from digital scarcity. Like regular collectibles, these too can be bought and sold. But each NFT is distinguished by a unique code that is recorded on its blockchain. This code can be used to clearly establish and track the real owner of the NFT. What else? The buyers also get digital bragging rights!
And what is Non-Fungible (N & F) in NFT?
Bitcoin and other cryptocurrencies are fungible. That is, all Bitcoins are replicas of each other and are easily interchangeable. It’s like my Bitcoin and your Bitcoin are no different. They are not unique within themselves. But NFTs are Non-Fungible. They are not interchangeable. Every token is unique in itself and that is what leads to digital scarcity and an increase in perception of its value.
So unlike cryptocurrencies like Bitcoin or Ethereum, which are fungible, NFTs are unique and non-fungible (hence the name Non-Fungible Tokens).
In technical terms, NFTs are units of immutable data signifying unique ownership to a digital object stored in the ERC-721 data standard format (that provides non-fungibility – read more here if interested) as opposed to the ERC-20 format of fungible assets) on the Ethereum blockchain.
Suppose you create a work of art. Now you want to sell it. You can do it physically as it has always been done. But NFTs provide another route. Blockchain technology allows you to digitize your artwork and tokenize it into an NFT. This NFT is now the true certified original copy and will become the ‘digital’ property of the buyer of NFT.
An example is a digital artwork named “Everydays: The First 5000 Days“. This was the world’s first NFT verified digital artwork to be sold in a major auction. And believe it or not, it was sold for $69 Million! Read more about it here.
Have a look at the image that was sold for more than Rs 500 crore!
(Image source: Wikipedia):
So in a way, NFTs are changing the art industry. Only time will tell if this trend sticks on or not. Maybe, one day you can buy an NFT for Monalisa!
And not just art, anything can be sold as NFT. Twitter founder Jack Dorsey sold his first-ever tweet as an NFT for almost $2.9 million!
Here is the tweet:
And here is what it was sold for. At the then BTC-USD rates for 51 Bitcoins or $2.9 million only!
I read somewhere recently that despite Chinese authorities curbing Bitcoin mining around the country, a prominent Chinese company put on sale two NFT-backed images and these NFTs were quickly sold out. So even in the largest crypto-mining nation in the world, NFTs are catching on. But it’s possible that the regulations may stand in the way of its large-scale adoption. Given the new curbs, the Chinese people are not crazy about cryptocurrencies as of now. It’s possible that the government is curbing the mining of private cryptos in an effort to eventually launch its own digital currency or digital Yuan. And then there would be a need for different YuanPay Group type distributors or mediators for buying and selling digital currencies in China. As for the NFT, only time will tell how the NFT market pans out in China as NFT itself is one of the use-cases of cryptocurrencies only.
When you purchase an NFT, then instead of getting an actual painting (or some other item) that you can physically touch or keep in your home, you as a buyer get a digital file in a token form (NFT) saved in a digital wallet linked with an NFT exchange.
But why the hell do we need NFTs?
I am not sure but since the entire world is adopting the digital in ways unimaginable till just a few years back, I think even artworks needed to adapt to the changing times. I am not saying physical art will just vanish. But maybe, digital NFT based art will gradually create a niche space for itself. Another aspect is about establishing authority. If make a painting, click a photo and send it to 10 people, then 10 (+ you) have the same thing. If they forward it further, then more people have it. So who is the actual owner? NFT solves this by establishing digital ownership rights.
NFTs are helping establish digital scarcity, uniqueness, and proof of ownership. And this is indeed something that was earlier not possible online. Apart from its role in art and collectible space, I think there might be other use cases as well. But since it’s a new space, the world is still figuring things out about NFT and what it can do for us.
Should you invest in NFTs?
If you are a small investor…
Forget about it. Just because you can buy NFTs, does not mean you should buy them. It’s a clear avoid for now.
It’s something very niche and we have no idea how the NFT market will develop in the future. Like cryptocurrency investing, even NFT is incredibly risky. Some say NFT is the volatile part of the already volatile cryptocurrency market! And it’s quite possible that investing in NFT is like investing in a bubble right now.
Another factor is the NFT market in India is unregulated. Just like the cryptocurrency market.
Just because you have money to spare, you shouldn’t jump up and start buying random NFT.
If you really want to try things out, first use a few thousand Rupees to invest in Bitcoin and other Altcoins.
And that too only after you have covered your basics like having a life and health insurance, emergency fund, financial goal planning for all your important financial goals, investments in provident funds, equity funds, debt funds, etc.
So that is all about NFTs and whether you should invest in NFT or not in India (2021). No doubt it’s a hot buzzword of the crypto world right now. But you don’t need to get into everything all the time. So if you are not a rich person or an art collector, give NFT a miss for now. Let this whole concept of NFTs prove their worth first and then you can think about it again.