NFT basics

Crypto Fundamental
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What is NFT?

The abbreviation NFT means "non-fungible token". To understand tokens, it is necessary to understand the environment in which they exist - in this case, the blockchain.
To keep it very simple, Blockchain is a database that is stored simultaneously on a huge number of computers. In the traditional Internet model, all devices are connected to centralized nodes (in the form of servers or ISPs), whereas blockchain works on a different scheme. It has no central nodes; in its system, all devices simultaneously store all the information published in the blockchain.

Tokens, in turn, are a register entry within that blockchain. The distinguishing feature of most tokens is the principle of interchangeability. It can be compared to currency (including cryptocurrency): one dollar, one ruble or one bitcoin can be easily replaced by one dollar, one ruble or one bitcoin belonging to other users.

However, it is clear that not all digital assets are fungible. A painting by Pablo Picasso is not identical to a work by Claude Monet, and an mp3 file of The Beatles song can hardly be replaced with a recording of an Eminem concert. This is why the format of non-interchangeable tokens was created in order to transfer unique items to blockchain.
Each NFT is unique and exists as a rule in a single copy, although this is far from necessary, as well as NFT cannot be separated, and all information about its author, buyer and all operations with it are securely stored in the blockchain. In other words, an NFT is a digital certificate attached to a unique object.

What can be sold in the form of an NFT?

Virtually anything. Music, images, text, video, 3D-models - in other words, any digital product claiming to be unique:
Particular attention NFT pay collectors (who, if not them, to search for unique items), gamers (who are interested in in-game items: skins, weapons, collectible cards, etc.), as well as figures and fans of art. And art lovers in all its forms.

The record was the sale of the painting "Everydays: The First 5000 Days" by the artist Mike Winkelmann (aka Beeple). A JPG-file of all the images that the artist painted every day for five thousand days was sold for $69.3 million. Winkelmann's painting was the first NFT-work sold for the entire history of the Christie's auction house.

Non-exchangeable tokens are of interest not only to artists, but to major publications as well. The Times Magazine sold three of its covers (including the iconic "Is God Dead?"), and The New York Times sold its column with the telling title "Buy this column on blockchain!"

Not only music tracks or drawings, but also models are being auctioned off as NFT lots. For example, Canadian artist Krista Kim was able to get $520,000 for a minimalist model of a house designed in Martian settings.

I created an NFT. What do I do now?

There are a large number of sites that work with NFT. Some are highly specialized marketplaces and differ in the categories of objects for sale: somewhere you can find items for video games exclusively, somewhere - digital art.
Notable ones include OpenSea, Rarible, Niftygateway and SuperRare. The platforms charge a fee in ether (as the exchange unit of the Ethereum cryptocurrency is called - non-mutually exchangeable tokens were created based on its infrastructure). The amount of commission varies, but is usually in the tens of dollars.

The emergence of NFT

Although Blockchain and cryptocurrencies have been around for years, NFT is a relatively new phenomenon.
Tokens of this kind were created back in the mid-2010s, but the first NFT projects only became available in 2017. The popularization of NFT, which people are now earning millions of dollars with, was originally credited to CryptoKitties, a game in which you can breed virtual cats. The game became extremely popular, and the amounts for which digital pets could be sold for were in excess of $100,000.

I bought a JPG picture in NFT format. Do I now own all the rights to it?

Sad to say, but more likely no than yes. This is the main reason to criticize NFT: because owning an NFT does not guarantee full rights to the item.

Take, for example, the simple viral video Nyan Cat, which is an animation of a cat flying through the sky and leaving a rainbow trail behind it. The NFT with the animated cat paid the creator $580,000, but you can still watch it on YouTube, download it to your smartphone, or install a screenshot of it as a screensaver on your desktop, without fear that the NFT owner will demand payment from you.

NBA Top Shots can also serve as an example - this is the name of the spectacular moments in National Basketball Association games. That is, it is possible to buy NFT, which will be attached to the ball shot performed by James LeBron or Michael Jordan's slam dunk.

NBA Top Shots

And it turns out that you can buy this "moment," but you don't own the rights to it and can't dispose of it outside of the blockchain. You can't borrow it, you can't divide it into its component parts. You can only do what the owners of those "moments" are allowed to do, namely you can buy it, keep it in your collection, and you can sell it.

If NFT buyers don't own the items, why do people buy them?

While we can indeed download the files we like, their exclusivity - not their availability on the Internet at all - is what carries the main value. Blockchain securely records the fact that it is you who has purchased some unique item previously created by its original owner, data about which is also stored in the blockchain.

For collectors, gamers and art lovers, such purchases are akin to purchasing original paintings. It is theoretically possible to buy an original copy of Kazimir Malevich's "Black Square", but the very fact of this purchase (as well as its cost) will be quite different from if we would just hang a reproduction of this painting on the wall.

But NFT can be seen not only as part of a collection or something valuable in terms of emotional experience, nostalgia, or the opportunity to brag about a unique acquisition. The resellability of NFTs embedded in their smart contracts allows us to view them as an investment as well.

However, while we have a good idea of what the value of buying art objects - for example, paintings by Picasso or Monet - might be, many questions remain in the case of NFTs, which represent a relatively new market in creativity and art.
Let's imagine that six months ago I bought one NFT for three ethers worth, let's say, $600 each. Today, I would have already paid $1,800 for each ether because of the substantial increase in price. This begs the question: has the purchased artwork become more valuable, or has only the cryptocurrency become more valuable? What is the investment itself: the art itself or the relationship between the art and the rate of cryptocurrency? In this regard, the question of what the price of NFT will be as time passes is also inevitable: will the buyer be guided by the amount paid during the last token purchase, or will he pay an amount according to the increased rate of the cryptocurrency.

Does NFT have a future?

In short, yes!
The market for non-interchangeable tokens is developing extremely fast and blockchain technology and infrastructure have undergone significant changes in the past few years. However, there are still many questions today about what rules the NFT market can (and should) operate under and in which areas non-interchangeable tokens can be used.

For example, one potential future application of NFT is the blockchain recording of unique documents. Due to the reliability of blockchain, diplomas, certificates and various documents could be issued in NFT format, potentially helping to eliminate the risk of forgery.

NFT is likely to have (and is already having) some impact on formats for the creation and distribution of content, creative objects, and art.

Bottom line

The current situation is a kind of new environment for creativity. The current situation can be compared with the period when photographers moved from film cameras to digital ones; it is appropriate to remember the rejection, which many people had towards new cameras, but I think there is no sense to say how it ended.

Technologies and Blockchain are developing by seven-mile steps, as well as possibilities of their application in our physical world. We are just beginning to work with this topic full of new possibilities, but one thing is certain, this is just the beginning of huge changes that will affect all key aspects of human society and interactions.

Keep your nose to the grindstone and know that Fortune, Fortune and Success will always favor you,

when you are with us!

Always yours C.J.

All the above is not financial advice, but only a subjective opinion of the author. If you doubt something, do your own research and double-check the information yourself.
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