What is an NFT?

NFTs stand for Non–Fungible tokens; one can understand NFT meaning as they are unique entities and cannot be exchanged like physical or cryptocurrencies. NFT can be referred to as data units stored on a blockchain that cannot be interchanged. It can also be termed a digital record figure that can be traded or sold. Data units in NFTs can be associated with digital media audios, videos, or pics. In this article, we will understand, what is NFT, how to buy, sell and store NFT as well as pros and cons of the same.

Understanding NFT

First it is important to understand that how is it different from general currencies used worldwide. Currency like dollars or rupees is considered fungible as they can be exchanged. On the other hand, NFTs can’t be exchanged like physical currencies. They are purchased mainly by using cryptocurrency.
As their name implies, NFTs are unique and one-of-a-kind thing. Every NFT is different from others as each one of them has a fragment of identifying information, making it distinguishable from other NFTs. And because of this characteristic, one cannot trade or exchange two NFTs at equal rates or break them into smaller currency units. Presently, NFTs are used in fields of Art, music, gaming, sports, collectibles, etc. However, the entertainment industry is among the biggest market for NFTs.  One needs to remember that NFTs are very different from cryptocurrencies.

A few critical points about NFTs

•    Ownership

There can only be one owner of an NFT, and that owner receives a digital file of the item they purchase. NFTs contain automatic authentication, which means the owner can easily prove that they are the valid owner.

•    The technology behind NFTs

An NFT is a virtual asset than exists on the blockchain. A blockchain is an account of digital transactions distributed across a vast computer network. It is recorded so that it is impossible to cheat or hack, so it guarantees the security and privacy of your data. If you own an NFT of a valuable item, any individual on the blockchain can see that you are the actual owner. Bitcoin and Ethereum are well-known and most used cryptos of blockchain. NFTs are Ethereum-based tokens as Ethereum is the most popular network for NFTs.

•    Limited collections

Most popular NFT collections, such as Bored Ape Yacht Club, The Sandbox, etc., are released as collections. E.g. the Board Ape Yacht Club collection and the CryptoPunks collection contain 10,000 original NFTs. The entire collection usually contains up to 10,000 tokens. As the number of the tokens is limited, their demand increases, which leads to a surge in their price.

•    Huge profit potential

When selling their NFTs, the owners have a chance to incur a massive profit in the NFT marketplace. CryptoPunks is considered to be the original NFT collection. In 2017 when the CryptoPunks collection was released, its NFT mint price was free. Today they sell for around $350,000 - $500,000 or more.

Where do you buy NFTs?

Crypto.com is the overall best marketplace for purchasing NFTs. Other online marketplaces are NFT launchpad, Binance, GameStop, OpenSea, Nifty Gateway, etc.

Where do you sell NFTs?

At present, the largest NFT marketplace is OpenSea. A few other marketplaces where individuals can sell NFTs are Rarible, SuperRare, Atomic Market, Myth Market, etc.

Where do you store NFTs?

If you are the owner of an NFT worth thousands or millions of dollars, then you need to have a place to store it. What is NFT, a digital asset? The most common way of storing NFTs is in a software wallet. A software wallet is straightforward and protected by a password and a 12-24 word seed phrase. It is important to never reveal your 12-24 word seed phrase to strangers as it becomes vulnerable to hackers. After storing your tokens in a software wallet, you can access your tokens through a private key. One of the safest methods of storing NFTs is in a cold storage hardware wallet. In this method, the private keys through which users can access their tokens are held in a hardware wallet device and not on the web, where hackers can steal your tokens.

Pros of Investing in NFTs

•    Anyone can invest in NFTs

Investing in Non – Fungible tokens is open to everyone in the world. They are worth different amounts so it could cost you a few dollars to a thousand or maybe even a million. The first step would be adding cryptocurrency to your digital wallet and then investing as per your preference.

•    Efficient Security

NFTs are created using blockchain technology, which is impossible to hack or duplicate your information. Therefore, it is safe to store your tokens in a software wallet. You will have a private key or say a 12-24 word seed phrase as a password. However, you shouldn't reveal these details to anyone, as these could be misused.

•    Data record

As NFTs exist on the blockchain, anyone can see who the owner is and who first created that particular NFT. This would be very useful in case you ever have to prove that you are the valid owner of your token.

Cons of Investing in NFTs

•    Their value is not certain

The value of an NFT depends on the amount people are willing to pay during a deal. Even though you are the owner of your token, people can still find copies of it on the internet and pay a much lower amount for it.

•    Illiquidity

As they have not been in the market for too long, NFTs are highly illiquid, i.e., they cannot be converted to cash. This can result in difficulty trading with NFTs as they are also highly volatile, i.e., their price can change any time.

•    Not a source of income

There is no guarantee that the owner of an NFT will incur a profit. As the price of the NFT depends on how much others are willing to pay for it, the owner cannot always expect a profit while trading with NFTs.

Conclusion

NFTs are a modern and exciting prospect. However, first-time investors should not jump into trading with NFTs without proper research, understanding of NFT meaning, and analyzing the pros and cons. It would be wise to start with low-cost NFTs rather than the more expensive ones and move on. Don't go with the mindset that you will make a massive profit as NFTs are highly volatile and illiquid and could easily prove to be a bad investment.

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