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UNDERSTANDING NON-FUNGIBLE TOKENS (NFTs)

Non-fungible tokens (NFTs) have been a nascent trend in recent times in the crypto-verse, and if you have ever wondered what this crypto buzzword means then you are in the right place.

Fungible and Non-Fungible Items

Before dissecting NFTs, it is salient first, to review what the word ‘Fungible’ means. Fungible suggests any item that is mutually interchangeable, replaceable by another identical item. To illustrate, a thousand naira note is fungible and can be replaced by another thousand naira note, two N500 notes, or five N200 notes since each of these generally hold the same value. Now that we have established what Fungible items are, it is facile to appreciate what the word ‘Non-fungible’ connotes: A unique item that cannot be replaced with something else. This infers that it is an item that does not have a substitute. An example is an original piece of art such as Leonardo Da Vinci’s Salvator Mundi painting.

So what are NFTs?

NFTs are simply a representation of an off-the-blockchain asset, which holds value as a form of cryptocurrency. A cryptocurrency representation of a digital asset. Collectibles like paintings, digital trading cards, pictures, music, video footage, virtual lands, memes, or even tweets – as have been made evident in the past weeks, could be the assets it represents. Literarily anything can have an NFT. An NF token, unlike other cryptocurrencies, holds extra information, with each token having a unique identifier that distinguishes it from every other token.

According to Naval Ravikant – “By assigning a unique token to a thing, its ownership (not the thing itself) becomes programmable, verifiable, divisible, durable, universally addressable, composable, digitally secured, and easy to transfer.”

Other common tokens like Bitcoin and BNB are fungible, in that a unit can be exchanged for another unit. For instance, one satoshi of Bitcoin holds the same value as each of the many other satoshis of Bitcoins that exist. NFTs on the other hand, have idiosyncratic values. NFTs can be anything digital, but a lot of the current enthusiasm is around using the technology to sell digital art. People have realized that a distinct, digital object can be engrossing and even have a notable financial value.

The Ethereum blockchain and NFTs

NFTs are created on a smart contract platform such as the Ethereum ERC-721 protocol; in fact, most NFTs are part of the Ethereum blockchain. This is largely because the Ethereum blockchain allows the storage of extra information that makes each token work differently from other tokens. This means that it allows NFT creators to capture relevant information relating to their digital art while storing it as tokens on the blockchain.

This is not to say that other blockchains cannot implement their versions of NFTs. Indeed, at the end of last year, TRON unveiled their own NFT standard protocol named TRC-721 where NFT blockchain applications can be built on. Other blockchains enabling NFTs are Binance smart chain, EOS, Polkadot, and many more. At the moment though, the Ethereum blockchain houses most of the existing NFTs.

Key Characteristics of NFTs

Some of the characters that typify NFTs are:

  • NFTs are digitally unique, no two NFTs are the same.
  • Every NFT must have an owner and this is of public record and easy for anyone to verify.
  • NFTs are compatible with anything built using Ethereum.
  • Content creators can sell their work anywhere and can access a global market.
  • Creators can retain ownership rights over their work, and claim resale royalties directly.

How to buy or create an NFT

NFTs are bought and traded just like any other cryptocurrency based on Ethereum, only instead of buying some amount of tokens, you buy a single token. To do that, you may begin by installing Metamask, a browser extension that permits interactions with various facets of Ethereum, such as exchanges and decentralized apps. MetaMask is also a virtual wallet for Ethereum and all the tokens created on Ethereum (both fungible and non-fungible).

After installing the extension, you should buy some Ether that you can spend on NFTs. Ensure that you store your MetaMask password and your wallet’s private key somewhere safe. Then, when you visit a website that sells NFTs (such as NBA Top Shot, OpenSea, Mintable) or an exchange where you can trade for them (such as Uniswap), connect your MetaMask wallet to the site and buy your first NFT.

If you are looking instead to create your own NFT, all you need to do is have some Ethereum in your wallet, and then connect your wallet to an NFT marketplace such as Rarible.com, after which you upload your content and mint it into an NFT. Generally, the same marketplaces that enable the sale of NFTs also provide services for the creation of it.

GrimesWarNymph Collection Vol 1

Canadian musician and artist Claire Boucher, also known as Grimes, sold a collection of digital artworks for almost $6m. She announced the auction on Twitter a day before the collection went on sale on the Nifty Gateway platform on February 28th. The collection was branded WarNymph Collection Vol 1 and was created in collaboration with her brother Mac.

Jack Dorseyjust setting up my twttr

Twitter CEO Jack Dorsey, on March 6 sold his first tweet “just setting up my twttr” as an NFT for $2,915,835.47. Crazy right?. Bids were made on the platform – Valuables by Cents which lets people make offers for autographed tweets. A digital certificate was issued to the buyer – Sina Estavi, which was signed and verified by Jack.

Beeple – Everydays: the First 5000 Days

Michael Winkelmann, an American digital artist popularly known as Beeple, sold an NFT of his work for $69 million, named ‘Everydays: the First 5000 Days’ at Christie’s. The sale positions him among the top three most valuable living artists.

Chris Torres – Nyan Cat

Chris Torres proclaimed that he had opened the door to the meme economy when he sold the Nyan Cat meme for 300.00 ETH (about $590,000) in an online auction on the crypto art platform – Foundation.

CryptoKitties – Dragon

The renowned CryptoKitties’ Dragon – a cute electronic cat sold for about 600 ETH, or over $390,000. At the time of sale, the dragon became the most expensive kitty to ever be traded in the history of the blockchain-based game – CryptoKitties.

Possible Opportunities and Risks

Buying an NFT because it interests you, or maybe even to make some quick money is one thing. But investing in NFTs is another. Again, it’s a nascent space, and it can take quite a while when a seller is ready, to find a buyer who’s willing to pay a definite price for a peculiar, one-of-a-kind item.

Also, considering the digital nature of NFTs, it is somewhat convoluted to compare them to valued physical artworks such as paintings. Contrastingly, we are in a season and time where cryptocurrencies are worth a great deal of money. The cryptocurrency market cap is currently in the trillions of dollars and one Bitcoin is worth more than $50,000 at the time of this article, so items from the digital space can surely be very valuable and are capable of maintaining their value over extended periods.

Furthermore, the NFT realm is intricate because each NFT market is disparate from other NFTs, this research has to be peculiar to the singular NFT on your radar. Trading on Ethereum can also be utterly pricey as the network’s recent congestion is causing an upsurge in trading fees.

The most dominant use case of NFTs today is in the digital content space. Content creators can now enjoy the proceeds that hitherto flowed to the platforms when they sell ads to the artists’ followers. Because of the burgeoning of NFTs, creators don’t have to hand ownership of their creation over to the platforms they use to publicize it. Ownership is imbued into the content itself. So that when they sell their content, funds go directly to them.

That being said, NFT’s value is dependent on the prestige and worth that its relating community gives to it. In essence, if everyone says it is worthless, then it is. For digital contents like music, a contract can be infused in the NFT that allows royalty on the song to be shared. Also, NFTs can have a feature that enables a percentage to be paid to the originator every time the NFT is sold or changes hands, making sure that if it becomes a “big hit”, the creator gets some of that reward.

Finally, it is possible to earn money by investing in NFTs, but you will have to do your own research. Also, nothing in this text constitutes investment advice

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