NON-FUNGIBLE TOKEN (NFT)

1. Context

2. What are Non-fungible Tokens (NFTs)

• Anything that can be converted into a digital form can be an NFT. Everything from your drawings, photos, videos, GIFs, music, in-game items, selfies, and even a tweet can be turned into an NFT, which can then be traded online using cryptocurrency.
• But what makes NFTs unique from other digital forms is that it is backed by Blockchain technology.
• For the uninitiated, Blockchain is a distributed ledger where all transactions are recorded. It is like your bank passbook, except all your transactions are transparent and can be seen by anyone, and cannot be changed or modified once recorded.
• NFTs are gaining massive popularity now because they are becoming an increasingly popular way to showcase and sell your digital artwork.
• Billions of dollars have been spent on NFTs since its inception which dates back to 2015, and Terra Nulius was the first NFT on Ethereum Blockchain, although this project was merely an idea that only allowed to customize of a short message which was then recorded on Blockchain.
• Then came Curio Cards, CryptoPunks, and CryptoCats in 2017, before NFTs slowly moved into public awareness, then expanded into mainstream adoption in early 2021.

3. Working of NFTs

• NFT works on blockchain as it gives users complete ownership of a digital asset. For instance, if you are a sketch artist, and if you convert your digital asset to an NFT, what you get is proof of ownership, powered by Blockchain.
• In simple words, when you list your NFT on a marketplace, you pay something called a gas fee (Transaction fee) for using the Blockchain, following which your digital art is then recorded on Blockchain, mentioning that you (your address) own the particular NFT.
• This gives you full ownership which can not be edited or modified by anyone, including the marketplace owner.
• An NFT is thus created, or as crypto enthusiasts say it is "minted", to get exclusive ownership rights. NFTs can have only one owner at a time.
• Apart from exclusive ownership, NFT owners can also digitally sign their artwork and store specific information in their NFT's metadata. This will be only viewable to the individual who bought the NFT.

4. How is an NFT different from Cryptocurrency?

• NFTs and cryptocurrencies are very different from each other. While both are built on Blockchain, that is where the similarity ends.
• Cryptocurrency is a currency and is fungible, meaning that it is interchangeable.
• For instance, if you hold one crypto token, say one Ethereum, the next Ethereum that you hold will also be of the same value. But NFTs are non-fungible, which means the value of one NFT is not equal to another.
• Every art is different from others, making it non-fungible, and unique.

5. What are the risks associated with buying NFTs?

• The emergence of fake marketplaces.
• Unverified sellers often impersonate real artists and sell copies of their artworks for half prices.
• Sharing potential phishing links during the sale to drain the participant's crypto wallets.
• Hacking the NFT collections.
• Fees and gas money can result in artists losing money.
• Technology issues like non-attachment of a purchased item to the NFT, global chip shortage, etc.
• Ownership issues like losing the login credential might result in permanent loss of owned works
• Validation of transactions requires crypto mining, which requires high-powered computers that run at a very high capacity, affecting the environment.

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