NFTs have become one of the biggest trends in the world of cryptocurrencies in 2021, with sales up 55% compared to 2020, which rose from $250M to $389M. And you probably don’t understand any of what that means. Although it also works in the virtual world, this type of investment, and it is an investment, is not the same as buying bitcoins as you might first think. In this article, we’ll take a look at what these NFTs are and how they work.

What is NFT?

NFT is an abbreviation for the term non-fungible tokenor “non-fungible token”. These are tokens, that is, numerical codes with digital transfer registration, guaranteeing their authenticity to their owners. In practice, they function as collectibles that can be passed around instead of being played. Unlike cryptocurrencies such as Bitcoin and various utility tokens, NFTs are not fungible.

An irreplaceable token is something specific and individual, with a “card of authenticity” and cannot be replaced. For example, bitcoin is fungible – swap one bitcoin for another and you get the same thing. One business card, however, is not interchangeable. If you exchanged it for another card, you would get something completely different.

NFT can really be anything digital, but much of the “hype” revolves around digital art. They can represent almost any type of object, whether real or intangible, including:

– Artistic works;
– Virtual items in video games such as skins, digital currencies, weapons and avatars;
– Song;
– Collectibles such as digital maps;
– Tokenized real world assets, from real estate and cars to branded racehorses and sneakers;
– Virtual earth;
– Videos of iconic sports moments.

This is the concept of NFTs: they are like a digital signature that converts any digital media – GIF or JPEG, photos, videos, messages, audio files, etc. – into a non-fungible commodity.

NFTs are meant to give you something that can’t be copied: ownership of the work (although the author may still retain copyright and reproduction rights to the physical work). To understand, we can say that anyone can buy a Mona Lisa print, but only one person can own the original.

This relationship between data and values, implemented with NFT, is possible thanks to a technology called BCastle. It is a decentralized database that is famous for serving as the basis for cryptocurrencies such as Bitcoin as well as Ethereum. This is a system in which you can track the receipt and sending of certain types of information. All transactions are recorded in the form of an official document, which can be accessed by any user.

Given the decentralized nature of the blockchain, there is a large margin of confidence that the stored information is secure and tamper-proof, contributing to the emergence of a market similar to cryptocurrencies around NFTs. Essentially, any digital item that an author or owner deems necessary to identify their authorship can be linked to an NFT as a way to protect its originality while awaiting commercialization.

Most NFTs are part of the blockchain. Ethereum. NFTs are stored in digital wallets (although it is important to note that the wallet must be specifically NFT compatible).

How do NFTs work?

Anyone can create an NFT, because almost everything in the digital environment can become an NFT. Turning a GIF or JPEG image into an NFT is actually quite simple and does not require much knowledge of the cryptocurrency market.

Below you can see a short step-by-step guide to creating an NFT:

1- Choose which blockchain will be used to issue your NFTs. Currently, Ethereum is the most used blockchain for this.
2 – Considering Ethereum as selected in this example, you will need: a) a network compatible wallet that supports ERC-721 tokens; b) From 50 to 100 dollars in ether (ETH)
3 – Considering opensae as your chosen marketplace, you create a “package”/collection for your NFTs with a name, logo, and description.

4 – Now you select a file, define a name and description, and define which collection your NFT will belong to.
5 – Here is your first NFT.

However, this creation does not guarantee that the item to which the NFT is linked will have a market value. With some value, this NFT will be released to the market and can be bought and sold. All of this is managed by Ethereum, which records every transaction across the network. smart contracts or smart contracts.

In 2019 Nike patented a blockchain system called CryptoKicks, in which the brand can verify the authenticity of sneakers using NFT. Another example was in February 2021 when the meme Nyan cat was sold for $590,000. If you now Google Nyan Cat, you will find several copies and versions of this meme. However, the one who bought the meme received the original file along with the code, which guarantees its originality and exclusivity. Despite proof that an item is original, NFT does not guarantee that copies or variants of an item will not be released. However, this ensures that a certain item is the original, even if copies and variations are available on the Internet.

If you are an NFT creator, you can also enable a feature that will pay you a percentage each time an NFT is sold or changes hands, ensuring that if your work becomes super popular and increases in value, you will see some of that benefit.

Several marketplaces have sprung up around NFTs that allow people to buy and sell. This includes OpenSea, Rarible, Nifty Gateway and many others. There are also games that allow you to use NFTs as items. Players may have the option to purchase unique in-game weapons, a helmet, or something else, such as an NFT.

Cautions when investing in NFTs

To invest in NFTs, it is also necessary to understand that investments are subject to high volatility of both the game, for example, and the market. It is possible to earn a lot in a short period of time, but this type of investment should be considered in the medium to long term. Cryptocurrency expert in empiricistAndre Franco, for example, suggests that no one should invest more than 3% of their capital in these assets.

Secret in profit asymmetry. With the potential for growth, investors only need a small share to change their financial level. On the other hand, he does not risk his wealth or the money he may need for basic things. The basic rule, including investing in cryptocurrencies. The difference here is that you are selling and receiving one piece, whereas in bitcoin transactions you are giving and receiving the same thing.

But we’ve seen big brands and celebrities like Marvel and Wayne Gretzky launch their own NFTs that appear to be aimed at more traditional collectors rather than cryptocurrency enthusiasts. NFTs are still not “mainstream” like smartphones or Star Wars are, but at least they have some resilience to some extent. Some investors believe that they tend to go up in value, while others argue that at some point the market will stop seeing value.

In addition, they provide space for artists who would not otherwise be lucky enough to work and sell their work in the traditional way.

People who buy NFTs do so because they place a high value on original and unique items. Therefore, the fact that items are sometimes of such high value is precisely because they are exclusive, which creates scarcity.

People who buy NFTs do so because they place a high value on original and unique items. Therefore, the fact that items are sometimes of such high value is precisely because they are exclusive, which creates scarcity.

What is different from real collections is that here you don’t have, for example, a real picture or a CD. Valuation and devaluation use the same supply and demand conditions as in the real world, but we are talking about digital unique files recorded as such.

Were there any doubts? Leave it in the comments to this article!