The Sky Is The Limit For NFTs

NFT is short for Non-Fungible Tokens. It's currently the subject of the recent hype-cycle that the world last witnessed in the crypto and blockchain scene when the Initial Coin Offerings were in a rage. Last March, a digital art associated with the NFL was sold in an auction at Christie's for a staggering $69 million. Aside from that, other NFTs like the one first tweeted by Jack Dorsey were also sold for millions. There is also a very active secondary NFT market that can dictate the price after every sale. 

How does NFT work? 

According to the crypto community, NFT works like cryptocurrency because they serve as standard currency where you're exchanging it for digital information. Since it uses the same cryptography system security, it's hard to counterfeit. And since any government or country doesn't issue this, it couldn't be taken away from you. The only difference between NFT and cryptocurrency is the former represent a music album, art piece, or other forms of digital files. 

One of the main reasons why this has become more popular is the fact that it's fraud-proof. Since every transaction is written in a public ledger, investors are forced to play fair. The identities of the owners are also encrypted so that they couldn't be falsified. And since it's decentralized, the banks couldn't dictate its value, and it will remain unaffected by inflation. 

Another purpose of such a currency is to prevent identity theft. Since an impenetrable system runs it, the value of your money is accurately calculated by your digital wallet. And it also ensures that the correct spender only uses the coins in one's wallet. It has also been created for easy access -- all you need is a smartphone and internet access, and you can function as your own bank. Making payments and transferring funds is easier with cryptocurrency. 

How is it used?

An NFT token represents a thing or a digital file. Take for instance the case of Beeple's art piece. It's a token to represent the original Mike Winkelmann painting. When a buyer purchases an NFT token, they gain rights to own Winkelmann's original art piece. However, their owners won't extend to the artist's copyright. If that's the case, some people would even ask why they should even bother to buy the artwork. Though the answer to this may be personal to the buyer, the most logical reason here is to own the artwork or flip it to draw attention and have the same resold at a higher price.

While some people think NFTs are a form of cryptocurrency, they're not. Their similarities start and end with both having a stored digital footprint in the blockchain. NFT tokens have unique values. As such, they can never be exchanged for another NFT with an equal value. With cryptocurrency, this is possible since the principle applies. 

What made NFTs popular?

NFTs can be used in many ways. Artists can sell their unreleased music through NFT. An example of this is what Kings of Leon did with their unreleased music last March. They sold it via NFT, and this led to receiving royalties. If they sell it to one owner and subsequently limit the digital reproduction of the album, they can also control its distribution apart from the royalties they can collect. 

Aside from Kings of Leon, the National Basketball Association (NBA) is also thinking of venturing into selling NFT-form clips. In that case, the buyer may not be getting the right to resell the clips, but they get the rights by merely owning such clips. They can financialize or trade it, just like how you trade sports cards. 

One of the lucrative aspects of NFTs and other cryptocurrencies is the fact that they're decentralized. When you say something is decentralized, it means it's free from the control of a third party. In cryptocurrency, it's said to be decentralized because the banks or government does not dictate its value. Since it's deregulated, it can't suffer from the harsh effects of inflation or deflation. 

Is NFT the new Bitcoin? 

It's still early to say that the NFT future looks like it will replace Bitcoin, but what can be said now is that it's not going to fade soon. NFT has been around since the middle part of 2010. And based on the article published by the New York Times, NFT's popularity increased by leaps and bounds recently. If it could hold out that long and continue to rise a decade after, then one can say it's here to stay for a long time. 

So, many ask what the implication of NFTs' recent rise is? According to experts, one of the reasons for their popularity is the pandemic. Covid drove an unexpected boom. Because of this, the NFT marketplace reached over a $250 million valuation rate last year. It can be said that part of its boom can be attributed to the growth of cryptocurrency. When Ethereum made waves, Ethereum investors could use the currency to buy NFTS in whole or in part. And when the Ethereum value asset grew, the underlying owner's buying power also grew. 

What are the limits for NFTs?

Although NFTs became a massive hit, the entire field can still be considered a work in progress. As such, there are still limitations that an investor should be cautious about. Some of them are provided below. 

- NFT is still a speculative market: NFT's current worth is still tied to sentimental and aesthetic value. Because of this, it's still not clear if it can be considered a productive and stable long-term investment. Right now, it can be safely said that it's still a matter of speculation. 

- NFT tokens can be a target of breach: NFTs are at risk of being stolen. In fact, the currency has been a hot target of a couple of security breaches from hackers who are not sold out to the idea that it's a real investment. Aside from that, there are also other inefficient or outdated security protocols used. 

- Sustainability issues: Like other blockchain transactions, you'll be using a lot of power when you create or sell an NFT account. Even scientists worry about the possible harm that the growing NFT market could bring to the already depleting environment. 

- Ownership doesn't mean control: As pointed out in the previous paragraphs, when you buy something with your NFT token, you may enjoy ownership for what you bought, but the intellectual property rights remain with the original owner. In that case, you can't control any action or movement related to what you bought. You can't stop the artist from collecting royalties. You can't stop them from distributing copies of the art piece that you bought either. 

Although there are solid limitations to NFTs, it's too soon to decide that these are absolutes. They can change for the better, providing NFT investors with more rights to what they purchase with their NFT tokens. So, don't close doors just because you read about these limitations. After all, risks come with investing. 

What is an NFT wallet?

An NFT wallet is like a digital wallet where you keep all your digital currencies. You can also use it to purchase new and more tokens. Suppose you want to send NFT clothing or NFT music to your friend in a different country to help him celebrate his birthday. In that case, you decide to use your token to make a purchase. 

Since you have a digital wallet on your smartphone, the next thing you need to do is to find a platform that sells NFT music. Try OpenSea, NiftyGateway, or Opulous. Once you find a platform, you need to use your digital wallet to exchange your cash for cryptocurrency. Afterwhich, simply follow the instructions found in the music selling platform.

Should I invest in NFTs?

The truth about NFTs and cryptocurrency, in general, is though it can be profitable, you also stand to deal with the risks brought by its volatility. This means that you can expect its value to rise and fall drastically within 24 hours. Because of its innate nature, it's always wise to observe caution when investing. To avoid major pitfalls and losses, remember only to invest what you can afford to lose. 

This principle has been true in almost all investments, and cryptocurrencies are no exception. Never go beyond your financial limit if you don't want to lose more than you can live with. 

Investing in any business or cryptocurrency, for that matter, will always come with a risk. You may end up a multimillionaire or a pitiful broke fellow. However, it doesn't mean that you automatically have to throw caution in the win just because it's risky. Investing blindly is only for fools. 

Before you invest, research, and learn the trade. Study how the experts do it and learn from their mistakes. You don't have to experience their errors to learn your lesson. Only take calculated risks and only invest what you can forget or lose -- anything beyond that is no longer a wise and brave move. 

So, since we have unraveled the myths and straighten the facts about NFTs, it's time for you to make that decision. Whatever you decide on, good luck, and may the odds be forever in your favor!