A Beginners Guide To NFTs
With emerging technology developing at such a rapid pace, it is to no surprise a lot of information may slip through the cracks. In the case of NFTs, more people don’t know or don’t care, but those that are aware believe it’s the next hottest investment. For those interested in understanding the confusing concept of non-fungible tokens, here are the need-to-know facts about NFTs.
What are NFTs?
NFTs are digital assets known as non-fungible tokens. The “non-fungible” aspect of the tokens means it cannot be exchanged for an asset of the same kind. This means you can’t use an NFT to purchase another NFT, instead, you can exchange it for some form of money. That form of money includes the currency we usually use like the Canadian dollar, but also cryptocurrency like bitcoin. An example of a “fungible” token would be conventional money, or the money we usually use here in Canada; the dollar. It is a “fungible” token because we can exchange that asset for the same type. An example of this would be exchanging one loonie for four quarters; both are of equal value and both are the same asset, that asset being money.
How do NFTs work?
Before I can explain how NFTs work there are some key terms to define.
Blockchain: A blockchain is a specific type of database.
Database: A database is a collection of information that is stored electronically
Ledger: A ledger is collection of financial accounts of a particular type.
With those definitions in mind, NFTs work through a blockchain.
A blockchain is a record-keeping technology typically used as a ledger for transactions. In the case of NFTs, it is how one can prove ownership without a physical contract because the information stored cannot be reversed or changed. Blockchains store information in “blocks” chained to one another in chronological order. When new data enters the database, it fills up a “block” that is then “chained” to another “block” as the “chain” continues to grow.
What can you do with NFTs?
Now that you hopefully understand what they are and how they work, NFTs can be used differently depending on the specific digital asset.
Currently, the trendy investment that has brought NFTs to the forefront is digital art and collectibles/memorabilia.
Usually reserved for physical spaces, collectibles/memorabilia can range from niche vintage t-shirts to Yu-Gi-Oh cards. The main difference with these types of collectibles/memorabilia is that they exist solely in the digital space.
With NFTs, the art world has opened doors for the rise of exclusively digital art with more and more established auction houses moving into the digital space.
A common question asked about artwork sold as NFTs is how do you own something online that can be easily copied or shared?
The best way to answer that question is through an example involving the worldfamous painting, the Mona Lisa. Although plenty of copies of the painting exist, there is only one authenticate original that resides in the Louvre Museum. With NFTs, the blockchain acts as the authenticator to prove you own the original copy even though plenty exist that can be viewed or shared online.
How do you get NFTs?
To better understand how to get NFTs, there are a few key terms to define.
Cryptocurrency : Cryptocurrency is a form of payment that can be exchanged online for goods and services. It also uses a blockchain as a ledger similar to NFTs.
Ethereum : Community-run technology powering the cryptocurrency, ether (ETH).
ETH : A form of cryptocurrency.
To begin buying NFTs you need to first convert your conventional money—like the dollar—into cryptocurrency. There are a many different types of cryptocurrencies out there but the one used for NFTs predominately is ETH. You can purchase ETH through Ethereum. To put it simply, you convert your money into ETH—a cryptocurrency—and use the ETH to purchase NFTs on different marketplaces. Currently there are several marketplaces that sell NFTs such as Mintable.app, Opensea, SuperRare, and Rarible.
What do NFTs means for the future?
With the connection between the digital and the physical world becoming increasingly intertwined, the creation of NFTs is a natural byproduct to creating online content. It will be the future to ownership in a digital space where everything can be copied or shared. Although still new to the music world, NFTs create the opportunity to place control back into the artist’s hand.
The Grammy award winning band Kings of Leon recently sold their album as three separate NFTs; one special album package, one for offers for live show perks like front row seating for life, and lastly as exclusive audiovisual art.
The hope for music sold as NFTs is that it will add to the experience of music as an artform while expanding its evaluation in a digital world.