What is NFT?
NFT stands for Non-Fungible Token, which means a non-replaceable token. The name itself sounds quite arrogant, and the concept seems ambiguous until everything becomes "NFT-ized."
Basic Definition
NFT is a digital asset that represents ownership of unique items or content using blockchain technology. Unlike cryptocurrencies like Bitcoin, which are fungible (interchangeable), NFTs are unique and cannot be replaced with other tokens.
Why is NFT Special?
NFTs are special because they provide proof of ownership for digital items that were previously easy to copy and distribute. They use blockchain technology to create a permanent, verifiable record of ownership.
How NFT Works
NFTs operate on blockchain technology, which is a distributed ledger that records all transactions. Smart contracts automatically execute the terms of the NFT, and metadata contains information about the asset, ownership history, and other relevant data.
Types of NFT
There are various types of NFTs including digital art, music, videos, virtual real estate, collectibles, and gaming items.
Major Marketplaces
The main marketplaces include OpenSea, Rarible, Foundation, and SuperRare, each offering different features and fee structures.
How to Buy and Sell NFT
The basic process involves creating a digital wallet, connecting to a marketplace, browsing available NFTs, and completing the purchase. Transaction fees (gas fees) are required for blockchain operations.
Pros and Cons
NFTs offer advantages like proof of ownership, creator royalties, and global accessibility, but also have disadvantages such as high energy consumption, market volatility, and technical barriers.
Current Market Reality
The current market is dominated by hard-to-value art pieces. For the market to gain more interest, "safe assets" need to enter. There's an irony in its existence separate from physical assets - the idea is good, but there's a disconnect between the concept and reality.
In the early market, some people accumulated wealth, but currently, even on OpenSea, active trading is largely an illusion. There's much suspected wash trading that makes the market appear more active than it actually is.
The royalty fees paid to original creators act as a barrier to transactions. Many people are reluctant to buy NFTs with high royalties.
While new NFTs can be created, it's hard to gain attention, and the market is dominated by "meaningless pop art."
Technical Considerations
Gas fees are much lower now and vary greatly by time, typically ranging from $10-100. It's important to understand the technical aspects before investing.
Future Prospects
The future of NFTs depends on how the market evolves and whether more practical use cases emerge beyond digital art.
Conclusion
NFTs represent an interesting intersection of technology and ownership, but the current market has significant challenges. Understanding both the potential and limitations is crucial for anyone interested in this space.