Non-fungible tokens (NFTs) have quickly risen to become the hottest trend in the crypto space. These tokens are selling out like wildfire, and they're raking in some significant bucks as well. With everyone so into these tokens, it's worth understanding what they are and the impacts that they could have going forward.
First Things First - What are NFTs?
An NFT is a type of cryptocurrency that resides on a smart contract platform - or blockchain. These tokens are unique, with identities tied to metadata and identification codes that especially distinguish them from one another.
Unlike traditional cryptocurrencies, it's impossible to trade NFTs for one another. No two NFTs are the same or are tied to the same physical asset. So, finding the proper basis for exchange will be quite impossible. This non-fungibility is what makes NFTs differ from traditional cryptocurrencies. The latter can be used as media for exchange and commercial transactions, while NFTs can't.
Think of NFTs as you would think of collectibles or trading cards. An NFT's value is tied to a specific item, so you can't even trade it for any other token. These tokens usually start as something that only enthusiasts really care about. However, as time goes on, you could get a rare one and end up selling it off for a fortune.
Fungible vs. Non-Fungible
As explained earlier, traditional cryptocurrencies are fungible. This means that a currency's units (i.e., tokens) are equal and can be traded for each other. Interestingly, fungibility goes beyond the crypto space. Assets like dollars are also fungible - as are physical items like TVs, mobile phones, and even food in some cases.
On the flip side, every unit of a non-fungible token is unique and can't be replicated or sold.
How NFTs Work
Primarily, an NFT's working mechanism depends on the platform where it is being sold. Since the Ethereum blockchain is the most popular choice for developers, let's look into that.
When an NFT is created on the Ethereum blockchain, it is immutable. So, it can't be altered. Your ownership of the token can't be undone, and no one can make a replica. Ethereum-native NFTs are also permissionless, so anyone can create or trade an NFT whenever they like.
In a way, owning an NFT is like owning a collectible card in an always-open store. Anyone can see and admire it, but only you own it. If you want to sell it to someone, they can pay you, and you transfer the token to them simply.
How to Buy or Trade NFTs
NFTs are bought and traded the same way you do with other cryptocurrencies. The only difference is that here, you're purchasing a single token - as opposed to cryptocurrencies, which require that you purchase different tokens.
To buy an Ethereum-native NFT, you will need to install MetaMask - a browser wallet that allows access to the Ethereum blockchain ecosystem./ once done, you can buy some Ether and keep it in your wallet.
When you eventually visit a website that sells NFTs and want to buy one, you contact the seller and set up the trade. Once the transaction is confirmed, you send the Ether price for the NFT to the seller, and they send your NFT. Since you're using MetaMask, the Ethereum-native NFT will be compatible with the wallet and can be easily stored.
Understanding The Current NFT Fever
Currently, you can use NFTs for pretty much anything - including certain types of currencies. However, the recent craze around NFTs has primarily been about their application in the collectibles and digital art spaces. People are beginning to understand that having a unique and digital asset can be an interesting thing to hold, and the space has blossomed significantly over time.
NFTs have particularly been buzzing in the music and art space. Paris Hilton tweeted about them recently, and there has even been a discussion about them on Clubhouse.
For musicians with a tech-savvy team and audience, NFTs could present an interesting revenue stream. Artists can sell their products, merchandise, and more directly to their audience without relying on record labels, distributors, or streaming platforms. So, the artist keeps all the money they make from token sales.
Artists Make Bank With NFTs
NFTs can also provide an exciting way for artists to connect with their fans. For instance, recently, rapper Post Malone teamed up with his manager, Dre London, to sell NFTs where fans could purchase and redeem to play games virtually with the rapper.
This year has been especially incredible for the NFT space and its merger with the artistic industry. In February, music producer and rapper 3LAU made $11.6 million in less than a day from selling NFTs.
Last month, famous musician Grimes sold her collection of digital artwork as NFTs. The pieces, collectively known as "WarNymph," were created in collaboration with the musician's brother, Mac Boucher. They were sold on the famous NFT trading platform Nifty Gateway, with Business Insider reporting that they sold for $5.8 million in less than 20 minutes.
It is worth noting that grimes is currently dating Elon Musk, the Tesla CEO who has become something of a crypto enthusiast on his own as well. Musk has been following the crypto space for a while now, and Tesla announced last month that it was allocating $1.5 billion of its cash reserved into Bitcoin.
It is unclear whether Musk had any role to play in Grimes selecting NFTs as her trading method. However, that wouldn't be too far-fetched, of course.
Grimes is currently not the only celebrity pitching NFTs and making huge bucks from them. Just last week, an NFT consisting of 100 separate art pieces from 100 various artists also sold out within minutes. The NFT, which sold on the Rarible platform, sold for $89,000.
Speaking with news sources, Loopify, an NFT curator, explained that the works of lesser-known artists had inspired the art pieces. They essentially hoped to make and sell their own tokens quickly, using cryptocurrencies to avoid their reach limitations.
Although the artists’ identities were not revealed, Loopify confirmed that the artworks include projects from Vexx, an artist whose YouTube channel has about 3 million subscribers and 250 million views. The curator added that the funds raised would be converted into USDC - a famous stablecoin - and distributed among all contributing artists.