NFTs Explained | What’s an NFT? Why Do They Matter?

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If there was a trend in 2021 that’s still going strong in 2022; it’s these three letters: NFT. You’ve probably heard about NFTs on the news or read about them online, but many of us still have no clue what an NFT is or what it’s good for. Still, so many people are investing in them you’re probably wondering if you should too.

There’s no straight answer with this one, but one thing’s for sure: it’s better to understand something before you put money on it. Fear not, NFTs are actually not as confusing as they seem. Here’s everything you need to know before getting into the wonderful world of non-fungible tokens.

What Are NFTs?

Believe it or not, NFTs aren’t exactly a new thing, they’ve been around since 2014 – and in November of 2017, it was reported that NFTs made over $174 million.

As mentioned before, NFT stands for non-fungible token. But that doesn’t make things easier, does it?

An NFT is similar to cryptocurrency in the sense that they’re both digital assets—albeit they’re not the same thing at all. Usually, an NFT represents a unique piece of art, and the owner is the only one who has the rights over that piece of art.

There are many different types of NFTs. You can buy digital art, music, and some people are even selling their best Tweets online.

Can’t I Just Download the Picture?

I know what you might be thinking, why would anyone pay hundreds of thousands of dollars for an image or video when you can just download it? And the truth is, there have been many people mocking NFT owners by just “stealing” their NFTs. But, just like real art, copying an image isn’t the same.

An NFT is different because you get ownership of that piece of art when you buy it. Otherwise, you might infringe some copyright laws and reproduction rights, but that’s another topic.

Think about it in real-life terms: you can print a picture of the Mona Lisa, but that doesn’t make you the owner of the Mona Lisa. Hence you can’t (or shouldn’t) be able to sell it.

How Do NFTs Work?

An NFT is part of the blockchain, like other forms of cryptocurrency. Non-fungible tokens are held mostly on the Ethereum blockchain, which is similar to Bitcoin. That’s the most common cryptocurrency people use to buy or sell NFTs. With that said, other blockchains have started to support NFTs as well.

You can go to specific sites like OpenSea to buy NFTs that are for sale. Or you can also publish your own pieces as NFTs and sell them for the best offer.

As we mentioned, pretty much anything can be an NFT, even your Twitter posts. Jack Dorsey, CEO of Twitter, managed to sell his first-ever tweet for almost $3 million. Now it’s getting interesting, right?

NFTs vs. Cryptocurrency

As we mentioned before, NFTs aren’t the same as cryptocurrency, albeit they do share some similarities. The biggest difference between both assets is in the name. NFTs are non-fungible tokens, while cryptocurrency is fungible. What does this mean, I hear you ask?

Well, think of it as money and extremely rare baseball cards. With money, you give a dollar today, and you get a dollar tomorrow. It isn’t the same dollar you had, but it’s still the same value. But if you have a unique and rare baseball card in perfect condition, you can’t just give it away and expect to receive one of the same value.

NFTs work the same way, and they have encoded a little more text and data, making them unique and non-fungible. Even the apes that you see online are different to some extent, which is what makes them valuable.

What Are the Risks of NFTs?

NFTs might be a great option for you, but they do come with some downsides, starting with the fact that the value of an NFT isn’t guaranteed. Meaning that if you bought an NFT for $50,000, there’s no guarantee that you’ll manage to sell it at the same price.

Plus, looking to NFTs as an investment, you don’t really want to keep your NFT for that long. Even if it seems like a long shot, if people suddenly stop caring about NFTs or no one’s willing to buy your NFT, you’ll end up stuck with the ownership of a piece of art (or tweet).

People have also claimed that others have used NFTs to them. They could be selling you something that isn’t theirs, to begin with. Meaning you’d lose your money for basically nothing. And since most NFT purchases are made with cryptocurrency, it might be even harder to track the criminals.

NFTs for Artists

If you’re an artist, NFTs are a great opportunity for you. The expression “starving artist” might no longer apply to you if you manage to sell your art online as an NFT.

NFTs are an excellent opportunity to sell your art online and make some good money. A 12-year old kid was on the news last year because they managed to make over $400,000 by selling a whale NFT.

What’s great about NFTs is that you can earn a small percentage or a commission every time your NFT is sold, even if it wasn’t you who sold it.

Should You Invest in NFTs?

That’s probably the one-million-dollar question—literally. The truth is, you can get into NFTs without spending millions of dollars, and it does come with benefits. You’ll get the ownership of a cool digital asset that no one else has. Not only will this help the artist behind the NFT, but there’s also the possibility of reselling it and making a little bit more money than before.

If you’re looking at it for investment purposes, you should know that there’s risk involved, just like any other type of investment. Still, just like people are investing in Pokemon cards, NFTs can go up in value in the near future. If that happens, your investment might pay off in the long run.

Ultimately, it comes down to personal preference. We can’t give you advice on what to invest or not since we don’t know if they’ll go up or down in value in the future. Nobody knows for sure. But one thing’s for sure: NFTs are clearly here to stay—whether we like it or not.

If you’re willing to take risks and you really want that picture of an ape or you just want to start art-collecting, this might be a great time for you to start.

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