NFTs explained - A Close Look At The Concept Of NFTs
If you are curious about NFTs, what they are used for, their intrinsic value, etc, then you should read this article. I will try to explain NFTs in an easy-to-understand manner so that even if you are completely new to the concept you can at least understand some basic facts about them.
NFT is the acronym for Non-Fungible Token. To understand what non-fungible means we have to understand what fungible means first. In order to make the meaning of fungibility clear let me give you an example of fungible things in our day to day lives. Imagine that I want to buy myself an apple to eat before work but I am in a hurry because I might miss the train to work if I linger in the store much longer. My friend, who has just bought himself an apple notices that I am in a hurry and and that I don't have time to buy myself an apple, therefore, he offers me his apple so that I can catch the train. The next day when I see my friend I give him another apple that I have bought so that we become even.
As you can see, the apple in this example serves as a fungible asset because it doesn't really matter which apple from the store I chose to give him. I made up that story just to illustrate a point, but apples are not completely fungible. Some apples are bigger than others, some are sweeter or fresher. A better example of a fungible asset would be banknotes. Provided any two banknotes have the same value, it doesn't matter which of the two you own. They are completely interchangeable. The same is true of gold coins or any other forms of widely used currency. Fungibility is an important aspect of any successful currency because it facilitates the currency's circulation and usage. When you have a banknote in your pocket you are sure that it holds the same amount of value as any other banknote identical to it. However, as my first example made clear, fungibility is not limited to units of currency. There are fungible goods everywhere. The real difference between fungible goods and currency units is that the latter are much more fungible.
Ok. What does all of that have to do with crypto?
If you are wondering why I haven't mentioned cryptocurrency yet in an article evidently about NFTs you will find out why now. While NFTs are closely linked to crypto, and cryptocurrency should be studied carefully to understand NFTs, it is not wise to dive into a detailed description of NFTs and their relationship with cryptocurrency without first establishing a good understanding of the concept of fungibility. Now that you are familiar with fungible assets it is time to introduce you to non-fungible assets like NFTs. A non-fungible asset can be anything that is not interchangeable with other similar things. For example, a house is usually considered to be a non-fungible asset because every house is unique. There are several considerations that we should take into account when deciding which house to buy. From geographic location to the size and architecture of the house, the factors that make any house unique and affect its price should be considered carefully before purchasing it. What all this means is a house is not a good example of a fungible asset. Like houses, NFTs are unique items. One of the differences between a house and an NFT is that an NFT is a digital file not a structure made of wood or concrete. Any digital file, from JPEG images to mp3 files or pdf files can be turned into an NFT. Returning to the question of what NFTs have to do with crypto, it is now time to address one of the most important questions about NFTs: where can NFTs be kept? Technically, an NFT can be kept in any database that a central entity maintains. However, NFTs are associated with the Blockchain technology because by virtue of being decentralized, this technology is so secure that owners of NFTs can be fairly sure that the proofs of ownership of their NFTs are extremely safe. Most NFTs are kept in the Ethereum Blockchain, which also holds the second most valuable cryptocurrency called ETHER.
Should I buy NFTs
After reading all that, it is natural that you might be asking yourself that simple question. Don't worry, because I am going to try to give as good an answer to that question as I can. As I mentioned earlier, any digital file can be turned into an NFT. Most digital files aren't worth buying because they are either open source or way too expensive. While there are many valuable digital items that people buy everyday like books and videogames, those items don't have to be turned into NFTs to make profit for the writers or developers. They can simply be listed on a reputable online store. The fact of the matter is that the vast majority of available NFTs today are badly drawn collections of images with astronomical price tags. Buying such NFTs doesn't seem to be a reasonable thing to do.
NFTs are not going anywhere. While you might not like the concept of NFTs you should familiarize yourself with them because they are going to play a much bigger role in the future of crypto than hitherto. There are many potential use cases for NFTs that might make them more important than we could imagine right now. One thing is clear: NFTs are opening a new frontier in the world of Blockchain technology.
This article was written for entertainment purposes. I am not a financial advisor nor do I endorse any particular coin or NFT. The crypto market is famously unstable and risky. Consult a professional financial advisor before making any investment decisions.