What is an NFT?
NFT stands for non-fungible token, which means that the item cannot be exchanged due to the uniqueness of the product properties. If this item is copied or changed then it will not be authentic nor creditable. NFTs create unique digital signatures onto digital assets which could be sold for other assets such as real money or cryptocurrency. NFTs are essentially tokens that are formed on a blockchain and represent ownership of unique items such as digital artwork or concert tickets.
How do they work?
NFTs are trustworthy, easily transferrable and maintain ownership rights and are owned by a specific person. It uses a unique fingerprint, token name and symbol. It is then stored on a blockchain, making the creator the owner. The token can now be sold by producing a transaction on the blockchain. This is put in place to ensure that the information can never be tampered with hence reinforcing the idea that it is trustworthy. Also, it is helpful since it can track who the original owner is when many people have identical copies. Though it is important to understand that the physical item is not stored within the NFT, it is the attributes associated for instance its fingerprint, token name and symbol. When the NFT is brought, a physical copy is not received as NFTs only represent ownership through the blockchain. At this point, the buyer owns the original item, but the creator still has copyright and reproduction rights. This means that the creator can create and sell identical copies of the product. The worth of an NFT is determined by how much people are willing to pay so is demand-driven. Therefore, some caution needs to be taken as if the price is too high, demand will dry out but if the price is too low, profits will be lost.
How has the popularity grown so rapidly?
Generally, individuals are attracted to the idea of owning unique things. The fact that NFTs are all online and are widely available, heavily influences their popularity. But also, these tokens represent more than traditional assets such as gold. No token has the same attributes or values and that’s what makes them so special. They allow investment by marketing different characteristics which are not easily replaceable.
NFTs are perfect for collectors, the uniqueness of each item means that there is always something for everyone. Therefore, many people may decide to take this up as a hobby and enjoy this activity.
Another reason why NFTs have grown in popularity is that they are backed by real assets. Their values are established through speculation and actual value. For this reason, investors see this as a good investment opportunity. It is a great way to invest in digital assets whilst still possessing ownership of the physical product.
Edited and Reviewed by Tanish Bagga.