Over the past decades, the cryptocurrency and blockchain industry at large has been a global phenomenon. Investors and companies are paying tremendous focus and attention to this industry.
Also, top institutional investors have been looking into the field since the emergence of Bitcoin. Since then, the value of the crypto market has skyrocketed greatly.
As the most popular digital asset today, non-fungible tokens (NFTs) have swept the world of art and investment. Although NFTs have been around for a while now, they are becoming a more popular way to buy and sell digital arts.
So what exactly are these assets, and why are people paying so much attention to them? This article gives an overview of what you need to know about these exciting and potentially risky assets.
What Is Cryptocurrency?
A cryptocurrency is a decentralized digital currency that operates on blockchain — a public ledger that records transactions.
We are quite familiar with these two (2) popular cryptocurrencies, Bitcoin(BTC) and Ether (ETH). Both cryptocurrencies operate on different blockchains — BTC operates on the Bitcoin blockchain and Eth on the Ethereum blockchain.
However, today there are over 5000 cryptocurrencies in circulation.
How Does Cryptocurrency Work?
Cryptocurrency is a digitally decentralized exchange medium. In simple terms, they are digital money.
Cryptocurrency units are created through mining, which involves using a large decentralized network of computers to generate coins.
Unlike physical currencies, there is no central governing body to control and maintain the value of cryptocurrencies. Instead, direct peer-to-peer transactions take place online securely and without the need for a third party.
Most people invest in cryptocurrencies like other assets such as stocks and other valuable assets. Nevertheless, they are also a medium of exchange for goods and services.
What Are NFTs?
Non-fungible tokens (NFTs) are digital forms of art such as music, cartoons, GIFs, videos, photographs, paintings, game items, and others. Just as physical art assets, NFTs are digital assets that hold value.
Non-fungible Tokens (NFTs) are unique digital tokens permanently linked to artworks and inscribed with the artist’s signature. They are very similar to cryptocurrency. However, each NFT is unique and cannot be traded alike, which is why they are “non-fungible,” that is, irreplaceable.
How Do NFTs Work?
NFTs operate on the blockchain; they usually operate on the Ethereum blockchain, though other blockchains support them.
Furthermore, NFTs are like physical collections — the difference is they are digital. For instance, collectors get a digital file instead of getting a physical piece of art or painting to hang on the wall.
You are probably wondering why people are willing to pay millions for what anyone can view, scan and even download online for free.
Well, NFT collectors get exclusive ownership rights on the original item, as it can only have one owner. Besides, it includes a built-in certificate that acts as proof of ownership.
One could say collectors value these “digital bragging rights” almost more than the collectibles themselves.
Why Are NFTs Important?
Blockchain technology and NFTs allow creators and artists to monetize their work. Artists no longer have to depend on museums or public sale houses to promote their arts. They can now sell it directly to buyers as NFTs.
How Are NFTs Different from Cryptocurrencies?
Just like physical money, cryptocurrencies are “fungible,” meaning they can be exchanged for another kind. In other words, they’re equal in value.
For example, one Bitcoin is always worth another Bitcoin while one Dollar equals another Dollar. However, NFTs are non-fungible, meaning one NFT does not equal another NFT; each NFT is unique.
Furthermore, demand determines the value of NFTs, not like in cryptocurrency, where fundamental and technical analysis affects its value.
The only similarity between these two assets is that they are built using blockchain’s same programming.
Investing in NFTs and Cryptocurrency is largely a personal decision. Nevertheless, bear in mind that, unlike cryptocurrency, the actual worth of an NFT relies entirely on how much someone else is willing to pay for it.
Blockchain technology has not extended beyond its origin in cryptocurrency. Many organizations and individuals from different professions are now adopting this technology.
Who knows, transactions such as stocks, bonds, and other financial assets may eventually adopt blockchain technology in the future.
While cryptocurrency and NFTs are novel and exciting classes of assets, acquiring them can be risky, as you must take on a reasonable amount of research to fully understand how the systems work.
Make your research understand the risks involved, which might also include losing all of your investment. However, if you decide to take the risk, proceed, but with a healthy dose of caution.
“Do not invest what you cannot afford to lose.”