The term “NFT” took the internet by storm with headlines like “A NFT sold over $60 million,” but do you really know what NFTs are? Perhaps you are also curious if NFTs are just a hype that diminishes as time goes by. In this guide, you’ll find out how it works and if it’s worth your time at all.
What Is a Non-Fungible Token (NFT)?
Non-fungible tokens (NFTs) are part of the Ethereum blockchain representation of a physical or digital object. This blockchain representation works as a certificate that is unique and protected from duplication. What makes NFT unique is the distinguishing information stored within them, and they are indivisible, indestructible, and verifiable.
Generally, NFTs are unrepeated tokens representing art, objects, or even digital content such as a CryptoKitty. Another example of NFTs includes collectibles like baseball cards, pictures, or tweets, among other things.
But, How Does NFT Work?
Non-fungibility is the most crucial element of NFT. When something is fungible, it means that you can exchange an item for one another. For example, if I have a banknote of $100, I can easily trade my original $100 banknote for another as they are not unique. We can also exchange this banknote for a hundred coins, with each coin worth $1.
But, since NFTs are unique and non-fungible, it will not be possible for you to exchange an object with another identical counterpart. That’s because it is impossible to have identical NFTs — even those that exist on the same platform.
Why Are People Paying Millions for NFT’s?
There is no clear answer to that question. However, a possible explanation could relate to being the “FOMO” buying behavior for missing out on the opportunity to be among the first individuals to purchase the world’s most wanted NFTs.
For example, Jack Dorsey, the CEO of Twitter, sold his first tweet (Twitter’s first tweet) for $2.9 million. The individual who purchased this NFT expects to sell it at a higher price or keep it as a collection.
Is It Worth Diving Into the Hype Now?
Everything has an expiry date. While no one can predict what’s in demand in the future, it may still be a good idea to buy and sell NFTs before they explode in value. Just like how Bitcoin was only a decade ago mere pennies in worth, today it has become one of the world’s most demanded digital assets.
However, you should be cautious when purchasing highly-priced NFTs, considering this could be just a part of a bubble.
In the End
NFTs became one of the latest trends in the blockchain and crypto markets. Although we might be facing a period of hype, these NFTs could turn out to be something more revolutionary than we expected.
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© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.