In December 2021, nearly 30,000 collectors jointly bought The Merge, an NFT by the digital artist Pak, for a total cost of $ 91.8 million. It is the most expensive NFT ever. But what is an NFT? Why are NFTs becoming so popular even with businesses?
What is an NFT?
NFTs, or non-fungible tokens, are digital assets that are stored on a blockchain, which is a digital ledger that records transactions. They can represent anything from art to collectibles to in-game items and, in some ways, they are like cryptocurrency, but they cannot be exchanged for other NFTs or cryptocurrencies since each of them is unique. That’s what makes them valuable.
NFTs were created in 2012 by a game developer who wanted to find a way to prove ownership of digital assets. However, they only started to gain mainstream attention in 2017 with the rise of crypto collectibles such as CryptoKitties.
Since then, NFTs have been used for a variety of purposes, from selling digital art to buying in-game items. And as the NFT market has grown, so too has the range of things that can be bought and sold as NFTs.
How to create an NFT
NFTs are created by businesses or individuals using blockchain technology. To create an NFT, a business or individual first needs to create a digital asset, such as an image, video, or piece of software.
Then, the long sequence of 0's and 1's representing the file's DNA is compressed into a shorter sequence, called hash. The hash is then recorded in the blockchain with a time stamp. At this point, the NFT can be bought, sold, or traded on NFT marketplaces. Since the hash registers all the transactions, it is possible to go back from sellers to buyers up to the creator of the NFT. This “memory” demonstrates authenticity and ownership.
What are the main features of NFTs?
NFTs have some interesting features. They are:
- Unique: each NFT is unique and cannot be exchanged for another NFT.
- Immutable: NFTs cannot be changed or tampered with once they have been created.
- Decentralised: Since the blockchain is not controlled by any one person or organisation, it ensure higher levels of transparency.
NFTs are still a relatively new technology and they are not well understood by the general public. This lack of understanding could lead to scams or fraudulent activities. Moreover, they are not regulated by any central authority. This means that the owner has no guarantee that an NFT will retain its value over time. Finally, they are subject to the same volatility as cryptocurrencies. The price of an NFT can fluctuate rapidly and this could lead to losses for investors.