• Ganesh

Non Fungible Token(NFTs) Explained!

Yes, it's that term which you heard all over the media and the internet. What's the hype around it? forget about the hype what is it first of all. well, this walth post is going to be about NFT, why people buy it, the purpose behind it, and what's going to happen to NFTs in the future.

Cat gif NFT


Ok, before learning the concept of NFTs, NFT marketplace, etc... You must know a term called as fungible. That's a term in economics and since it is mentioned here in the walth blog, it's going to easy for you to learn it.

Fungible is interchangeable or exchangeable for example your 100₹ bill is fungible because there are many 100₹ bills out there. if you give someone a 100₹ bill and get a 100₹ bill back it remains the same, its value doesn't change and there are many 100₹ bills out there.

So, the exact opposite is Non-Fungible, i.e the product or a thing is non-exchangeable or it is unique and one of a kind, the one more copy doesn't exist. For example. The Mona Lisa painting, it's unique and there is only a single Mona Lisa painting on this planet, that's why it is worth millions. When quantity is less, the price will increase that's basic economics but there are many other factors that are used to determine the price of a painting.

What is an NFTs

NFTs is a Non-fungible token! what the fuck does that mean?

It is basically a digital ownership of something it can be a photo, video, audio, other kinds of digital files and it can even be a tweet. Yeah! Twitter tweet. Jack Dorsey, Founder of Twitter, Converted his first tweet that said: "just setting up my twttr" into an NFT and sold it for $2.5 million.

That tweet is one of a kind. So, now the person who bought NFT from Jack Dorsey has the ownership of the tweet. It's unique and it can't be replaced but the NFT can be sold to some other person. Hmm! that guy owns the first-ever tweet tweeted on the social media giant Twitter. Kinda cool. Buy the way NFTs are not new tech or something, it's been around here since 2013s

How does NFT work?

You might think that people who buy NFTs are crazy because they spend millions on buying a digital version of an image which you can download it from the internet.


This image above is sold for 7 million dollars. why would some pay in millions for an image which you can download from the internet?

Well, this is where NFTs do their role. NFTs is a part of Etherium Blockchain and Etherium is a cryptocurrency like bitcoin and dogecoin. Ok let's not go all technical, basically, the blockchain tech makes the NFT unique.

and NFTs are bought using Cryptocurrencies. So, when you buy an NFT your traction is verified in the blockchain. Once the transaction is completed, you own a digital asset that is unique.

So, how it is verified that you own the digital asset when others can download it from the internet? when you buy an NFT the transaction is made in the blockchain and the transaction is verified by many computers and then the NFT which you bought sits in the blockchain and shows up in your digital wallet. There is no copy of that NFTs anywhere else other than the one which you own.

And you can sell the NFT by listing it in any one of the NFT marketplaces. An NFT marketplace is a place where you buy and sell NFTs. Some of the famous NFT marketplaces are OpenSea and Rarible

Isn't it silly to own a digital version of something?

Yeah! it might seem stupid to own NFTs but It is a new and easy way of owning collectibles. There are many kinds of collectibles on our planet like From Physical artwork to sneakers and vintage cars and so are NFTs. But all those collectibles are physical things man, what value do NFTs have? you might ask.

How are NFTs valued?

This is bit tricky, people who buy NFT believe that the NFT which they bought will increase in value in the future and hope that they would make a profit by selling it. But this may not be the case with all the NFTs out there because the value of an NFT can be speculative. some NFTs can be overvalued and undervalued as well. NFT's value can depend on,

1.The person who created it. For example, if a world-famous artist who creates digital artwork like illustrations, creates an NFT and sells it, more people would want to buy it because he is famous and his NFTs will be valued more than an illustrator's NFT who is not famous and even if work is phenomenal.

2.Uniqueness and Scarcity. Not just for NFTs uniqueness and scarcity drive the price of artwork in the physical world as well. So, the previous example of Jack Dorsey's first tweet.

He made his tweet as an NFT and sold it for millions, the reason that his NFTs is valued in millions is because of uniqueness and scarcity, Twitter is a social media giant and millions of people make millions tweet per day so, the first tweet on such a platform is obviously unique and one of a kind. so, it is valued in millions and it will be valued millions more in the future.

That's not it as I said earlier NFTs can be overvalued and undervalued as well since NFTs are auctioned and people might bid higher prices based on pure speculation and an NFT which worth a lot might sell for less than it's worth because of people not interested in it and bid less amount. so, It makes sense that it's not worth buying all kinds of NFTs out there and there are high chances for an NFT bubble.

Gartner’s hype cycle
Gartner’s hype cycle

This is true for all the new tech. For example, in The dot-com bubble, more companies based on the internet started emerging out and were getting listed in the stock market because of the hype around the Internet in 1999s investors poured their many into these companies which do not have a business model and a track record of profits and eventually the bubble burst. Now, after 2 decades we are using the internet more productively than ever and we have made things possible which wouldn't be possible without the internet. The same goes with NFTs as well.

Is NFTs is all about just collectibles?

No. NFT not going all about collectibles in the future as garyvee said NFTs can act as social currency. NFT could create a monetizing option for creators that didn't exist before or it could be more than that like NFTs can be used to prove ownership for a piece of land or a house. It will more easy to buy or sell your physical asset as NFTs will get rid of the paperwork and the process will be more secure than ever because of the blockchain.

Thanks for making it to the end. Do your own research before investing in any asset. Make sure to subscribe to the Walth blog for more content on finance, business, the stock market, and economics. Share this with your friends who are trying to learn about NFTs