If you think you understand NFTs, you’re probably wrong

Most people have by now at least heard the term “NFT” or “non-fungible token.” However, only a small geeky elite actually knows what it means. People have a general idea that it is an exclusive digital asset but, beyond that, they’re largely clueless.

What is an NFT?

You should think of an NFT as being the digital equivalent of an original classic car. It’s something unique, exclusive, and that can’t be copied by anyone else. Nobody sitting in a shed could seriously hammer together something that looks like a 1950s Ferrari, for instance. 

This is where the term “non-fungible” comes in. When an item is fungible, it means that you can trade one for another. Gold sovereigns and dollar bills are fungible because people are indifferent between them. One gold coin is just as good as any other, so long as the purity and size are the same. 

NFTs, though, are different. Being non-fungible, you can’t just exchange one for another. You might be able to barter, but you’ll wind up with something completely different. 

Most NFTs are on the Ethereum blockchain, one of the most advanced systems currently in operation. The blockchain ensures that only one person can own the NFT at a time and that nobody can copy it. 

So far, most NFTs are just funny little doodles and avatars. However, NFTs may also represent a way of helping anyone – including artists and writers – collect royalties for their intellectual output.

Should you go shopping at the NFT supermarket?

You can click here and set up your own crypto account which you can then use to buy NFTs, but is it worth it? 

Well, let’s put it this way: nobody is going to stop you from having a flutter. But please be aware that the price of NFTs is rising all the time. In fact, over the last year or so, we’ve seen something of a boom. In the past, you could pick up NFTs for a few pennies, but now most are going for $50 or more. 

Of course, you could see it as a speculative investment. As more people pile into the NFT space, prices will rise. You might then be able to sell your valuable NFT onto somebody else for a higher price. 

However, NFTs run the risk of becoming a 21st-century version of the Dutch tulip bubble. Back in the 17th century, everyone rushed around trying to buy as many tulips as they could because they believed that they would always fetch a higher price. One day, they didn’t, and many people lost their life savings. 

NFTs are a little different from tulips in the sense that their supply is limited. However, people are now paying millions of dollars for NFTs which some people might think are unsustainable. 

Will NFTs become like collectibles? 

In all likelihood, NFTs will become digital collectibles in their own right. However, the market is too young to make any definitive claims. At the moment, we simply don’t know. Some artists have had success, but many haven’t.

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