Non-fungible tokens (NFTs) have been around for several years now, but it’s only in 2021 that they hit the adoption stride as they received the much-needed spotlight.
Some of these digital assets sold for millions of dollars and saw some owners become instant millionaires.
Maybe you’ve only heard of NFTs in 2021 and are still wondering what the fuss is all about. This article will attempt to demystify the mystery surrounding these new assets.
You will learn what an NFT is, whether it is a cryptocurrency or not, how to use it, and how you can start investing in the space. There is a lot to learn about non-fungible tokens, so let’s get started.
What is NFT?
NFT is an acronym that stands for non-fungible token. It is a unique and non-interchangeable digital token that holds pieces of data hosted on a blockchain.
The most common blockchain on which NFTs are created or minted is Ethereum, the second-largest network by market value and the leading smart contract platform.
NFTs are often associated with art, but it’s worth noting that NFT can represent even more than just art, including music, video, and text, etc.
A common misconception about NFTs is that this digitally recorded data is the actual art, but that is not the case. An NFT represents the actual thing whose data is stored on the blockchain.
A good analogy is a car’s title which represents the ownership and information about the car, but the title is not the car itself. In the same way, an NFT can be compared to the title, while the art that the NFT represents can be compared to the car.
Is NFT A Cryptocurrency?
NFTs are not cryptocurrencies. The two assets might be classified under the same umbrella section of digital assets, but they exhibit different characteristics that make them different.
Before we consider the differences, let’s discuss how the two assets are similar.
Similarities between NFTs and Cryptocurrency
First, NFTs and cryptocurrencies are digital assets that exist on the blockchain. NFTs are pieces of data stored on a decentralized ledger similar to a cryptocurrency which is also a collection of binary data.
Second, NFTs, like cryptocurrencies, can also be stored in a digital wallet. In fact, NFTs and cryptos can be stored on the same wallet using the same public wallet address.
Third, non-fungible tokens are minted or created according to set standards depending on which blockchain they are hosted.
For example, the most popular NFT platform happens to be Ethereum, whose native currency is Ether (ETH).
NFTs created on Ethereum use a minting standard dubbed ERC-720 or 1122. Tokens or cryptocurrencies of smart contracts created on the platform also have to adhere to a standard, and in most cases, that is the popular ERC-20 token standard.
Differences between NFTs and Cryptocurrencies
As mentioned earlier, NFTs are different from their cryptocurrency counterparts. Here are some of those differences:
Fungibility – NFTs are non-fungible, meaning that each token is unique, while cryptocurrencies are created with fungibility as a fundamental characteristic. Fungibility helps cryptocurrencies have their monetary application.
Utility – NFTs and cryptocurrencies have different uses where the former are used as ownership and descriptive agents of other assets. In contrast, the latter is used for broader uses, including as media of exchange.
Creation – we mentioned earlier that NFTs and cryptocurrencies are similar in that they are created using set rules and standards. However, these standards vary according to the token being created and on which platform. NFTs and cryptocurrencies use different standards.
Exchange – unlike the cryptocurrencies that can be bought, sold, and exchanged on public platforms such as Binance exchange, NFTs are traded on marketplaces specifically designed to support their token standards.
One popular platform is OpenSea, where non-fungible tokens can be created, bought, sold, and traded for a profit.
What are NFTs used for?
NFTs have one primary use case as a digital asset, which is being used as a publicly verifiable record for ownership and descriptive properties. Whether the public can verify an NFT depends on whether the host blockchain is available to the public.
If a ledger is private, any assets or records associated with it will be unavailable to the public.
NFTs have found a growing list of use cases since the first one was created in 2015.
Here are some of those more common uses:
Digital art – for a long time, it has been widespread to duplicate digital images, but now artists can better protect their work using NFTs. It is still possible to duplicate these digital images, but the owner can easily be verified on the public ledger if the work has an NFT attached to it.
Read more about Can NFT Art Be Copied?
Games – NFTs have been applied to the gaming industry to represent in-game merchandise such as pieces of virtual property, gaming gear including shields, swords, guns, etc., and even gaming characters. These gaming merchandise can be traded within or without the gaming environment on third-party marketplaces.
Music – the music industry is also undergoing a significant shift as more artists take their works directly to their fans while bypassing the middleman (record labels). Using NFTs, music files can easily be attributed to the creator and the owners making the work more profitable for the artists than before.
Other less common applications of NFTs include real-life gaming moments, internet memes, videos, event tickets, and within the adult industry.
Is NFT similar to Bitcoin?
NFT and Bitcoin are different assets, but they have similarities and differences. The similarities include:
They are both digital assets that exist on the blockchain. Bitcoin exists on the flagship blockchain network Bitcoin, while NFTs can be hosted on smart contract platforms such as Ethereum, Binance Smart Chain, etc.
NFTs and Bitcoin can be stored on digital wallets and transferred from one wallet to another using the public wallet addresses.
They both have a cost to being created, with Bitcoin creators incurring a mining cost while NFT creators incur minting costs in the form of gas fees.
On the other hand, the differences are:
Bitcoin is a cryptocurrency, while NFTs are tokens. This difference means that Bitcoin is a native coin on the Bitcoin platform while tokens are derivative assets on a host network.
Bitcoin being a digital currency, can be used as a medium of exchange or a means of value transfer, while NFTs cannot do the same because they lack the element of fungibility. Each NFT token is unique, while each bitcoin is the same as the next bitcoin.
Does Bitcoin have NFTs?
No, Bitcoin does not have NFTs, but being a programmable network, it can become a host network on which NFTs can be minted.
However, in its current implementation, the Bitcoin network cannot be used to host NFTs.
Can you invest in NFT?
Anyone can invest in NFTs, and there are several ways to do that. The most common way to invest is to buy and sell them for a profit, but there are other ways to interact and use NFTs that make them valuable to a broader audience.
Some of these ways to invest include:
Mint NFTs – creating NFTs may be a technical task that may be daunting for most investors. Still, if you can do it, you can convert any asset you have into an NFT, including music, video, physical paintings, photographs, among others.
Collect rare NFTs – given that NFTs can represent any kind of asset, both offline and digital, people have opted to convert their assets into tokenized versions. Hobbyists have found an opportunity to collect the rare NFTs and keep them for value appreciation.
Trade NFTs – over the last couple of years, NFT marketplaces have become extremely popular as they provide avenues for users to buy, sell, create and exchange these trending assets.
What is Binance NFT?
As a leading cryptocurrency exchange, Binance has been investing heavily across all sectors of the blockchain ecosystem, and NFTs are one of the more recent verticals it ventured into.
Its foray into NFT includes the launch of an NFT marketplace dubbed Binance NFT Marketplace, where Binance users can create, buy, sell and trade non-fungible tokens.
A Binance NFT is thus a token created on the Binance NFT Marketplace and hosted on the proprietary Binance Smart Chain, a variant of the popular Ethereum blockchain.
What can you do with NFT on Binance?
So far, only authorized artists can mint or create Binance NFTs, but the exchange says that it will open up that feature to more Binance users with time.
The rest of the Binance NFT Marketplace users can only buy, sell and trade these tokens within the ecosystem.
Additionally, Binance has also disabled withdrawal of their NFTs, but that is also temporary as it’s expected that these tokens would be stored on third-party wallets such as Binance’s Trust Wallet.
NFTs are an exciting blockchain application that is currently trending. It is an innovative solution for the age-old problem of digital counterfeits, but its application is much broader.
The blockchain community comes up with new ways to apply non-fungible tokens every day.
Some of these use cases are pretty ingenious, and others, not so much, but either way, they provide a new avenue for investors to benefit and perhaps, profit.