A crowd of googly animated felines. A lovely video of a very high-flying Lebron dunk. An advanced artwork comprising 5,000 more modest pictures. All of these have been sold at the famous Christie’s auction. But what’s unusual here is that all these were registered as non-fungible tokens – a blockchain entity – for carefully purchasing and selling art, other items, etc.
NFTs are nothing but crypto-assets registered at the best NFT marketplaces, that are responsible for the recent blockchain blast across the world. Till 2018, the global NFT marketplace was valued at close to $42 million. But just before 2020 ended, the value of these marketplaces rose to 705% to $338 million in esteem.
This article will thus showcase – What is an NFT, How Non-Fungible tokens work and what cautions you must take before buying and selling the same.
What is an NFT & How it works?
An NFT is a non-fungible token – a computerized resource whose worth one can’t express in terms of another. Let us explain in simple words. Suppose an art work costs $100, with a fungible source like cash, you can pay for it in three ways: $100 bill, or two $50 notes or for that matter ten $10 notes. Agree? But that doesn’t happen at an NFT marketplace.
Here you have to buy or sell via cryptocurrency using a blockchain so that there are lasting records of purchase as well as exchange. So far NFTs are coming up mostly as digital artwork or a photograph or a video or even a GIF. Lately, recorded sounds or audio files have also been placed for bids at the NFT marketplaces.
Where to buy NFT crypto? The best marketplaces for an NFT token these days are OpenSea NFT, Ethereum, Binance, WAX and many more. But before that a major word of caution: An NFT’s value is entirely based on when and how much someone else wants to pay for the same. Thus, before you invest in an NFT, you must know that the price will be driven by its demand and not its technical, art or economic appeal.
What you must know before buying NFTs?
Why are you buying an NFT token? This is the most important question rather than asking how to buy NFT (because the latter you can Google too!)
So are you buying it for the love of the NFT or for investment? If you ask us how to invest in NFT, then we will just caution you to beware – so far there are no records to ensure a benefitting Return on Investment (ROI). So one has to really assess the risk of buying an NFT. And the other risks involved that you must know are as below:
- Anyone can create a copy of the same NFT on various blockchains so there is no affirmed ownership of the same.
- There is nothing so far to monitor and assert the copyright and property rights on an NFT.
- An NFT is as safe as its URL or web link. And the web link safety depends on your caution and investment in its cybersecurity.
In short, the risks involved are all to be borne by the buyer
What NFT creators/buyers must know before selling NFT tokens?
Well, the risks involved for the seller NFT are the same as those for the buyer. But there are a few more things.
- Understand your NFT wallet very deeply and keep it safe the same way you do with your normal bank e-wallet. Never enter details on a random non-verified website. In short, keeping your NFT safe is more important than learning how to buy NFT tokens.
- Understand that NFTs as well as your blockchain-based wallets are hackable. And there is no authority, so far, whom you can report to. Thus, we need real word laws for these virtual world transactions.
- The NFT owners have the sole responsibility for the safety of their assets while selling NFTs.
How can NFT buyers & sellers remain safe?
Due diligence and safety need to be your top priority when you enter the NFT marketplace. And this is a standard warning we share, even if you say that you are dealing at the best NFT marketplace in the world. Following are some general cautions to be kept in mind:
- Ensure that a digital deed of ownership to an NFT is available even before you decide where to buy NFT crypto or if you are selling NFT.
- Your foremost line of defence is the password of your account at the cryptocurrency blockchain. The stronger and the more unique it is, the higher the security. And the next step must be two-factor authentication of your NFT account.
- Once you have bought/sold an NFT, remove it from the NFT marketplace and store it elsewhere, like decentralized services instead of the blockchain. The best example of such a service is your Google Drive which has multiple independent users, a common storage system yet no data access by one another. But in case of a non-fungible token, you will need a specialized blockchain-based decentralized services like – Ivanova and Steinwold, that are popular for OpenSea NFT and others.
Whether the NFTs are a small-time rage or are here for longer to stay, so far they are the toys of the super-rich. And there is genuine cash being made, like any other new crypto entity that is launched in the NFT marketplace. So if you have the bandwidth to delve in this space, then right now is the right time, with all the cautions shared above w.r.t. How to invest in NFT.