The phenomenal rise of cryptocurrency has opened up an era of possibilities. And NFTs, or non-fungible tokens, are riding on the crest of this new technology. From art to music and pixelated images to toilet paper, these digital assets are selling like the proverbial hotcakes, some of them for millions of dollars. The basis for this craze for NFTs is their uniqueness – that is they cannot be replaced like-for-like. For example, Bitcoin is not an NFT. But a one-of-a-kind piece of art is non-fungible. You cannot replace it. If you trade it with another piece of art you will have something completely different.
What Is NFT?
The word “non-fungible” means one of a kind. NFTs are digital assets that represent real-world objects like music, art, digital avatars or images, videos, or any other collectible items but cannot be duplicated. They are backed by blockchain technology. The NFTs are sold online, frequently for crypto coins, and are encoded. They have been around since 2014 but have gained popularity only now. Recently, a set of 101 Bored Ape Yacht Club NFT was sold for $24.4 million (roughly Rs. 179 crore) at Sotheby's auction house.
If all that an NFT signifies is a digital asset, meaning intangible, why are people spending millions on it? They spend so much because an NFT allows the buyer to own the original item. Also, it contains a built-in authentication, which is the proof of ownership for the buyer. Most collectors value these “digital rights” more than the item itself.
NFT vs Cryptocurrency
While an NFT is built with the same technology as cryptocurrency, like Bitcoin or Ethereum, the similarity ends there. Cryptocurrencies can be traded for one another and are equal in value, that is one rupee will always be worth another rupee and one Bitcoin will always be worth another Bitcoin, irrespective of their price fluctuations with respect to other similar currencies.
NFTs are different. Each NFT (virtual asset) has a digital signature, via encoding, which makes it impossible to be exactly replicated.