Financial Education

What is an NFT: understand how this digital asset works

Non-fungible tokens open the door to a whole new world where trading unique digital assets can be extremely profitable. Know more!

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by Sabrina Paes

Published on 08/19/2022

Everything you need to know about NFTs

NFTs are the newest technology that works as a kind of currency | Source: Adobe Stock

Ever wondered: What is an NFT? Non-Fungible Tokens have become a trend. Proof of this is that, from 2020 to 2021, there was a 55% increase in sales through specialized platforms.

Celebrities, artists, and even football players have jumped on the hype of these assets. Today they are worth millions and are treated as “digital works of art”.

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Present within the cryptocurrency universe, the NFT works as a digital certificate established via blockchain.

That is, they function as a digital certificate that determines the originality and exclusivity of digital goods. Learn more about this technology!

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What is NFT, and how does it work?

Non-fungible tokens (NFTs) are unique collectible crypto assets that have been around since 2012. That year, the concept of colored bitcoin coins first emerged.

These coins were simple satoshis. That is, a small fraction of a bitcoin colored with different information. They could connect them to real-world assets.

For most, however, colored coins were used to trade artwork. Some examples were digital cards and music.

In short, NFTs can represent virtually any type of item, whether real or intangible, including:

  • Artwork;
  • Virtual items within video games, such as skins, digital currencies, weapons, and avatars;
  • Song;
  • Collectibles such as digital cards;
  • Tokenized real-world assets, from real estate and cars to racehorses and branded shoes;
  • Virtual land;
  • Videos of iconic sports moments.

The NFT can be summarized as a signature of a digital good. Thus, whoever owns an NFT becomes responsible for the originality of that artifact.

What is the difference between NFT and cryptocurrency?

Cryptocurrencies are fungible items, while NFTs are non-fungible | Source: Adobe Stock

Cryptocurrencies, such as Bitcoin, for example, are fungible goods. That is, if you send a Bitcoin, the person can return a unit of the crypto asset to you, and, with that, you will continue to have the same value.

In addition, cryptocurrencies are also divisible. This means that it is possible to send fractions to someone. In the case of NFT, it is a single good and cannot be divided.

That is, it is not possible to exchange the non-fungible token of a work by Leonardo da Vinci, for example, for another one of the same kind, as there is only one Mona Lisa.

It is also not possible to transfer half of the frame or a third of it to someone else.

Finally, cryptocurrencies serve as a means of payment, especially for NFTs. In turn, NFTs are a certificate of authentication of unique and non-transferable assets for investment.

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The NTFS market has made art monetizable. This attracted a lot of people, mainly artists, musicians, and influencers.

Anyone who thinks that only artists can monetize with NFTs is wrong. In March of this year, NBA game highlights moved around $500 million.

The NBA itself made $230 million with what they call the Top Shot. This digital asset represents relevant parts of the games, the so-called highlights.

The fact is that this NFT market has reached levels that cannot be ignored. In the first six months of 2021, the sales volume of non-fungible tokens is estimated to have reached the $2.5 billion milestone.

In short, NFT has gained popularity because it is a versatile way of selling on the internet. It’s like a new bargaining chip that can be anything you can imagine.

What are the benefits of owning NFT?

One of the main advantages of investing in NFT is profitability. Another important gain is the knowledge that the investor acquires when entering this universe, which, for him, “is the future”.

Also, NFTs are very diverse (like virtual terrains, game items, and others). In this way, they meet the needs, interests, and different personalities of investors. In addition, NFT has other benefits. Check out:

  • Rapid market appreciation: The interest of investors is increasing rapidly because it is a new type of investment;
  • Scarcity increases their value: Because they are unique files, the fewest of them there are, the greater their value tends to be;
  • Ease of transfer: Blockchain technology allows trades to be made with great ease.

These advantages make NFT a very interesting and innovative type of investment. This justifies the growing use and even greater implementation trend in the coming years.

Is NFT a good investment? Should you buy one?

NFTs can be anything you want in the virtual world, creating a new way to sell and buy on the internet | Source: Adobe Stock

Before investing in an NFT, it is very important to consider several points, both its advantages and disadvantages. Especially since it is a very new concept.

As we have seen, NFT has the advantages of rapid market appreciation, and scarcity increases their value as well as ease of transfer. In addition, it will be the currency of the future.

However, NFT also has disadvantages:

  • High volatility: the NFT market is not yet at its full maturity, so values can vary a lot;
  • It is necessary to know the project: There are many collections of NFTs, companies, and investors in the market, and many are nothing more than frauds;
  • It is a risky market: There is almost no guarantee in the NFT market, as it is something new and still little explored.

As there is no restriction on the production of NFTs, anyone can create NFTs from unauthorized works and impersonate the artist.

Therefore, it is necessary to be careful with this type of fraud and seek help from an expert.

However, before investing in NFTs, investors need to understand what they want and what their goals are. Never invest in what you don’t know because the chance of doing something wrong is great.

If you are thinking about investing in NFTs, one way is to acquire your tokens and send them to your cryptocurrency wallet. To buy, you can trade directly with the token owner or participate in the markets.

And if you want to learn more about crypto and NFTs, you can find some news about Ethereum in our post below!

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In a recent development, Ethereum has completed its first successful test merge on the Ropsten network. What does this mean for the future of cryptocurrency? Read on!

About the author

Sabrina Paes

Content Writer, Copywriter, and Ghostwriter. Content marketing professional with 5 years of experience. Specialist in investment, finance, and technology niche. MBA in Marketing at the University of São Paulo, Brazil. Content Writer by Rock Content, and University of California (UCDAVIS).

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