In this article, we talk about NFTs and we will tell you what you need to know before you decide to put your time and money into this endeavor.
What is an NFT?
An NFT, for Non-Fungible Tokens, is the long-awaited revolution for digital creators. Indeed, an NFT is a certificate that certifies the authenticity of a digital work as a unique and non-interchangeable digital asset whose existence is ensured by the blockchain.
Without going into too much detail, the blockchain is, as its name suggests, a chain of several blocks of data that are certified, public and immutable. In other words, a line registered within a blockchain certifies who is the creator of the NFT and this information is not modifiable.
Until then, digital files like images or videos could be copied and no one could officially claim to be the original owner. For brands, this can help prevent counterfeiting and copying of physical objects.
Therefore, NFTs can enhance the uniqueness of a luxury brand's bags or jewelry, for example, on the second-hand market. The luxury company Gucci understood this well by creating a pair of virtual sneakers at €12.99 to allow customers who buy them to wear them on social networks via a filter:
Thus, thanks to NFTs, artists, and brands can create unique pieces in their image which can then be sold at auction or offered to customers through a contest, for example, in order to strengthen customer engagement.
NFTs can be said to create digital scarcity and valuation of digital objects.
How do NFTs work? Are they a cryptocurrency?
Although NFT transactions are mostly done in cryptocurrencies like Bitcoin or Ethereum, they are not cryptocurrencies themselves. Like the Euro and other currencies, cryptocurrencies are fungible. If you exchange one bitcoin for another, both have the same value. You will always have an equivalent bitcoin in your wallet.
Since NFTs are unique, they have no equivalent value and are subject to market volatility. So you can buy an NFT at a certain price, but the fact that it is non-fungible allows its market value to fluctuate.
How to create an NFT?
First of all, start by choosing on which blockchain you want to issue your NFT. Ethereum is currently the main blockchain service for issuing NFTs but other blockchains are becoming increasingly popular. It should be noted that each blockchain has its own NFT token standards, wallet services, and compatible markets.
Ethereum has traditionally been the home of NFTs and their development. It has a very large user base and a mature NFT community. Nevertheless, the transaction fees are very high.
This makes transactions very expensive for its users. Binance Smart Chain is a newer blockchain that has seen strong growth in its NFT market with cheaper transaction costs.
When it comes to Binance Smart Chain NFTs, prices are almost always expressed in BNB. NFTs on Ethereum typically use Ether or ETH. Both of these cryptocurrencies are available for purchase on the Binance exchange. After purchasing the cryptocurrency of your choice, transfer the funds to a wallet that can interact with the NFT market.
How to buy and sell an NFT?
Depending on the blockchain you choose, you can buy or sell NFTs on platforms such as Binance or OpenSea. But don't get me wrong, in most cases, the artist who makes a lot of money from NFTs is either already very famous or has created a work so original that it immediately gained enormous value among the community of art lovers.
Indeed, if we carefully analyze what has already worked very well, we can note that behind the NFT that was sold for the greatest sum of 70 million dollars is that which corresponds to a digital mosaic of questionable taste, hiding the artist Beeple who has expertise already recognized worldwide.
Another known example, the Bored Ape avatars cannot only be considered digital works because they actually give, in addition to the certification of authenticity, access to advantages and events reserved for those who own a copy.
Since their inception in April 2021, the collection of NFT Bored Ape Yacht Club has reportedly generated over $2 billion and the most expensive has sold for $3.4 million. “You're not just buying an avatar or a unique piece of art. You have a membership card for a club whose benefits and offers will increase over time. “, promises the Bored Ape Yacht Club site.
This idea of a closed circle has seduced several celebrities. We can thus speak of a search for virtual social status.
Advantages And Disadvantages of NFTs
Advantages of NFTs
1 – NFTs contribute to greater market efficiency
The ability of NFTs to increase market efficiency is their most visible benefit. Converting a physical commodity into a digital asset helps streamline supply chains, reduce the number of middlemen, and enhance security.
2 – They can be used to split the ownership of physical assets
Today, it is difficult to split assets such as works of art, real estate, and expensive jewelry. A virtual copy of a work is easier to divide among multiple owners than a real copy.
The same goes for a piece of high-value jewelry or a one-of-a-kind wine case. NFTs allow this like RealT for example.
3- The blockchain technology that underpins NFTs is extremely secure
NFTs are made using blockchain technology, which is a method of storing information that cannot be hacked, altered, or erased.
4 – NFTs can help diversify an investment portfolio
NFTs are not the same as traditional assets like stocks. They possess various qualities and bring benefits that we are only beginning to fully understand.
If you want to get NFTs, we recommend that you first visit the Opensea platform.
Disadvantages of NFTs
1 – The disadvantages of NFTs are their inconstancy and lack of liquidity
Since NFTs are still in their infancy, the sector is not extremely liquid. Simply put, NFTs are still poorly understood and potential buyers and sellers are few at the moment.
2 – NFTs present a risk of potential fraud
While the integrity of a blockchain cannot be questioned, NFTs can be used to commit fraud.
Why are NFTs of concern?
NFTs can have a disastrous environmental impact if we all join the movement. Many people involved in the cryptocurrency industry have expressed concerns about adverse effects on the environment.
Elon Musk and even United States Senator Elizabeth Warren have already expressed themselves on the issue.
Simply put, cryptocurrencies are required to purchase an NFT but cause heavy greenhouse gas emissions. To produce Bitcoin, for example, you need very powerful and power-hungry computers. Most of the time, this electricity is produced from coal and therefore contributes significantly to the production of greenhouse gases.
According to several studies, the Bitcoin ecosystem would represent more than the consumption of certain countries. Added to this already heavy bill is that of the NFT technology itself: the servers that already host the works, but also the technologies needed for the auctions.
Just like cryptocurrencies, you should know that a very powerful machinery system is necessary in order to produce NFTs because it must be able to perform very complex calculations.
What is the impact of NFTs on the environment?
While it is still difficult to know exactly what the impact of an NFT is on the environment, some have tried to calculate it. According to the New York Times, the production of a single NFT would represent more than 200kg of carbon dioxide or the equivalent of a journey of about 800km for a conventional gasoline car. It seems a shame that virtual works are so costly in terms of energy when they have no materiality.
Today, even though NFTs still represent a small fraction compared to cryptocurrency transactions in the blockchain, they are still very energy-intensive and they could explode if we all rush on them.
We thus believe that NFTs can be very contradictory to the environmental commitment of companies. Fortunately, many developers are currently working to find greener solutions.
READ MORE: How To Invest In NFTs?
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