What Are Non-Fungible Tokens? How NFTs Work And Why They Are Valuable | EXPLAINED
NFTs are a class of digital asset — digital collectibles, in simple terms. Non-fungible means something that is unique and cannot be exchanged for anything else
New Delhi: Non-fungible tokens, or NFTs, have of late gained much popularity, with NFT artworks selling for millions of dollars. While these tokens could come in many forms ranging from paintings to personal collections to video games and even social media posts, recent reports said an Armenian artist is auctioning off even her ovarian egg through an NFT.
According to the reports, multimedia artist Narine Arakelian’s painting called Love, Hope, Live will be auctioned off as an NFT, with a contract that promises the buyer an ovarian egg from the 42-year-old artist.
In India, celebrities like Amitabh Bachchan, Rajinikanth, Salman Khan, Sunny Leone, Manish Malhotra, and others have recently launched their own NFTs, and the response shows the market for digital assets is opening up in the country.
You may ask why would anyone like to spend so much money on items that are only present digitally, and can be freely accessed?
But NFT experts believe it’s the next phase in art collection.
So, here is a look at what NFTs are, why they are gaining popularity, and what are the risks involved.
What Are NFTs?
NFTs are a class of digital asset — digital collectibles, in simple terms. A non-fungible token can be anything, ranging from drawings and animated GIFs to songs, items in video games or even tweets.
Non-fungible means something that is unique and cannot be exchanged for anything else. The opposite, fungible, has examples like bitcoin. One bitcoin can be swapped for another as they are identical. But, no two NFTs are the same.
The unique identity and ownership of an NFT is verifiable through the blockchain ledger. Ownership of the NFT is often linked with a licence to use underlying digital assets. However, it does not confer any copyright to the buyer. Some agreements only grant a licence for personal and non-commercial use, while other licences also allow commercial use of the underlying digital asset.
NFTs can be bought with cryptocurrencies or via dollars, and the blockchain tracks the transactions. While the NFT can be seen by anyone, only the buyer owns the item — “a kind of digital bragging rights”, as a Reuters report puts it.
Buying an NFT of an image or video does not, however, mean getting its copyright.
How Popular Are NFTs In India?
NFTs are growing slowly but steadily in India. The popularity of NFTs can be gauged from superstar Amitabh Bachchan’s NFT collections of Madhushala, autographed posters, and collectibles, which have received bids of around $1 million.
The Madhushala NFT collection has got the highest-ever bidding in India at $756,000. It garnered bids worth $420,000 in the auction on Day 1.
The auction, which was organised by Beyondlife.Club, opened on November 1 and closed on November 4, and was powered by Guardian Link, one of India’s biggest decentralised branded marketplace for NFTs.
Madhushala NFT is the collection of poems composed by Amitabh Bachchan’s father and has been recorded in the actor’s own voice. Moreover the auction also has seven autographed posters from his movies and half a dozen collectibles of ‘punks and NFTs art and poster collection’ which have received bids worth over $100,000 on Day 1.
Fashion designer Manish Malhotra launched NFTs of the digital sketches of his creations. His five sketches went for $1,908.8 to $3,579 each, according to reports.
India’s cricketing legend Sunil Gavaskar’s NFT collection is set to go live from November 21.
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Types Of NFTs
Digital collectibles have seen some of the most high-profile sales.
NFTs can be of many kinds — images, videos, music, text, social media posts etc. All these can be bought and sold as NFTs.
Sports fans can collect and trade NFTs relating to a popular player or favourite teams.
Items in virtual world environments — patches of land, digital clothes etc — can also be traded as NFTs.
Former Twitter CEO Jack Dorsey’s first post, which read ‘just setting up my twttr’, sold for $2.9 million as an NFT in March.
How Big Is The NFT market?
While trading of NFTs started in 2017, its popularity surged only in early 2021, amid the pandemic, and has been growing steadily.
Citing data from market tracker DappRadar, Reuters reported that sales volumes went up to $10.7 billion in the third quarter of 2021. This, according to the report, was an over eightfold increase from the previous quarter.
Lockdowns forcing people to spend more time on the internet is one of the reasons attributed to the frenzy, the Reuters report pointed out.
With cryptocurrencies making price gains, the new crypto-rich investors are seen to be spending their digital money on NFTs, according to the report.
What Are The Risks?
Like cryptocurrencies, NFTs are largely unregulated. Anybody can create and sell an NFT and there is no guarantee of its value. Losses can stack up if the hype dies down.
In a market where many participants use pseudonyms, fraud and scams are also a risk.
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