NFT: speculation, investment or entertainment?

Basic concepts: blockchain, token, cryptocurrency.

It is probably best to start the conversation by explaining the basic technologies: cryptocurrencies and blockchain. They emerged around ten years ago – and without them, no tokens would have been possible.

Essentially, blockchain is a decentralized database. It consists of a chain of information blocks, each of which contains information about transactions conducted during a certain period of time. They can be public or private. In the first case, the software has an open source code that can be used by all network participants. Many cryptocurrencies are built on existing public blockchains. Private ones use the same principle, but the software is patented and hosted on private servers. All network participants have common access to a single source of reliable information. They can view all transaction details at any time.

A token is a virtual certificate that confirms ownership of an asset. It can have monetary value on its own or be linked to the value of tangible assets, such as company shares. Tokens have different uses. Today we will focus on non-fungible tokens (NFTs), which work on blockchain technology.

Cryptocurrency is one of the types of digital currency. It usually works on the basis of blockchain technology. It got its name because extended coding is used to verify transactions. The purpose of encryption is to ensure security. The exchange rate of electronic “coins” does not depend on the policy of banks or governments – so there is a fairly large speculative component. At the same time, cryptocurrency can be exchanged for real money, it has an official rate.

Essentially, cryptocurrency is a digital record in an online database. It is not physical money. It is stored in digital wallets of users or on an exchange.

Everything you need to know about NFTs

NFT stands for Non-Fungible Token, which is basically a certificate of ownership of a unique digital object. For example, a picture or a GIF animation. It is a kind of authenticity certificate. Every operation is recorded in the blockchain registry, so it is almost impossible to change or counterfeit it. There is, however, a catch. Usually, the buyer does not acquire the rights to the digital content itself. In other words, they only get a link to the file on the Internet and a record in the registry.

The main difficulties associated with copyright are related to NFT. It was expected that the technology would revolutionize the world of digital art and video gaming. For creators of various content, tokenization would be a way to secure copyright. This is about the commission on digital assets that the author will receive – similar to the current situation with songs. In practice, this did not happen. There is still no normal regulation in this area.

Buying such tokens is somewhat reminiscent of buying original works of famous paintings nowadays. Roughly speaking, you can download and print a reproduction of Monet’s painting for free from the Internet. But there are people who are willing to pay for the original.

Also, non-replaceable digital assets “spin” in the world of computer games. You can buy avatars, skins, swords, and then, for example, resell them to another gamer.

“Non-replaceable” essentially means “unique of its kind”. That is, such a token has no counterparts (like a banknote). We’ll give an example, since the topic of art has come up. Each manuscript text by Mikhail Lermontov is unique, and therefore non-replaceable: it has no counterparts. Books with the poet’s works, released in one edition, are replaceable because they are identical. One book can be replaced by another. Thus, NFTs have a more collectible character.

Why is this necessary?

NFTs can be purchased on various platforms, such as OpenSea or Known. The choice depends on what the person wants to buy. To make a transaction, one needs to register an electronic wallet, which is used to pay on a particular platform, and “load” it with cryptocurrency. To store the digital asset, an NFT wallet is required. Such “storage” is available in different versions: desktop, web, smartphone app. The best wallets for NFTs are considered to be the following: NFT wallet Metamask, Enjin, Math Wallet, Trust Wallet, AlphaWallet.

What is the practical purpose of the purchase?

Reselling is probably the main reason for such purchases. Pricing in this area is largely speculative. At the same time, a significant number of NFT tokens cost mere pennies – sometimes a few hundred rubles. The acquisition of real digital art with the right of possession is often more expensive.

Entertainment and collecting. Someone is building a virtual gallery, someone is supporting crypto art. There are enough owners of NFTs. After all, if there is money and a desire to spend it, who can stop it?

Investing. The riskiest option – but not without meaning. There is a high probability that the NFT technology will not die in the future, but will simply be regulated normally. If this development takes place, many non-fungible tokens will be a good investment.

Today, the high cost of NFTs is composed of two factors. The first is uniqueness. People are willing to spend money to become the owner of a truly unique asset, which can also be resold at a higher price. The second is speculation and hype around the new technology.

Brands are actively using the marketing potential of NFT assets. For example, Taco Bell placed 25 GIF animations on a token sale platform. Each was accompanied by a certificate for $500 to purchase the brand’s products. The collection was sold out in half an hour. Today, the tokens are being resold, with the most expensive one costing $3500.

Everyone can technically create a work and turn it into an NFT. Or, alternatively, borrow someone else’s work and make a token out of it – this is actively used by unscrupulous sellers. However, for such operations, a wallet “filled” with cryptocurrency is required, since a prepayment is required. Sites charge exorbitant commissions for buying/selling. Payments for transferring to an account, price fluctuations depending on the time of day should be taken into account. You can spend more on fees than you get from selling the token.

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