What are NFTs and what is their difference from cryptocurrencies?
If you have recently heard a media 'boom' about NFTs, this is because they have become a new attraction in the field of investment and an asset that is gaining more and more followers in the world, but should not be confused with cryptocurrencies like bitcoin or ethereum.
NFT stands for “non-fungible token”. When something is fungible, like a dollar bill, it is equivalent to any other dollar bill and can therefore be exchanged for it. In contrast, a non-fungible token or NFT is a unique asset in digital form that cannot be exchanged for any other NFT. This means that each NFT is a one-of-a-kind item. (See more Financial News)
In turn, they are transferred from one owner to another using blockchain technology, which creates a digital trail from seller to buyer verifying the transaction. This codifies the unique ownership rights of the buyer to the new owner.
If we wanted to assimilate it to how it occurs in the physical world, an NFT would be a unique collectible asset like a work of art, for which you could have a certificate of ownership that proves its authenticity. The NFT with its blockchain technology replaces the need for ownership certificates. All cryptocurrency news in Valora Analitik
Examples of NFTs in the market
NFTs have already become a popular investment in 2021, despite the fact that they have been around since 2014, but this year will be their explosion in terms of investment, according to projections by Bloomberg or Coinbase.
In fact, NFT prices have risen from an average of $24.98 in early 2021 to more than $900 in early 2022, reflecting their increasing trend in the market.
Specific differences between NFT and cryptocurrencies
It must be clear that NFTs are not the same as cryptocurrencies. An NFT uses cryptocurrencies to perform the transaction and its same blockchain technology, but the asset is configured differently.
While a cryptocurrency coin can be traded or exchanged at equity, NFTs cannot. This is because each crypto asset is configured with a unique identification code and metadata that distinguishes one NFT from another. That is, one bitcoin can be exchanged for another bitcoin, since they retain the same equivalence, but NFTs are not traded equally.
In this way, NFTs are traded and distributed through online markets such as Rarity.tools, NFTcatcher.io or Binance, among others.
Investors can review an inventory of assets before choosing one to buy. Currently, NFTs are being traded more with cryptocurrencies such as ethereum, polygon, solana and polkadot, but more and more are expected to trade with.
Thus, the NFT development have opened a new door for artists, companies, soccer clubs and celebrities to monetize based on the valuation in them. In fact, assets that capitalize on their brand identity are being created every day and some NFTs are selling for thousands or even millions of dollars, such as have acquired sports, music or market figures like Mike Cuban, Shaquille O'Neal and Justin Bieber with values ranging from US$20,000 to US$1.5 million.
How to invest, buy and sell NFT
The first thing to note is that you cannot buy an NFT without a cryptocurrency account.
This means that you must first purchase a digital currency required for the transaction through companies such as Binance, Coinbase or Robinhood, among others, and then link the cryptocurrency wallet you have to the market of your choice to make the NFT purchase.
“A thorough search for NFTs that are believed to increase in value and that you have interest in collecting is suggested. You can research NFT development by examining the various markets where they conduct sales and auctions and pay attention to launch dates, as some can sell out quickly,” said Sofía Saldarriaga, an investment expert at the University of Antioquia.
Upon purchase, the idea is that you hold the NFT or you can trade it over time for profit with another trader looking for a unique asset in the market.