In August 2021, a digital picture of the football star, Lionel Messi, sold for more than one million dollars. That same month, a clip art of a rock sold for 400 Ether, or about 1.3 million dollars!
About three months earlier, the artist Mike Winkelmann sold a collection of digital pictures of his work known as Beeple artworks for a whopping 69.34 million dollars at an auction in New York.
The digital pictures of Lionel Messi, a rock, and Beeple artworks are examples of non-fungible tokens (NFTs). Why are images of substances now becoming quite expensive and causing a sensation in the Crypto Market?
This Course proffers an answer to the question and, more especially, will guide you on how to invest in NFTs and make profits.
Lecture 1.0.0. The Characteristics of NFTs
What exactly are NFTs? To understand what an NFT is, consider the three characteristics of an NFT:
(1). Digital Representation
NFTs are digital objects that represent both tangible and intangible items in the physical world.
(2). Uniqueness
Physical money and other cryptocurrencies are “fungible,” meaning they can be traded or exchanged for one another. They are also equal in value – one dollar is always worth another dollar; one Bitcoin is always equal to another Bitcoin. Crypto’s fungibility makes it a trusted means of conducting transactions on the blockchain.
NFTs are different. Each NFT has a digital signature that makes it impossible for NFTs to be exchanged for or be equal to one another. This character is referred to as non-fungible.
For instance, if Phoster scores a spectacular goal in a world cup, he may decide to create 1000 digital pictures of his great goal and market it via a blockchain. In other words, he uses the blockchain technology to produce the 1000 digital pictures of his goal.
For these 1000 digital pictures to be regarded as NFTs, each of them must be digitally different even though they all look the same.
What gives each of the 1000 pictures of Phoster’s world-class goal that uniqueness is the signature that Phoster encodes in them. Each of the pictures carries a signature that is different from the others. Thus, you cannot just exchange one of those digital assets with another just as you can easily exchange one dollar with another dollar or one Bitcoin with another Bitcoin.
(3). Non-divisibility
Basically, an NFT cannot be divided into smaller pieces like other cryptos. For example, Bitcoin (BTC) can be divided into 8 decimal places (0.00000001 BTC). The smallest unit of Bitcoin is called a satoshi; thus, 1 satoshi = 0.00000001 BTC.
Likewise, Ethereum (ETH), the second largest crypto by market capitalisation, can be divided into 18 decimal places (the smallest unit 1 wei = 10-18 ETH).
But not so with NFTs. Each NFT is a complete non-divisible asset.
However, several people can come together and pay for a certain NFT. This is referred to as Ownership Fractionalisation. In other words, an NFT can have joint ownership, and any profits realised from trading such NFT are shared among the joint owners in proportion to the size of their ownership right.
