Non-fungible tokens, or NFTs, have quickly become a talking point in the news. Some of these mysterious items have been selling for millions of dollars, but many people you ask don’t even know what they are! So what is an NFT?
NFTs are data that represent digital files like art, music, documents and more. When a file becomes minted as an NFT, its record becomes stored on the blockchain network which carries a public record of its ownership history, including its current owner, and acts as a certificate of authenticity. Thanks to NFTs, this means one person can own a digital file and prove it. Even if someone tries to copy the digital file, the blockchain remains on the copy showing who the actual owner is. NFTs can currently only be purchased with cryptocurrencies like Ethereum.
What Does Non-Fungible Token Mean?
The term fungible refers to a thing that is exchangeable or easily replaceable with an item just like it, much like any dollar bill has the same value. Non-fungible means each NFT is unique (one of a kind) and cannot be replicated like a work of art.
What Can Be an NFT?
Any digital file can be turned into an NFT.
Currently, common-selling NFTs include music tracks, videos and internet gifs, digital artwork, and book manuscripts. This is only the beginning as legal documents, vehicle titles, event tickets, and other transferable items are seeing the advantages in using NFTs to transfer ownership more securely.
Why Do People Buy NFTs?
Much like art or baseball cards, people place value in collecting rare things. NFTs expand the possibilities of what we can choose to collect. People can now own the digital copyright to original works from their favorite artists, or even video highlights capturing the best moments of their favorite sports teams. NFTs from artists and creators have intrinsic value to the fans.
NFTs are one of a kind and scarce by nature. Demand for a particular NFT can drive its value up, and some investors have turned to flipping them for a profit.
Can NFTs Be Copied?
Yes, exact replicas of NFTs can be created, but blockchain technology helps keep things transparent and honest. Even if someone tries to copy the original file, the unique identifier would remain on the copy proving who the owner is. This certificate of ownership could be used in cases of property theft or illegal use.
Even for items like general admission tickets that may seem indistinguishable from another, each one has its own identifier
Are NFTs Just a Fad?
It’s hard to predict the future, but NFTs have the potential to change the way we exchange ownership, potentially even our homes. As their uses continue to evolve, you can expect to continue to hear about them in the news. The current trend of people using NFTs for speculative investing may be an unsustainable fad, and likely comes from the appeal of NFTs being so new. It’s hard not to think about the Beanie Baby™ craze of the ‘90’s.
Is It Safe to Purchase an NFT I Want?
The choice to purchase an NFT is yours to make, and they are as secure as purchasing any cryptocurrency. We do suggest taking some correct precautionary steps. NFTs are stored in a digital wallet existing on online servers, almost like a bank account. You could experience issues if your password is lost or stolen. Therefore, use a complex password, two-factor authentication methods, and keep backups.
Any Other Questions?
This blog isn’t comprehensive, and you may have more questions about whether or not NFTs are for you. For a more in-depth conversation, schedule an appointment with one of our financial advisors at UFirstFinancial! They specialize in retirement, investments, estate planning, insurance, tax management, and much more.