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Don’t miss this about Non-Fungible Tokens (NFTs)
Fungibility of a currency is one of the attributes that makes them unique from other items. Before delving deeper into Non-fungible tokens, lets take a second to understand the concept of fungibility and its manifestation in real life.
A fungible currency is one that can be easily substituted for another asset or financial instrument of the same value. If only to be less complicated, fungibility represents the intrinsic value of a currency. The same stocks listed on different exchanges are considered fungible because their intrinsic identify is that they represent the same share in the business. Therefore, it does not matter whether a person buys such a stock on the New York Exchange or Nairobi Stock Exchange. Here is more details on money fungibility.
A brief on Non Fungible Tokens (NFTs)
The Non-Fungible Tokens (NFTs) refer to the tokens which can be used to represent unique items ownership. The NFTs are currently everywhere, from toilet paper and tacos to art and music. In short, it is a digital asset representing real-world objects, including videos, in-game items, music as well as art. Also, it consists of digital data, stored as a distributed ledger in a blockchain. Just like cryptocurrency, they can be traded and sold.
The difference between cryptocurrency and NFTs
The cryptos and NFTs are almost like chimpanzees and human beings. In as much as they have the same characteristics, they are different species. However, they have a common ancestry. In the case of cryptos and NFTs, blockchain is the common ancestor.
One of the differences between the two is that cryptos are fungible while the NFTs are not. It means that one Bitcoin is equal to another Bitcoin. However, one NFT is not the same as another NFT. Each NFT is unique, distinct, and valued differently depending on its demand and value.
The NFTs are different from the cryptos are they need the traders to purchase NFTs with cryptos. Also, they serve different purposes. For instance, cryptos aim at acting as a form or letting one sell or buy goods and store value. However, NFTs are developed as a form of token, and they can show ownership as well as convey rights over digital products.
The Way NFTs Work
NFT exists in a distributed public ledger recording transactions, also called Blockchain. You know blockchain is what makes the cryptocurrency process to be possible. Although the other Blockchains support NFT, they are held in the Ethereum blockchain.
NFT is minted or developed from the digital objects representing the intangible and tangible items. They include:
- Designer sneakers
- Domain names
- Virtual avatars
- Graphic art
- Sneakers in fashion line
They come in different forms. For instance, Jack Dorsey, Twitter’s co-founder, sold his first tweet as NFT for about $2.9 million. They are just like the physical collector items.
Are NFTs secure
The NFTs utilize blockchain technology. It is just the same as cryptocurrency, and the technology is very secure. The way blockchains are distributed makes it impossible for them to be hacked. However, there is a security risk. For instance, you may lose access to your NFT in case the platform hosting goes out of business.
How to Purchase NFTs
As much as you might have heard NFT. The buying process might still be a challenge. Before you proceed to purchase NFT, you should get a digital wallet to allow you to store cryptocurrencies and NFT. Besides, you will need to purchase crypto-like Ether. However, all these depend on the currencies accepted by your NFT provider.
Open a crypto wallet and exchange account
The first step in trading an NFT is opening an account on a crypto exchange or a crypto platform. Therefore, before continuing with the process, you should understand the difference between marketplaces, wallets, and exchanges.
You should understand that Exchanges work as brokerage. It is a place where you can purchase and sell varied cryptocurrencies. In addition, the exchanges hold and issue and hold your private as well as private keys. Another good thing about the exchanges is that it secures an individual’s cryptocurrency in the account.
Before you decide to trade on NFTs, the next step you should take is to open a crypto wallet account. It helps in storing your private and public wallet keys. Also, it is a way of safeguarding your assets which include crypto tokens and coins. The crypto offers independent access to funds as well as crypto assets through the seed phrase. Therefore, as a trader, it is your responsibility to keep the seed phrase safely. However, remember that the keys and phrases are separate things.
The main two types of wallets are cold and hot wallets. The cold wallet is a hardware wallet and physical device. It is a secure option. Unfortunately, it is a greater risk of loss. For instance, if you lose your seed phrase, then there is no backup.
On the other hand, a hot wallet is a software and web-based wallet. It comes in the form of a desktop application. Moreover, it is easy and convenient to use through applications and websites. Its con is that it is vulnerable to cyber attacks as compared to cold wallets.
Most of the NFTs are mainly built on Ethereum’s blockchain. The currency which is native to Ethereum is ETH or Ether. Since NFTs are built on the blockchain of Ethereum, it is important to ensure that the wallet and exchange you choose are compatible. Besides, they should work with Ethereum.
Transferring Ethereum to a crypto wallet
After choosing an exchange and buying ETH, you should transfer it to a wallet. The way you do it is mainly determined by the exchange you use in purchasing ETH. The other important factors include the marketplace where you purchase NFT as well as the wallet used.
Connecting the Cryptocurrency wallet to the NFT marketplace
NFTs commenced in the digital art world. However, you have the opportunity of purchasing varied kinds of NFTs. You can choose from the ones I mentioned above. The main three marketplaces in NFT include proprietary, closed, and open. The proprietary marketplace sells the NFTs copyrighted or trademarked through the enterprise that operates it.
The closed marketplace is exclusive. The artists have to apply, and the marketplace usually carries out the minting process. Besides, in this type of marketplace, trading and selling are more restricted. Lastly, there is an open marketplace. Any individual may mint, purchase, or sell NFTs. Minting refers to the process of converting a digital work into a unique crypto asset.
NFTs normally sell quickly. However, before making a purchase, you should ensure that your wallet is funded and connected before the NFTs drop. Also, remember that the different marketplaces have different restrictions. So, choose wisely.
The uses of NTFS
- Digital work
- Identity verification as well as medical records
- Intellectual property and patent
- It gives the game developers a way of expanding their brand
- Artwork tracking
- Ensuring products authenticity
- Real estate
- Medical records and identity verification