You’re possibly aware of the incredible rise of NFTs in recent times. People are buying digital assets for millions in different parts of the world, and everyone is talking about NFTs. But what exactly is an NFT? Is it a cryptocurrency? Let’s take a look at some of the basics of NFTs to give you a good idea of what you can expect from this popular digital asset.
Non-fungible tokens (NFTs) are unique digital assets that are traded online. Typically, NFTs are traded with cryptocurrencies and are encoded with the same software that powers the global cryptocurrency market. This is the key relationship between cryptocurrencies and NFTs.The first NFTs entered the market in 2014, but they have only recently become widely popular. For instance, when an NFT called The Merge was sold for $91 million in 2021, people started taking notice of the eye-watering potential of digital assets.
The value of an NFT lies in the fact that it’s typically one of a kind or part of a unique batch. Each NFT has a unique identifying code that makes them completely one of a kind. This is why NFTs are completely different from most digital assets, which are in infinite supply. But something that lots of people question is this: even if you don’t own an NFT, you can still view it online, so why would you pay a huge amount of money for it?
It all boils down to ownership. Buying an NFT means you own it outright. It’s just like buying a piece of original artwork offline – you are the sole owner, and you receive a certificate of authenticity. In the online world, the same is true. A great example of this is when crypto entrepreneur Sina Estavi paid $2.9 million for Jack Dorsey’s first-ever Tweet. Estavi now owns a piece of digital history that is impossible to replicate, which is why people are willing to pay such high prices for digital assets.
What’s the relationship between NFTs and cryptocurrencies?
Although they’re similar in some respects, NFTs and cryptocurrencies aren’t the same. The key distinction is that cryptocurrencies are fungible and can be exchanged for one another. For instance, one Litecoin will always be worth one Litecoin. This is why cryptocurrency is a trusted means of transacting on the blockchain. As the name indicates, NFTs are non-fungible, which means they all have a unique digital signature and cannot be traded equally to one another.
How do NFTs work in practice?
The majority of NFTs exist on the Ethereum blockchain, which is a distributed public ledger. They exist in multiple forms, but you can typically find NFTs that are forms of digital art, GIFs, avatars, video game skins, social media posts, and music. The easiest way to think about NFTs is to regard them as digital collectables, which is what drives their value.
After their emergence in 2014, NFTs enabled artists to earn money for their creations in a totally unique way. Instead of relying exclusively on galleries and auction houses, people can now sell their own creations online via an authentic process that ensures payment is made.
How to protect your NFTs
Cybercriminals target NFTs and other digital assets, so it’s important to protect them. The best way to do this is to take out insurance for your NFTs. Amulet is a DeFi insurance protocol for the Rust-based ecosystem deployed on Solana. You can protect a broad range of digital assets with Amulet, including NFTs and cryptocurrencies, offering you additional protection for your digital property.