What's That Term?: NFTs
The IT industry is technical and complicated, but it doesn’t have to be impossible to understand. In conversations with our clients and end users, we try to break down IT lingo into easy to understand terminology. Our What’s That Term? Series offers definitions for some of the most common words and terms in today's technology vocabulary.
At this point, you’ve probably come across this term on social media, but what makes NFTs so noteworthy? We’ll dive deep into those three letters and uncover all the aspects you need to know about the term NFT.
What is it?
Although you could come up with a million different combinations for the initialism, this specific one refers to NFT as Non-Fungible Tokens.
That’s great, but what in the world does that even mean?
In this context, non-fungible basically translates to something that is unique and cannot be replaced by anything else. Even though it is similar to cryptocurrency in the programming it uses and that it is a part of a blockchain, the part that makes it “not” fungible is that it is not equal to any other NFT.
For example, you can trade one dollar for another dollar or one bitcoin for another bitcoin. That’s what makes those items fungible. However, NFTs do not abide by this and cannot be exchanged for one another, so your pirate-themed Bored Ape NFT cannot be exchanged for a sailor-themed Bored Ape NFT, or any other Bored Ape NFT for that matter. Each NFT made has its very own digital signature, and you own the bragging rights of that signature on the Ethereum blockchain, which is where NFTs exist; other blockchains can support NFTs as well though.
Essentially, NFTs are just like physical collector’s items, except they only exist in the digital realm. Instead of getting an actual oil painting to hang on the wall or a song on a CD (if you still have those), the buyer gets a digital file instead.
They also get exclusive ownership rights, meaning NFTs can have only one owner at a time. A given NFT can be transferred between owners or sold for currency. They can also store specific information inside them such as including a signature in the NFT’s metadata.
Why you’ve heard it
Now that you have a very general idea of what NFTs are, what makes them so relevant in the current zeitgeist?
One of the things that has allowed them to take the internet by storm in recent years is their ease of use. Blockchain technology and NFTs afford artists and content creators a unique opportunity to monetize their work. Many artists and creators have needed to adapt to the changing world in order to get their product seen and purchased. NFTs allow them to work directly with the consumer, saving them valuable time and money while also having the added benefit of receiving royalties on said NFTs based on every time it is exchanged.
NFTs have been around since the mid 2010s, but the pandemic has facilitated a surge in buying things online. It is so much easier to order things over the internet than to go and physically get something, especially if it's a high end collectible which NFTs tend to lean heavily towards.
You don’t need anything to start selling NFTs besides the means and time it takes to make the work, and all you need to purchase them is a digital wallet and the proper currency which is typically some form of cryptocurrency.
Overall, it is a way to explore an expanding digital medium that keeps presenting vast and numerous opportunities for adapting the things that we do in the physical world to an online environment.
Whether it is the future of commerce, gets relegated to a niche group of online collectors and buyers or if it fizzles out altogether, we’ll just have to wait and see. For now, though, it seems to be at its height in popularity and influence.
Our advice
What does all this mean for you though, besides being the catalyst to starting your own NFT vault?
There are a lot of benefits associated with NFTs as mentioned above, but much like any form of digital exchange, there can be drawbacks since it is such a relatively new part of the cultural landscape.
Financial Uncertainty: There can be a lot of uncertainty, financial or otherwise, especially since demand is dictating the price rather than practical factors like its fundamental, technical or economic use.
Unregulated Landscape: One of the biggest keys to cryptocurrency and NFTs is that they exist on unregulated markets. That is a driving force behind their popularity, but as catchy as that may be, it makes it that much harder for actions to be taken if something bad does happen.
Environmental Impact: Unfortunately, it takes a lot of computing power to farm NFTs which means a lot of energy is used. This, in turn, contributes to greenhouse gasses that affect global warming, so your Bored Ape token may actually replace the real thing one day.
Scams: Much like any other scam out there, never click on broken links from social media or DMs from unrecognizable Discord users. Likewise, don’t interact with cold messages and emails. Do, however, interact with popular NFT communities on Twitter or Discord because they have the up to date information about the market. The easiest and most important thing you could do to protect yourself from an NFT scam is to never give away your seed phrase or private key to your crypto wallet to anyone. Anybody can enter your wallet with this information.
Luckily, NFTs have a good system in place to prevent scams through blockchain transparency, which allows you to search the history of wallet transactions. Therefore, any noticeable irregularities will be caught and can be seen easily.
Regardless of your approach to NFTs, do your research, and understand the risks including the possibility of losing all of your investing dollars. If you decide to go into the NFT market, proceed with a healthy dose of caution.
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