NFTs for Newbies

My friend Anikait and I recently made an investment in NFTs. We ended up making several hundreds of dollars, but here’s the crazy part. Neither he nor I knew what we were doing. Reading this article I’m going to introduce you to the world of cryptocurrency, mildly educate you, give you my unqualified opinions, and hopefully a crash course into NFTs.

So what the Hell are NFTs?

NFTs are short for Non-Fungible Tokens. To understand that a little bit more, breaking each word into elementary terms makes more sense. “Non” is self-explanatory and if you need help with understanding that….. Moving forward, the concept of fungibility refers to the ability for an asset to be exchanged with another equivalent or similarly valued asset. The U.S Currency is a great example of a Fungible asset, we live every day knowing that you can trade one dollar for another knowing the value is exactly the same regardless of which dollar you have. In contrast, Non-Fungible assets are unique and are valued by other attributes. A great example is Baseball cards, where each Baseball card is valued differently based on rarity, design, edition, emotional attachment, etc.

Let’s now talk about the T in NFTs. Token. It’s a very internety word and to explain this I have to explain something I’ve avoided explaining for a very long time. THE BLOCKCHAIN. Luckily, there’s a way to understand this and I’m going to attempt to make it painless as possible. Let’s say I want to buy three slices of pizza from my friend Anikait. He charges me $6 dollars, I don’t use cash anymore, so I pull out my phone and Venmo him $6 from my bank account. As soon I enter the transactions, a message is sent to my Bank. It says “Hey, Sahil, who has a checking account in your bank wants to spend $6 on Pizza and it needs to go to Anikaits Bank”. This is the bread and butter of what a Bank does, it documents all the transactions everybody makes, sends money to other banks, and thus using all that information can calculate a tally of all the money that went in and out of your account. If the Tally is greater than the money being sent, it approves the transaction and updates the balance. This entire process gets repeated in Anikait’s bank, his tally updates by adding $6. More and more, your money is just a number on a screen. It’s the result of a bunch of transactions. You don’t barter with physical things and you don’t use cash as much. So the bank keeping meticulous records of every transaction is becoming increasingly important. So thank you banks, for doing such a great job and running things smoothly, I mean kind of. Let’s not talk about the Recession of 2008.

With the rise of the internet, people started to wonder is there a way we can do the same thing? coordinate transactions and transfer money between two people without the Bank. The result is a clever concept called THE BLOCKCHAIN. It fulfills the same thing the bank was doing, but instead of doing this privately on my bank account and talking to Anikait’s bank. All the transactions are recorded publicly on the internet. Let’s redo this example in the crypto world. I want to buy three slices of pizza from my friend Anikait. He charges me 6 Crypto Coins. I go to my phone Venmo him 6 crypto coins and now instead of my request going to the bank to validate if I have enough, it goes on to this public record, where a bunch of computers all around the world are keeping track of every single transaction of everyone always. If I don’t have the 6 coins in my account to pay Anikait, all the computers keeping track of the transaction will notice a discrepancy. They’ll check every transaction ever made and will deny me. If I do indeed have 6 coins in my account, all the computers will look at each other and approve the transaction. That transaction will now be in the public record for every computer on the blockchain network. The point here is the group verifies the legitimacy of every transaction, not one sole power.

What does the THE BLOCKCHAIN and this public record have to do with cat GIFs that sell for 100,000 dollars?

In my pizza example, we talked about the blockchain to verify currency transactions. What if we now bend the rules a little bit and apply this concept to something that isn’t money or currency. Let’s say one day you’re looking at the ledger and spot that Bill Gates, founder of Microsoft, wants to give 1,000,000 crypto coins to Donald Trump in exchange for a token or Digital certificate that says this particular tweet is owned by Bill Gates. The only thing that the blockchain care about is, does Bill Gates has 1,000,000 crypto coins. Once the transaction is approved, it is written in this public record that is unalterable that Bill Gates owns this tweet. The token has been transferred to someone new. That is a Non-Fungible Token, an NFT. And if there’s anything that gets human psychology to value something is if an entire group validates something and if there is only one of them.

What type of assets can NFTs be used for?

To get a Amazon’s perspective, click here!

• NFT event tickets: companies can distribute and sell tickets to events using NFTs, reducing friction for verification of ownership and authenticity and helping to eliminate fraud. Furthermore, there are infinite possibilities for post-purchase collectability of tickets through exclusive experiences and digital art.
• Fan/customer engagement: brands or organizations can issue or sell NFTs that represent exclusive collectibles, products, experiences, or voting rights for the future development of a product or service in order to deepen the engagement customers / fans have with the brand/organization.
• In-game items: video games are walled gardens today, players do not own their digital items and secondary markets are hard to implement. NFTs can be used to create a widely varied ecosystem of in game digital items that can be bought sold and exchanged on open secondary markets and used across a broader gaming ecosystem rather than anchored to one game
• Digital collectibles: organizations or individuals who have a well-defined brand can create NFTs that can be sold on the open market to fans or brand-loyal customers as collectibles. Think of a company like Disney that has huge brands of licensed universes like Star Wars and Marvel
• Royalties: NFT’s can track fractional ownership or royalty entitlement for a piece of media or content or art.