What are NFTs: A Simple Explainer
Updated: Aug 19
In the last 5 years, NFTs have gone from a fringe internet sensation to a global cryptocurrency phenomenon. With all the frantic investment talk and meme-related hype surrounding them, it can often be difficult to figure out what they are or what they do. So what’s the deal?
What is an NFT?
An NFT, or Non-Fungible Token, is a computer file attached to a blockchain token. This token carries out a variety of functions, all of which are intended to turn the file into a unique tradeable item. Among other things, the token prevents the file from being directly duplicated, verifies the identity of the file’s current owner, and hosts the file on an NFT platform.
NFTs are created through a process called minting in which a token is created and attached to a file. In the past, this was all done through manual coding, but since then much of the process has been automated. Today, most NFT marketplaces feature their own step-by-step guides on how to mint an NFT on their blockchain network.
Why are NFTs treated like investments?
NFTs are treated like investments because they are easily tradable and can change in value. This value comes from the sentimental or cultural significance of the attached file. For example, the original audio file of a popular song might be worth a significant amount as a collector’s item.
NFTs have often been compared to original copies of art, and nowhere is that more true than in the world of investing. NFTs, like artworks, are not valuable simply because of what they are, but instead because of what they mean to people. As such, their value can fluctuate depending on the significance or relevance of this meaning.
The value of an NFT is also heavily dependent on hype, whether it be based on the particular creator, the particular blockchain, or just NFTs in general. Many NFT-producing groups, such as the famous Bored Ape Yacht Club, rely almost entirely on their own hype to justify the purchase of their products. Given the fleeting nature of investment hype, many are quick to question the long-term validity of this strategy.
Why are NFTs so hated?
Right now, the outward face of the NFT industry is not a pretty one. In internet circles, it’s easy to make fun of people who ‘own’ digital art when files can be copied so easily. Although NFT programming makes these files impossible to copy directly, a simple screenshot can be more than enough.
There are also many predatory elements within the NFT industry. Many NFT-selling groups like to build hype around their creations, but few ever deliver on their all-but-promised profit. Most often, they run away with their money and leave the investors holding the bag.
Can NFTs be hacked?
Yes, but not in the way that you think. The vast majority of NFT theft comes from phishing scams- scams in which a hacker impersonates someone the owner trusts and persuades them to unknowingly transfer ownership of the token.
This most famously happened to comedian Seth Green, whose Bored Ape NFT was recently stolen by a scammer. Unfortunately for him, he was developing a TV show based around the character depicted in the NFT- and the legal rights to the character were attached to the ownership of the NFT itself. He eventually had to pay a ransom of $260,000 to recover the token.
Scams within NFT marketplaces are also common. A common example is shill bidding- a practice in which a seller creates new accounts to impersonate prospective buyers, then makes large bids on their own auction in order to inflate the perceived value of the item being sold. Once a real buyer is fooled into thinking that the NFT is valuable, all fraudulent bidding stops, and that buyer wins the auction.
Why do so many celebrities talk about NFTs?
When thinking of NFTs, it’s hard not to think of all the celebrities and companies that have recently started talking about them. From Tom Brady to Marvel Comics, it seems like everyone who’s anyone is hopping on the NFT train.
In reality, this is often because the celebrity or company in question has begun to invest in NFTs in some way. Tom Brady is the co-founder of the NFT platform Autograph, and Marvel comics has begun selling NFT artworks as collector’s items. When they try to get their fans involved with NFTs in general, it’s because they want to make money.
Often, these cash grabs are so transparent that it provokes a large wave of backlash. When Marvel Comics logged into the Twitter account of the late Stan Lee to tweet about its new line of NFTs, fans were rightfully outraged. Events like these can cause drastic damage to the reputations of all parties involved, including the NFT industry in general.
Can NFTs do anything for me?
Yes, depending on what they are. An NFT consists of a file attached to a token, and that file could be anything. If it has value as art or as a collector’s item, then it can serve those purposes well.
However, not all of these files are images or text, and many serve important functions. For example, an NFT could contain an access code for an online service, or it could validate ownership of a virtual asset. NFTs have notably been used to validate ownership of metaverse goods, including avatar cosmetics and metaverse land.
As previously mentioned, each NFT marketplace has its own step-by-step instructions on how to mint an NFT on its network. If you have any files that others might consider valuable, it can often be profitable to create and sell your own NFTs. Keep in mind, though, that all of these minting methods feature an upfront cost- and your NFT might not be worth enough to pay it.
NFTs consist of a computer file attached to a blockchain token and are just as diverse in value and function as computer files are. In terms of function, they can do anything or nothing, and in terms of value, they could go anywhere. Currently, NFTs are one of the best ways for traders to buy and sell virtual goods- or for scammers to trick the unwary.
NFA: Not Financial Advice. IYOPS or the author(s)/editor(s) are not registered investment advisors or brokers/dealers. All investment opinions expressed are from the personal research and experience of the author/editor and are intended as educational material. Despite our best efforts to make the information available as accurate as possible, occasionally, we err, as humans do.
DYOR: Do Your Own Research before making any investment decisions based on your personal circumstances. We recommend taking professional advice before making any investment decision.
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Meg Combs is a US-based Journalism Graduate and a Content Writer at the International Youths Organization for Peace and Sustainability. She is currently an assistant coach with the Farmington Crew team.