NFTs for dummies: What you should know

Going to the point, and without technicalities, what are the NFTS? NFT stands for Non-Fungible Token. Tokens are units of value that are assigned to a business model, such as cryptocurrencies. NFTs have a close relationship with cryptocurrencies, at least technologically. Although they are opposites since a Bitcoin is a fungible good, and an NFT is a non-fungible good.

For your understanding, we can think of cryptocurrencies as a store of value, a bit like investing in metals. You can buy and sell gold. When the number of buyers increases the price goes up, to go down when this number of buyers decreases. It is a behavior equal to that of cryptocurrencies.

How NFTs work?

NFTs work through blockchain or block chain technology. It is the same technology as cryptocurrencies. Which work through a decentralized computer network, with blocks or nodes linked and secured using cryptography. Each block links to a previous block, as well as date and transaction data, and is by design resistant to
data modification.

NFTs are assigned a kind of digital certificate of authenticity, a series of metadata that cannot be modified. In these metadata its authenticity is guaranteed. The starting value and all the acquisitions or transactions that have been made are recorded, as well as its author.

Traditional works of art like paintings are valuable because they are unique. But digital files can be easily duplicated over and over again. With NFTs, art can be tokenized to create a digital certificate of ownership that can be bought and sold. As with cryptocurrencies, a record of who owns what is stored in a shared ledger like the blockchain.

Why do people buy NFTs?

If NFTs can’t be bought and sold as easily as Bitcoin, then why do people buy and spend so much money on them? Well, it’s simple, because they believe that its value will increase over time, and then they can sell it for more money. No one spends thousands of dollars for a drawing, just because they like drawings. Since they can be had for free, but because of the value of this particular drawing being an NFT.

The idea, therefore, is that if I buy an NFT for $1,000, in the future I can resell it for more money. It is a unique asset, which in theory should give it a higher value as there is no other like it.

In short, technology does not stop surprising us, now with these investments in intangible assets… Would you dare to invest in this new modality? What do you think of this type of investment?

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