News Highlight
Popular cryptocurrencies have dropped after rising dramatically last year. Non-fungible tokens, or NFTs, suffered from the crypto fallout because they are a part of this ecosystem.
Key takeaway
- Last year, Bitcoin and Ether reached all-time highs as the market experienced ecstasy.
- Bitcoin and Ether fell more than halved in value during the first six months of 2022.
- Daily transactions on OpenSea have been gradually declining since then.
What are Non-fungible tokens (NFTs)?
- NFTs are digital assets verifying ownership through transaction records stored on blockchains.
- In other words, it is a data unit that can be sold and traded and is recorded on a digital ledger (blockchain).
Working of NFT
- Anyone who converts a digital asset to an NFT will receive ownership documentation powered by Blockchain.
- There is a need for a cryptocurrency wallet and an NFT marketplace where one can buy and sell NFTs.
What is Blockchain?
- A blockchain is a decentralised, immutable database that makes it easier to track assets and record transactions in a corporate network.
- Bitcoin and Ethereum are famous examples of blockchains.
What is cryptocurrency?
- A cryptocurrency is a digital currency that may be used to make payments. For example, bitcoin.
- It uses blockchain technology for transactions.
What is OpenSea?
- OpenSea was built on the Ethereum blockchain to trade NFTs.
- OpenSea is said to be one of the largest NFT marketplaces in existence.
Merits of NFTs
- Give ownership rights over a digital asset:
- They allow content creators the opportunity to make money off of their work in addition to owning a digital asset and demonstrating its validity.
- Unique and collectable:
- As NFTs are unique and rare, there is an urge among people to collect them.
- Furthermore, their uniqueness provides an extra layer of legitimacy to collectable content, especially in the form of digital assets.
- Immutability:
- As non-fungible tokens (NFTs) are based on the blockchain, there are rare chances of alteration, erasure or replacement.
- One of the reasons why they are valuable is that they also help prove the origin or authenticity of digital content.
The risks associated with buying NFTs
- Fraud Risks:
- Several NFT scam occurrences have been reported recently, including the establishment of fake marketplaces and unverified vendors who frequently pose as legitimate artists and offer to sell copies of their works for a reduced price.
- Environmental Risks:
- Crypto mining, which validates transactions using powerful computers running at maximum capacity, has an environmental impact in the long run.
- High technical processes:
- Trading NFTs involves technical processes that are sometimes misunderstood — and that can lead to investors not knowing quite what they are dealing with.
- Risk of imitation of digital assets:
- There is a risk of imitation since the NFT of a digital asset doesn’t mean that copies of it don’t exist, and one can control its imitation.
- Art, GIFs and videos posted on various websites may be imitated several times.
- It is just that the token of authenticity lies with the owner.
Pic Courtesy: Data Analytics
Content Source: The Hindu