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What are NFTs?

GS Paper 3:

Topics Covered: Developments in Science and Technology.

 

Context:

NFTs are gaining massive popularity now because they are becoming an increasingly popular way to showcase and sell your digital artwork.

  • Billions of dollars have been spent on NFTs since its inception—which date backs to 2015.

 

What are NFTs?

An NFT is a unique, irreplaceable token that can be used to prove ownership of digital assets such as music, artwork, even tweets and memes.

Anything that can be converted into a digital form can be an NFT.

  • Everything from your drawings, photos, videos, GIF, music, in-game items, selfies, and even a tweet can be turned into an NFT, which can then be traded online using cryptocurrency.

 

What makes NFTs unique from other digital forms?

It is backed by Blockchain technology.

  • NFT transactions are recorded on blockchains, which is a digital public ledger, with most NFTs being a part of the Ethereum blockchain.

 

How do NFTs work?

NFT works on blockchain as it gives users complete ownership of a digital asset.

  • For instance, if you’re a sketch artist, and if you convert your digital asset to an NFT, what you get is proof of ownership, powered by Blockchain.

 

Differences between NFT and Cryptocurrency:

Cryptocurrency is a currency and is fungible, meaning that it is interchangeable.

  • For instance, if you hold one crypto token, say one Ethereum, the next Ethereum that you hold will also be of the same value. But NFTs are non-fungible, that means the value of one NFT is not equal to another. Every art is different from other, making it non fungible, and unique.

 

Risks associated with buying NFTs:

  • In the recent past, several incidents of NFT scams have been reported including: emergence of fake marketplaces, unverified sellers often impersonating real artists and selling copies of their artworks for half prices.
  • NFRs unquestionably have negative impact on the environment. In order to validate transactions, crypto mining is done, which requires high powered computers that run at a very high capacity, affecting the environment ultimately.

 

Insta Curious:

Terra Nulius was the first NFT on Ethereum Blockchain, although this project was merely an idea which only allowed to customise a short message which was then recorded on blockchain.

 

InstaLinks:

Prelims Link:

  1. NFT.
  2. Cryptocurrencies.
  3. Blockchain technology.
  4. Fungible currencies.

Sources: Indian Express.