Everything You Need To Know About NFT

In recent hours people are trading online and the world has gone crypto, here's everything you need to know about NFT ( non fungible token) a unit of data stored on a digital ledger, called a blockchain.

Everything You Need To Know About NFT
Source: time.com

NFT has climbed to be the newest investment option in knowledge and they are reaching heights of popularity with every passing hour. High Networth individuals are now investing millions in NFTs. But NFT is however not well clarified to us due to which we are deprived of any opportunity of investing in NFT that comes our way. Here's all you need to know about NFT.

NFT (nonfungible tokens) means a unique digital identity that cannot be copied, substituted, or subdivided that's recorded in a blockchain and used to certify the authenticity of ownership. NFT is much like assets on the exchanges but they do not have any tactile form of their own. There are two parties involved; the creator of the digital content and the buyer on the other side. 

What is NFT?

Now, let's assume you are an artist and you have created art worth a million dollars and you have arranged an auction to sell that piece of art. Now, what if the art gets misplaced or is stolen?  There is a better way to sell that art in a manner that every time the art changes ownership you are benefited from some royalty. 

One way to sell your art in the digital market is to make photocopies and sell it, but this will make your art of mere value and it won't be worth of million dollars anymore. Here's where NFT (nonfungible token) comes in, the digitized art is tokenized it becomes certified original copy. Think of NFT as a certificate of ownership of digitized property. Using NFT you can also earn a royalty every time your token ( your artwork) changes your ownership.

An NFT is created, from digital objects that represent both tangible and intangible items, including

•  Art

•  GIFs

•  Videos and sports highlights

•  Collectibles

•  Virtual avatars and video game skins

•  Designer sneakers

•  Music

Tweets are also sold as NFT. For instance, Jack Dorsey co-founder of Twitter sold his first tweet for $2.9 million. These digital assets are bought and sold online from the exchanges that allow NFT trading with cryptocurrency.  NFT has been in existence since 2014 but is gaining popularity now. 

How is NFT different from Cryptocurrency?

NFT and cryptocurrency are made up of same programming, its like bitcion and etherum and similarity ends here.The physical amount and cryptocurrency are fungible which means they can be bought and sold in exchange for one another. Their value is also equal, $1 is always worth $1 one Bitcoin is always worth another bitcoin. Crypto's fungible quality makes it a trusted asset for trade and transactions on the blockchain. 

NFTs vary from one another. Each NFT had a digital signature that makes it different from one another and it turns out to be impossible for NFTs to be exchanged for another NFT (that's nonfungible)

NFT has got its unique property, hence these digital assets cannot be easily exchanged. For instance, it could be a painting of the Mona Lisa, you can make photocopies of that painting and click pictures when you visit the Louvre museum in Paris, but you cannot sell those pictures or photocopies and there will only be One Original Mona Lisa in existence. Similarly, you have your unique painting or creation of new music, art, sticker, or GIF. You can list it as an NFT and earn a good amount by selling it. Any asset that is unique and can be made non - fungible can be certified as NFT and sold.

Source: https://opensea.io/

How to buy NFTs?

  • If you're willing to build a collection of NFTs, you'll need some key items. 
  • A digital wallet that allows you to store NFTs and cryptocurrencies. 
  • You will have to purchase some cryptocurrency, like ether based on what currency your NFT seller accepts. 
  • There are certain platforms like coin base, Kraken, eToro and PayPal, and Robinhood now, that allow buyers to purchase crypto via credit cards.

How do NFT works?

The way we purchase items from the market in exchange for money is similarly an NFT is bought and sold online but they do not have any physical form of their own. There are two parties involved, the creator of content and the buyer. Instead of some physical painting that one can hang on their walls, the buyer gets a digital file in a form of a token which is being saved in the buyer's wallet linked to the NFT exchange. This wallet is more or less a bank account for cryptocurrency. 

An NFT can be authorized to One owner only at a time. The buyer can own the NFT for a fixed period or lifetime, based on the contract. Each digital asset in NFT has a unique code recorded on a blockchain that includes data of the creator and buyer that helps to track the creator in the first place.

Sandesh Suvarna, VP of WazirX NFT marketplace stated that " with blockchain technology in NFT, digital art cannot be forged by the creator on the exchange as the records are maintained. 

NFT listed on the exchange has contracts that give creators a royalty for a lifetime. Based on the percentage mention in the contract, the creator will keep earning royalty every time the product is sold to another.

Are NFTs regulated?

In the global digital market, NFTs are treated as derivatives of cryptocurrency "The standard cryptocurrency regulatory issues apply. If the cryptocurrencies get banned, then crypto assets such as NFTs will also get banned in the country,” says Swapnil Pawar, Founder of ASQI Advisors.

There is no legal framework on cryptocurrency or NFT assets. hence investing in NFT won't be considered illegal but if you experience a huge loss on investing in crypto assets you cannot file a complaint in RBI ( reserve bank of India). you will have to reply in exchange to resolve the issue.

How is the trading price fixed?

There are two ways of fixing trade price

  • Auction
  • The price is decided by the creator.

International NFT exchange allows any pricing method but India is confined to the WazirX marketplace only. It allows the selling of NFT at a fixed price in the exchange.

Can we use INR currency for buying NFT?

No, we can not use INR currency for purchasing NFT. NFT Assets can be bought in exchange for cryptocurrency only. For instance, on WazirX you can invest in NFT only through WRX crypto. The buyer has to purchase WRX crypto in exchange for INR currency before investing in a particular NFT.

On OpenSea, you can invest in NFT using multiple cryptocurrencies – Ethereum, DAI, USDC, REVV, Whale, and BTC.

Are there any charges on trading by NFT exchange?

Yes, there are certain charges on trading by NFT exchange. Charges vary based on apps, for instance, OpenSea charges 2.5 percent of the sale. Other international platforms charge up to 7.5 percent. WazirX in India charges 5% of the sales from the creator.

 OpenSea and wazir don't charge any service tax on buyers whereas other apps charge up to 3% of the sales.

Should I invest in NFTs?

Just because you can purchase NFTs doesn't mean you should.
The future of NFT is uncertain m, given the fact that it's new and it doesn't hold a lot of history, which derives us from judging its performance in the first place. 
Since it's new in the digital market it's worth investing small amounts for now. 

The value of NFT depends upon the amount the buyer is willing to offer. Therefore, demand will drive the price rather than other factors such as fundamentals, a technical and economic indicator that usually determines the change in stock prices. NFTs may resale less than you paid for it or it may not resell at all if no one's willing to buy it.

Sources have made it clear that " NFTs are also subject to capital gains taxes—just like when you sell stocks at a profit. Since they’re considered collectibles, however, they may not receive the preferential long-term capital gains rates stocks do and may even be taxed at a higher collectibles tax rate, though the IRS has not yet ruled what NFTs are considered for tax purposes. Bear in mind, the cryptocurrencies used to purchase the NFT may also be taxed if they’ve increased in value since you bought them, meaning you may want to check in with a tax professional when considering adding NFTs to your portfolio."

That said Investment is done on risk, on your OWN risk.

Also Read: Marketplace for NFTs