Explain me NFTs like I'am 5
NFT = Non Fungible Token, just kidding. Think of an NFT as birth certificate, unique and one of a kind, it's proof that it's you. It cannot be replaced with anything else. To compare NFTs to what is already out there, Bitcoin and Ethereum are fungible tokens you can exchange them between each other, you cannot exchange your birth certificate with another person so that is pretty much what NFT is, hope you starting to understand now if not look at the image bellow by @jackbutcher
People joke about NFT value a quite often, so when they say:
Why would anyone pay $5000 for a piece of art, when I can just download it as .png?
It doesn't work, it is like the birth certificate it has some serial number tied to your birth, you are only one and unique and nobody can copy you, same goes for NFTs.
How are NFTs valued?
The value of an NFT is based on the value that buyers give it. If the NFT is well received by the audience it is being sold to, the value will go up. Same as today if everyone decides that he will start walking instead of driving, cars would not have any value.
Another example would be that anyone knows James Bond so if you own Aston Martin that once was owned by 007, you have something valuable and it is valuable just because people believe in that otherwise it is just a car you can buy the same model anywhere else.
That is why CryptoPunks and NBA Top Shot has this immense value, and lets be honest here people act emotionally most of the time.
Few key takeways before you decide to buy or create your own NFT:
- Scarcity: Drives NFT value up, if there is only one piece you are one step closer to have higher value for your work or the art you are buying.
- Ownership: NFTs are verifiable, nobody can fake its authenticity they live on blockchain forever once they are created.
- Community: Find NFTs that have community and they are actually being bought and sold, otherwise you might end up with NFT that has no value because there is no demand for it.
Are NFTs here to stay?
Short answer yes. Outrageous evaluations will settle down, but unique digital assets are not going anywhere. NFTs are not limited to, digital art; they have many use cases:
- Digital Art
- Collectibles (Rare cars that can be redeemed later on)
- Gaming (Counter strike skins as NFT)
- Virtual worlds
- Real world assets