All you need to know about Non-Fungible Tokens (NFTs)
NFTs are the latest to join the digital assets bandwagon
In the 1st week of November 2021, Bollywood Superstar Amitabh Bachchan auctioned his NFT collection for a record Rs. 7 crores. He set a precedent for other Bollywood personalities and famous personalities from other industries to capitalise on this new gold rush by auctioning their NFT collection. You must be wondering what this NFT collection is? In this article, we will discuss all you need to know about non-fungible tokens (NFTs).
What is a non-fungible token (NFT)?
A non-fungible token (NFT) is a unit of data stored on a blockchain that certifies a digital asset as unique (or one-of-its-kind) in nature. An NFT represents ownership of a unique asset. Most NFTs are digital in nature, such as audio, video, social media posts, memes, etc. However, some NFTs, although digital assets, can also represent real-world objects such as artwork, paintings, posters, etc. For example, during the NFT auction, Amitabh Bachchan auctioned some autographed posters of his iconic movies such as Silsila, Deewaar, Don, etc.
NFT posters auctioned by Amitabh Bachchan
As can be seen in the above image, these posters received bids of around USD 10,000. So, what is unique about these posters when you can get these in the market at a substantially lower price? It is the NFT that makes these posters unique.
How does NFT work?
An NFT makes the digital asset (for example, poster, tweet, audio, video, etc.) unique. The NFT associated artwork will be stored on a decentralised file system. An NFT cannot be interchanged with anything else as it is non-fungible. The NFT proves the authenticity and ownership of a digital asset. With the NFT, the digital asset can be traced on the blockchain, which makes it unique.
The autographed poster of Don and other movies sold by Amitabh is unique due to the NFT. So, even though you can get the same Don movie poster in the market for a fraction of the cost, they will not command the same value as the NFT. The uniqueness of the Don movie poster can be traced with the NFT, and hence it commands a premium.
How are NFTs different from cryptocurrencies and other fiat currencies?
One of the major differences between cryptocurrencies and NFTs is fungibility. Cryptocurrencies are fungible. For example, one Bitcoin can be exchanged with another Bitcoin as they both have the same value. The same is the case with fiat currencies, i.e., an Rs. 100 note can be exchanged for another Rs. 100 note as they both have the same value. But, this is not the case with NFTs.
NFTs are non-fungible. Every NFT is unique, or in other words, not two NFTs are the same or hold the same value due to their uniqueness. An NFT can neither be copied nor manipulated.
How to buy an NFT?
As an investor, you can buy an NFT through an NFT marketplace. You need to register with the marketplace. The next step is to fund your wallet. You can then either buy an NFT directly or participate in an auction.
As the owner, you can store the digital asset as long as you want. You can also sell it through an NFT marketplace. When the NFT is sold, the price (in cryptocurrency) is transferred to the seller’s wallet, and the NFT is transferred to the buyer’s wallet.
For example, Amitabh Bachchan sold autographed film posters, Madhushala Poetry (written by Harivansh Rai Bachchan and recorded in Amitabh’s voice), and other collectibles during the NFT auction conducted on the website Beyondlife.club. You can register on this website and participate in future auctions. Once you win the auction, you can own the NFT as long as you wish. You can also trade your NFT by auctioning it.
What can be an NFT?
Anything that can be converted into digital form can be stored as an NFT. Some of these include:
- Photos, paintings, GIFs, etc.
- Tweets or other social media posts, etc.
Why do people buy NFTs?
People buy NFTs mainly for two reasons:
- Some people have an artwork collection as a hobby. So, they buy NFTs and add them to their collection and keep them.
- Some people buy NFTs as an investment, hoping to sell them at a higher price in the future and profit from them.
NFT market in India
NFTs are at an initial stage in India but are gaining popularity quickly. To address the demand for NFTs, various marketplaces have come up. Some of the NFT marketplaces in India include:
- Zebpay NFT
- Beyondlife.club powered by GuardianLink (used by Amitabh Bachchan for auctioning his NFTs)
These marketplaces are providing artists/creators of NFTs with a platform to showcase their talent in the form of creating NFTs on their artwork. The marketplaces work as intermediaries between NFT creators and collectors/investors. The marketplaces also act as intermediaries for secondary transactions, wherein an NFT collector/investor, who already owns an NFT, can sell it to another collector/investor.
Asset allocation with Glide Invest App
NFTs are growing rapidly in India. Hence, you may allocate a very small part of your investment portfolio (less than 5%) to them. You need to follow asset allocation to diversify your investment portfolio as per your risk profile. Appropriate asset allocation includes investing in various asset classes like equity, debt, gold, real estate, etc. To understand your risk profile and get recommendations for the appropriate investment products, you can partner with the Glide Invest App. You will get advice on how to plan and systematically invest towards your financial goals.
With Glide Invest, you will get guidance for:
- A personalised risk profile assessment
- Identifying your financial goals
- Appropriate asset allocation
- Making a financial plan for each goal
- Automating the financial plan
- Review and analysis of your financial plan
- Hand holding you till your financial goals are achieved