What is an NFT?
Chances are, you’ve been hearing about NFTs more and more over the past year, given how certain collections have surged in popularity. Many people may be aware of their existence, but what really is an NFT? Well to start, NFT stands for Non-fungible Token. Each NFT is a unique digital asset that is represented by some sort of art, music, or video file. Essentially, NFTs are a way to create digital scarcity, since the creators can choose how many copies are minted and the authenticity of each can easily be vetted. Each NFT’s data is stored on a digital ledger, called a blockchain, which allows for it to be securely bought and sold. Because each NFT has a unique identifying code, it prevents people from creating fakes and duplicating NFTs that are already in existence.
How are NFTs Different From Cryptocurrencies?
As you now know, NFTs are “non-fungible,” meaning that they differ in value from unit to unit. When you’re talking about a Bitcoin, for example, it is agreed that although the value of the currency may fluctuate, one Bitcoin will always equal another Bitcoin. If one Bitcoin’s value is X, then each and every Bitcoin in circulation’s value will be X. That’s because it is a fungible currency. Since each NFT is a unique creation, the value associated with each unit can vary greatly, making it non-fungible. NFTs are considered to be highly speculative assets, given how the creator and the market determine the value of each and every individual unit. The value of an NFT is most commonly measured in Ether, although other cryptocurrencies can be used as well. Once purchased, both NFTs and crypto assets can be stored in your wallet of choice.
How to Buy an NFT?
Purchasing an NFT is a pretty simple and straightforward process. The NFT marketplace you choose will prompt you to connect your wallet, which should be filled with however much crypto you’re going to need for the transaction. Most NFTs are minted on the Ethereum blockchain, so in that case you would need Ether, but other blockchains such as Polygon are gaining popularity. Make sure that you have the correct currency for the NFT that has caught your eye. From there, you just place a bid or purchase the NFT you’d like, and you will be shown how much the total cost is, including gas fees. If you accept it, then the process of transferring ownership of the NFT will begin. This step may take awhile depending on network congestion and the blockchain you choose, but eventually, your newest asset will appear in your wallet!
How To Make an NFT?
Well, first of all, you’re going to need a piece of art. You can create this yourself or outsource the work, but make sure that whatever you’re minting has been licensed to use commercially. Next, you need to do some research and decide which NFT marketplace is best for you. The prices to mint your creations will vary, as well as the cryptocurrencies used to do so. The majority of NFTs are minted on the Ethereum blockchain, but an increasing amount of people are using Polygon. Once you’ve chosen where you’re going to sell your NFT, you need to connect your wallet to the platform and make sure you have enough crypto ready for the transaction. The rest is pretty simple, each website will guide you through the minting process and by the end you’ll have an NFT successfully up for sale! For a more comprehensive guide, check out this full article on creating Non-Fungible Tokens.
What is DeFi?
Decentralized Finance, or DeFi, is a financial system that allows for users to interact on a peer-to-peer basis, avoiding reliance upon an institution or individual to facilitate each transaction. Anyone who has an internet connection can use DeFi: there is no central authority or force that will prevent you from conducting transactions or deny you access to any aspect of the system. Because the software is written on blockchains, sellers, buyers, lenders, and borrowers can interact directly with one another in ways that are secure, predictable, and publicly recorded. When compared to traditional finance, it becomes clear that DeFi provides the user with a greater sense of security and control over their assets. Rather than putting your money in the bank, where it is under their authority, DeFi allows for the user to have ownership over their assets and know exactly where they are and where they’re going. It is also a much more transparent process, given that each transaction is recorded on the blockchain and can be inspected by any user, regardless of their status. DeFi uses smart contracts and cryptocurrencies to make all of these transactions happen, with software acting as the intermediary. If you’d like to learn more about DeFi’s capabilities and how it works on a technical level, you can find that information here.
Bitcoin Vs. Ethereum
Bitcoin and the native coin of Ethereum, Ether, are the two leading cryptocurrencies as of now. The major difference between them is that Bitcoin is used purely as a means to store and transfer value, whereas Ethereum can allow for this value to become programmable through the use of smart contracts. A smart contract is an automated agreement between two entities that, once transacted, cannot be changed. Essentially, Bitcoin and Ether serve the same purpose, but Etherum, the ecosystem that supports Ether, provides an additional capability: to serve as an unbiased and reliable mediator between two entities. Bitcoin is largely agreed to have been the first decentralized application, or DApp, but the emergence of Ethereum led to the expansion of what all DApps could accomplish.
How Does DeFi Relate To NFTs?
If you are investing in NFTs or contributing to that market, then you are also helping strengthen and support DeFi. As more and more users utilize this system, decentralized finance gains credibility in the eyes of the public and takes another step towards widespread implementation. With the use of DeFi over traditional financial institutions, power is placed into the hands of the individual. Anyone can have access to DeFi and understand how it functions, whereas many people don’t have access to said financial institutions and are regularly taken advantage of by their lack of transparency. With decentralized finance, the markets are always open, transparent in nature, and unregulated by a central authority. Although the purchase of an NFT may seem trivial, each transaction is a step towards the expansion and public recognition of DeFi.