Updated: Dec 7, 2020
The world of cryptocurrencies and decentralized finance has opened a dictionary of words that can intimidate the new ones on the block. Non-Fungible Tokens, or its acronym NFT, is a classic example.
In this post, we’re going to get a beginner-friendly quick guide to Non-Fungible Tokens. By the end, you’ll have all you need to know to step into decentralized finance. Stay hooked!
What is NFT?
Well, before understanding what non-fungible tokens are, let’s understand the concept of fungibility.
The word fungible is defined as replaceable by another identical item, whether currency or commodity. For instance, a $1 coin is replaceable by another exact $1 coin. The consistency of value is maintained, and the history of the coin doesn’t affect its value. Thus, even if your $1 coin came from a cab driver and mine came straight from heaven, it’s still the same value to a shopkeeper selling us candy. This makes it fungible.
If a commodity is non-fungible, it means that the history or some other factor of the commodity can make it unequal to another identical commodity.
Non-Fungible Tokens are blockchain tokens meant to be unequal. These tokens can be anything, for example, Cryptokitties. Each kitty is valued differently from the other. Its value is determined by its breed, color, and condition as maintained by the owner, among other factors. Therefore, all kitties are not equal, making them a non-fungible token.
An important concept to understand is that a coin cannot be a token. Cryptocurrencies are built on blockchains, and they are fungible. NFTs are tokens - such as Cryptokitties - whose value is specified in a particular cryptocurrency, such as Ethereum.
Think of tokens as diamonds. They aren’t fungible as each diamond’s cut, color, and clarity makes their value different from the other. However, the value of all diamonds is specified in a currency such as dollars.
What are the Examples of NFT?
A great example of NFT is digital collectibles. These are the most established NFT. The collectibles can be cards (a popular card collection is Major League Baseball Champions), kitties, among others. Their values keep changing based on different factors such as rarity, quality, etc.
Another implementation of NFTs is in ticketing. A ticket for a seat in the movie theatre changes in value depending on the number of days since the movie’s release, the show’s timing, etc.
Investing in NFTs can be highly rewarding, but there’s always a risk. You can purchase a card for 1 ETH and, as time goes, its demand might rise, allowing you to sell it at, say, 1.5 ETH, giving you 0.5 ETH profit. However, it may also drop, and thus, you must be willing to take the risk and study the market.
How To Invest In NFT?
Investing in NFT is far easier than you might think. There are digital platforms that allow you to buy, sell, and swap NFTs with others on the network.
KingSwap is a prominent Defi protocol providing automated liquidity provision on Ethereum. With KingSwap, you can swap, buy, and sell NFTs. The platform also includes off-ramp fiat-crypto conversions that allow you to liquidate your investments easily.
You can also get rewarded with tokens for performing actions or when the platform sees high yields.
Here's a video by KingSwap on how to purchase KingSwap's NFT
We hope that’s given you a clear idea of what non-fungible tokens are and how you can invest in them. If you’ve found this post enlightening and engaging, or have something to add to the topic, let us know in the comments!