NFTs or non-fungible tokens have taken the global marketplace by storm. NFTs present an exciting and prodigious opportunity for businesses and individuals willing to enter the industry. Understanding the infrastructure behind this new technology is imperative to capitalize on the real-life implementation of crypto-assets. This technology creates new business sectors like worldwide intellectual property rights and an accelerating global economy fueled by “DeFi,” decentralized finance.
Firstly, the blockchain. While often the word blockchain gets thrown around in the media or the financial setting, it is an essential facet of the world of crypto-assets (cryptocurrencies and NFTs). The blockchain is a decentralized ledger used to record transactions via a peer-to-peer computer network.
For example, when an individual wants to spend 1 Bitcoin on a purchase from a seller, a blockchain verifies that the individual does indeed have 1 Bitcoin to spend, like a bank confirming a debit card purchase. Once that individual spends that Bitcoin, the blockchain records the transaction and transfers the coin to the seller’s account. What makes a blockchain different from the banking system is that the transaction ledger is decentralized and public.
Being decentralized and public means everyone can access the list of transactions; computers assist in operating this via the blockchain anywhere globally with an internet connection. Users are not identifiable either; they effectuate through a digital wallet that is anonymous in its design; the blockchain is used to verify transactions safely, securely, and privately.
Secondly, the distinction between traditional cryptocurrency and NFTs is imperative. They both use the blockchain for their verification and transactional history. Cryptocurrency is fungible, meaning that each coin is identical in value and features. Think of cryptocurrency as cash and NFTs as a baseball card or concert ticket.
Value is created in the transaction of NFTs through the use of Smart Contract, which you can read about here. You can also learn about the taxation of cryptocurrency here.
