WTF is an NFT? A beginner’s guide to cryptocurrency
Written by Selina Flavius
If you can’t tell your non-fungible tokens from your Dogecoins, you’re not alone. Financial expert Selina Flavius answers our burning questions about cryptocurrency and more.
Even if you usually flick past the business pages in your weekend paper, this year the world of finance will have undoubtedly infiltrated your group chats.
First, there was the headline-making GameStop debacle, when Reddit users made a mockery of the stock market. Then we started hearing about bits of the internet going for big money: NFTs (non-fungible tokens), a form of cryptocurrency, being used to sell digital artworks, videos and even memes. Just last month, Kate Moss auctioned off videos of herself as NFTs – one-of-a-kind digital collectibles – with all proceeds going to mental health charity Gurls Talk. Most recently, a ‘joke’ cryptocurrency called Dogecoin spiked in value because Elon Musk mentioned it in a tweet.
This new frontier of finance can feel a bit, well, abstract, and we have a lot of questions. So we put them to Selina Flavius, financial expert and founder of Black Girl Finance.
What is cryptocurrency and why are there so many?
In short, cryptocurrency started as a payment system for digital currency. The first and by far the most popular is Bitcoin, which was invented in 2009 by a person who went by the pseudonym Satoshi Nakamoto as a ‘peer-to-peer electronic cash system’. In doing so, Nakamoto began a mission to decentralise payments away from banks, as no single person, organisation or government is in control of cryptocurrencies.
The first crypto transaction took place in 2010 when Jeremy Sturdivant traded two pizzas for 10,000 Bitcoin, which he later spent. Today, there are around 10,000 cryptocurrencies or ‘coins’ in circulation, each with a different name, value and purpose. Litecoin was created to make rapid payments faster than Bitcoin, while Dogecoin – based on the ‘doge’ meme and featuring a shiba inu dog on its logo – was created as a joke in 2013. Elon Musk recently referred to himself as the “Dogefather” in a tweet, causing the price to increase by 32%, which tends to happen when a cryptocurrency is suddenly backed by a big name. When Musk appeared on Saturday Night Live a week later, however, he described Dogecoin as “a hustle”, which then caused the price to fall by 24%, highlighting just how changeable the markets can be.
Regardless, crypto is becoming more mainstream. Lush Cosmetics started accepting Bitcoin payments in 2017, while Microsoft accepted them as far back as 2014. Many large companies are also investing in cryptocurrencies. In February, Tesla purchased $1.5 billion worth of Bitcoin. You can also now purchase a crypto debit card from the challenger bank Revolut, or open an interest-earning crypto account (put simply, you deposit cryptocurrency into this account, which is then loaned to other people, and earn interest) with YouHodler.
NFTs have been all over the news – where do they fit into all this?
A non-fungible token (NFT) is a trendy area of cryptocurrency that’s exploding right now, though it dates back to 2012 when they were called ‘colored coins’. An NFT is a unique digital piece encrypted with an artist’s signature, which verifies its ownership and authenticity and is permanently attached to the data. NFTs have been created for everything from art and virtual houses to memes and even tweets, and ownership of these items is stored on the Ethereum blockchain. Twitter founder Jack Dorsey sold his first tweet as an NFT for £2 million in March, while Emily Ratajkowski recently sold an NFT self-portrait, called Buying Myself Back: A Model For Redistribution, through auction house Christie’s for £134,000.
At this point, you might be wondering what the lure is. Think of it like this: NFTs are a way of turning a digital piece that can usually be reproduced infinite times into a one-of-a-kind item, thus making it an officially owned work. With NFTs, you can also retain a percentage of a secondary sale if you decide to sell the piece on. There are many reprints but only one original copy of the Mona Lisa – NFTs are the digital version of this principle.
I’ve heard cryptocurrency is a scam, is that true?
Not exactly. Are there scammers who will try and capitalise on the explosion of this new technology and industry? Yes. Does it mean the technology in and of itself is a scam? No. But it’s important to only use established, secure platforms, crypto exchanges and apps to purchase assets in the crypto space.
You might have heard that cryptocurrency is a ‘bubble’ that will ‘burst’. The reality is, the value of all investments goes up and down, and crypto is no exception. It is, however, more volatile due to the fact it isn’t linked to anything ‘real’ to determine its value.
But if it doesn’t exist IRL, how do I spend it? And why would I invest?
While crypto might not exist in the ‘real world’, you can still use it to purchase items online. Just last week, I bought a Lush Rosy Cheeks face mask using Bitcoin. When you purchase crypto using an app, your currency is stored in a digital wallet and each wallet has a unique digital address – this can be shared with others so you can receive crypto, like an account number and sort code. If a retailer you want to buy from does not accept it you can always exchange your crypto back into pounds and spend your gains as you would using a debit card.
Another aspect of crypto’s value, particularly with the likes of Bitcoin and Ethereum, is the blockchain technology they run on: this is the virtual database that every crypto transaction is added to, which includes a digital validation that prevents fraud. Today, blockchain is being adopted by big banks and, because of this, some cryptocurrencies and the technology they operate on are seen as potentially more lucrative investments than your regular stocks and shares ISA.
Think back to that first ever Bitcoin transaction: the 10,000 Bitcoins, which were worth $41 at the time, are now worth more than $378 million. If Sturdivant had held onto that Bitcoin, he would be a multimillionaire. These potential high returns are extremely attractive, and when it comes to newer coins, there is optimism that some will enjoy the same upward run that Bitcoin has had. It’s all about jumping on a coin that will surge in value, which is hard to predict.
Should I consider investing in crypto?
Like any investment, purchasing cryptocurrency will always be a risk. Ask yourself these questions before taking the plunge: is there room in my budget to do this? Do I understand what crypto asset I’m investing in? And can I afford to lose this money? The first thing to do is find a platform that allows you to invest in the coin you want. It’s important to note that not all platforms offer every coin and they don’t all allow you to invest in pounds. Coinbase is easy to use for beginners, while Kraken has low fees and Etoro is great for trading.
Once you have made your first purchase, you can decide whether to hold on to your investment or splurge at Lush once it’s appreciated in value a little. As crypto continues to become more mainstream, it’s anticipated that businesses will make it easier for consumers to buy from them using cryptocurrency.
Whatever you decide, just hope you don’t end up kicking yourself like Jeremy Sturdivant…
Images: Beeple/Christies Images LTD 2021; Chemical X/MEGA
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