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Let’s quickly look at the basics of Non-fungible Tokens (NFTs) and Blockchain first and then understand the inter-relationship.

What is a Non-fungible Token?    

NFTs are unique digital assets representing ownership of real-world objects such as artwork, video clips, video games, music files, and more in a digital form. NFTs are distinctive certificates of authenticity that the creators of the underlying assets usually issue.

NFT Examples: Artist Beeple sold a piece of digital art for $69 million (Christie’s, 2021), or another example: Twitter CEO Jack Dorsey, who auctioned his first-ever tweet for $2.9 million (Valuables, 2021).

So far, it was not envisaged. It was challenging to trade and auction non-fungible goods as their authenticity was hard to verify. NFTs now pave the way for digitizing and dealing with unique online values. Thousands of NFTs worth $800 – $1000 million have been traded in a brief period. Most referred to digital art, collectibles, music, in-game items, or metaverses. 

What is Blockchain?

A decentralized ledger of all transactions on a peer-to-peer network is a blockchain. With this technology, participants can confirm transactions without needing a central clearing authority (Bank, etc.). Potential applications can include fund transfers, settling trades, voting, and many other issues.

Blockchain and Cryptocurrencies are primarily used in tandem. Blockchain is the technology behind achieving the possibility of transferring value (in the form of Cryptocurrency) online without needing a bank or credit card company.

Example: Cryptocurrencies, like Bitcoin, Ethereum, Litecoin, etc., are secured via blockchain networks. Cryptocurrency/Blockchain needs a considerable amount of computing power to verify their accuracy constantly.

A transaction list in the blockchain is the most fundamental element. This list is for most cryptocurrencies. They enable secure payments between people who don’t know each other without going through a third-party verifier like a bank or a credit card company.

Now, let’s explore the inter-relationship between the two : 

Blockchain – The technology behind NFTs

NFTs are securely registered and verified on the blockchain, the same technology as cryptocurrencies, ensuring that the asset is one of a kind. 

NFTs are not traded on standard cryptocurrency exchanges. They are bought or sold on digital marketplaces such as OpenSea, Rarible, or Decentraland LAND virtual game marketplace.  

NFTs require decentralized applications to create or release unique and rare digital items. Many NFTs are made and stored on the Ethereum network, although other blockchains (such as Flow and Tezos) also support NFTs.    

Ethereum is the most popular blockchain for NFTs, as they are usually built using the ERC-721 token standard. NFTs are typically made using Ethereum and other intelligent contract blockchains such as Solana or Binance Smart Chain. Some NFTs are based on the Tron and EOS blockchains, host voting tokens.

Blockchain technology and NFTs offer artists and content creators a unique opportunity to monetize their products. NFTs have created a whole new platform for buying and selling word art from graphic designers to street artists to digital creators. Anyone looking to mint an NFT should opt for an NFT marketplace such as Nifty Gateway, SuperRare, or Rarible. These marketplaces are where the digital asset can be loaded and minted in NFT on any blockchain that runs on the NFT marketplace. 

Concluding remarks: There is an interplay between the Blockchain/cryptocurrency market and the NFT market. It is observed that cryptocurrencies like Bitcoin or Ethereum pricing affect the NFT market.

On the other hand, the NFT market does not significantly influence the pricing of cryptocurrencies. It thus appears that the cryptocurrency market drives the smaller NFT market. It could be because cryptocurrencies are the common currency for buying and trading NFTs. A drop in cryptocurrency value means lower purchasing power, likely to depress the NFT market. 

Conversely, investors tend to look for new or alternative investment opportunities when cryptocurrencies appreciate. Especially true in the context of Ethereum (standard denomination of NFTs). 

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