NFT is the abbreviation of a Non-fungible token. In simple terms, NFTs are secure irrevocable tokens that individually represent the ownership of digital assets. As a result, they enable you to verify the license of digital assets like digital painting, animation, videos, etc., while you collect or trade it online using cryptocurrencies. NFTs have been in use since 2014. However, they are gaining traction as a popular medium to buy and sell digital artwork. This is because they can only have one official owner at a time. The Ethereum blockchain secures them, and none can modify the record of ownership or copy/paste a new NFT into existence. This is because non-fungible tokens (NFTs) are designed to have specific vital characteristics. Scroll on to know more.
Key characteristics of NFTs
1. Cryptographically Verifiable
The ownership of the token can be verified securely.
Each NFT record contains a particular attribute. Therefore, no two NFTs are the same.
3. Digitally Scarce
Since NFT is available in blockchain networks, the certificate of ownership is verifiable on other networks also.
4. Easily Transferable
NFTs guarantee the ownership of the transferred asset.
Therefore, NFTs are digitally scarce, unlike most digital creations that are always infinite in supply. Hypothetically, when supply goes down, and there is demand for an asset, its value increases. However, with NFTs, they can be easily viewed and downloaded. This leaves us with a question as to why there is so much of a craze surrounding the concept of NFT when digital assets are available for free online. For this purpose, we need to understand the benefits of NFTs. They include:
Benefits of NFTs
NFTs are important because:
- They confirm the ownership of the buyer for the original item.
- It contains a built-in authentication that serves as proof of ownership.
As a result, NFTs:
- Promotes Market Efficiency
NFT removes the need for intermediaries and helps connect with the audiences directly. Hence, it streamlines the process of buying and selling.
- Aids in Identity Management
Since an NFT contains unique information that differentiates it from other NFTs, it helps in identity management. For example, NFTs can streamline passport verification at entry and exit points. For this purpose, each passport has to be considered unique with its characteristic information, which helps verify identities.
- Standardizes Investments
It breaks a physical asset like real estate into parts and assigns each piece to a specific owner. Thereby, it helps in increasing the worth and value of the investment.
- Finally, NFTs help in the creation of new markets.
Uses of NFTs
NFTs can be used in the real world in the below-mentioned ways, given the benefits they offer. They include:
- NFTs enable companies to distribute and sell tickets for their events. This way, they can verify the ownership and eliminate fraud. Additionally, they facilitate the collectability of tickets post-purchase via digital art.
- Brands or organizations can promote customer engagement through the use of NFTs. For example, they can issue or sell NFTs that represent personalized collectibles, products, or experiences to develop a particular product or service.
- Many professional certificates or other important personal documents can be issued as NFTs, eliminating the verification of the credentials.
- NFTs provide artists and content creators a unique opportunity to monetize their artworks and benefit through direct selling to their consumers. Additionally, they can add up royalties, which profits them every time their art reaches a new customer.
- Brands use NFTs to represent themed art, which they auction to raise funds for charity.
Examples of NFTs
- A GIF of a cat with a pop-tart body created in the year 2011 was sold for $600,000.
- The NBA top shot was sold for more than $500 million.
- Famous actor William Shatner converted his memorabilia to NFT and released it in 2020, sold in just 9 minutes.
- Twitter’s ex-CEO Jack Dorsey converted his first tweet on the platform he posted for $3 million.
Safety of NFTs
Non-fungible tokens operate upon blockchain networks which are generally safe. Since the blockchain is a distributed network, NFTs cannot be hacked easily. However, if the platform hosting your token becomes defunct, you could lose access to it.
To understand the concept of NFT, you need to get a good insight into the idea of cryptocurrency. This is because NFT is an evolution of cryptocurrency.
What is Cryptocurrency?
A cryptocurrency is a secure digital or virtual currency that cannot be faked. Hence, it can circulate without monitoring a central authority or government. However, it is secured through cryptographic techniques and stored in a peer-to-peer blockchain network, which organizes and monitors its circulation.
How Does NFT Differ from Cryptocurrency?
Cryptocurrencies are virtual currencies that you can exchange as they are equal in value. For example, you can exchange one dollar for another if their values are the same. Hence, cryptocurrencies are said to be fungible. Whereas NFTs are non-fungible because each one is unique. A couple of NFTs have different values. Therefore, you cannot exchange them for one another. For example, you cannot exchange a video clip for a collection of images.
What is Blockchain?
A blockchain is a system that records information and distributes it across its network of computer systems. In short, it serves as a digital ledger whose entry, once done, cannot be changed, making it a secure network of transactions.
How are NFTs Created?
Tokenization is the process of converting your digital asset to a token form called the NFT or non-fungible tokens. NFTs act as digital certificates that derive their value from the asset they represent. NFT is created on the foundations of the Ethereum blockchain. As a result, you need to interact with an Ethereum for which you need a wallet. In addition, your wallet must contain ETH, which is the cryptocurrency of Ethereum.
Additionally, it would help if you connected to an NFT marketplace. Finally, you need to upload your content and turn it into NFTs. Some of the famous marketplaces for NFTs include:
- OpenSea: It is a platform that specializes in buying and selling rare digital items and collectibles. You can create an account to browse through NFT collections and hunt down the one that has more sales volume.
- Rarible: In this platform, artists and creators openly buy and sell NFTs called RARI. These tokens can be compared based on their features.
- Foundation: This platform allows you to post your art only if your work has received any upvotes or invitations from fellow content creators. Additionally, you need to pay the basic fee in order to create NFTs.
How do NFTs Work?
Once you have turned your artwork into NFT, its data is stored in a digital ledger called the blockchain. Hence for every NFT file, a digital signature is created and stored. As a result, it helps in tracking the NFT’s ownership. The blockchain distributes this data to its network of computers. As a result, the entry is stored in all the network computers. A smart contract is a small unit of data that tells us who owns which token.
Frequently Asked Questions
Should You Buy an NFT?
Although investing in NFT is a primarily personal decision, you must remember that they come with some risks. However, if you are curious about experimenting with NFT, you can initially start with smaller amounts. Additionally, keep in mind that the value of NFTs is dependent on the buyer’s decision to pay for it, which makes it completely unpredictable. Therefore, approach NFT with caution and proceed to invest in it.
How to Decide Which NFT to Buy?
You can pitch into an NFT through the discord app– a chat app. Most NFT markets use this forum to discuss their projects. Additionally, you can understand your roadmap down the line through these apps. However, it can be hard to go through this forum, and it can be a ground for scammers.
How to buy NFT?
Most NFTs can be purchased with cryptocurrencies called Ether. Hence, you need to own some of it and store it in your digital wallet. Later, you can approach any online NFT marketplaces, including OpenSea, Rarible, and SuperRare.
How to Sell NFT?
You can sell your NFTs through NFT marketplaces. For this purpose, upload your content to a market and follow the instructions to turn it into an NFT. Of course, you will have to include some details, such as a work description and suggested pricing.
Thus, non-fungible tokens are an excellent way to monetize your artworks, provided you take up to venture into them. But, conversely, also remember that they are pretty unpredictable.