What is an NFT? How non-fungible tokens work

• A non-fungible token (NFT) is a unique digital resource that represents ownership of real-world objects such as art, video clips, music, and more.
• NFTs use the same blockchain technology that drives cryptocurrencies, but they are not a currency.
• While NFTs have sold for millions, they are highly speculative assets that are not for everyone.

A non-fungible token (NFT) is a unique identifier that can cryptographically assign and prove ownership of digital goods.

Since digital artwork NFTs have sold for millions – sometimes tens of millions – of dollars, it can be an understatement to say that they are popular. From June 2021 to June 2022, NFT sales reached $ 29 billion.

But once you understand how NFTs work, you will see that there are several uses for this technology.

What does NFT mean?

NFT stands for “non-fungible token.” At a basic level, an NFT is a digital asset that attaches ownership to unique physical or digital objects, such as artwork, real estate, music, or videos.

NFTs can be considered as modern collectibles. They are bought and sold online, and represent a digital proof of ownership of a given item. NFTs are securely registered on a blockchain – the same technology behind cryptocurrency – which ensures that the asset is unique. Technology can also make it difficult to modify or falsify NFTs.

To really gain control of NFTs, it is helpful to become familiar with the economic concept of fungibility.

• Swivel objects can be easily exchanged with each other because their value is not linked to their uniqueness. For example, you can swap a $ 1 note with another $ 1 note, and you will still have $ 1 even if your new bill has a different serial number.
• Non-fungible objects are not replaceable. With NFTs, each token has unique properties and is not worth the same amount as other similar tokens.

So why are people shooting so much money for NFTs? “By creating an NFT, creators can verify the scarcity and authenticity of just about anything digital,” says Solo Ceesay, co-founder and COO of Calaxy. “To compare it to traditional art collection, there are endless copies of the Mona Lisa in circulation, but there is only one original. NFT technology helps assign ownership to the original piece.”

Selling NFTs has been a lucrative business in the art world. Here are some examples you may have heard of:

• Digital artist Beeple sold “Everydays – the First 5000 Days” for $ 69.3 million through a Christie’s auction.
• A 20-second video clip of LeBron James’ “Cosmic Dunk # 29” sold for $ 208,000.
• A CryptoPunk NFT was sold for $ 1.8 million at Sotheby’s first curated NFT sale.
• Twitter CEO Jack Dorsey is auctioning off an NFT of his first tweet, which is selling for $ 2.9 million.

Other people may be able to make copies of the image, video or digital item you own when you purchase an NFT. But like buying a unique work of art or print in a limited series, the original can be more valuable.

How NFTs work

Many NFTs are created and stored on the Ethereum network, although other blockchains (such as Flow and Tezos) also support NFTs. Because anyone can review the blockchain, NFT ownership can be easily verified and tracked, while the person or entity that owns the token can remain pseudonymous.

Different types of digital goods can be “tokenized”, such as works of art, objects in a game and still images or video from a live broadcast – NBA Top Shots is one of the largest NFT marketplaces. While the NFT that mediates ownership is added to the blockchain, the file size of the digital object does not matter because it remains separate from the blockchain.

Depending on the NFT, the copyright or license rights may not accompany the purchase, but this is not necessarily the case. Similar to how buying a limited edition does not necessarily give you exclusive rights to the image.

As the underlying technology and concept evolves, NFTs can have many potential uses that go beyond the art world.

For example, a school may issue an NFT to students who have obtained a degree and allow employers to easily verify an applicant’s education. Or a site may use NFTs to sell and track event tickets, potentially reducing resale fraud

What does it mean to characterize an NFT?

Simply put, embossing an NFT means that you turn a digital file (such as a JPEG, GIF or PNG) into a digital asset or crypto-collector’s item on the blockchain. Once your unique token is published on the blockchain, you will be able to sell it. You have to pay a small amount of cryptocurrency to create an NFT.

You can create a collectibe as a single image or as multiple images. Depending on the marketplace you use to host your NFT, you may be able to add a name, description, and other metadata to your token. You can also enter royalty amounts on your NFT, which are percentages you will earn from each subsequent sale on the secondary market.

What is the difference between NFTs and cryptocurrencies?

NFTs and cryptocurrencies rely on the same underlying blockchain technology. NFT marketplaces may also require people to buy NFTs with a cryptocurrency. However, cryptocurrencies and NFTs have been created and used for various purposes.

Cryptocurrencies aim to act as currencies by either storing assets or letting you buy or sell goods. Cryptocurrency tokens are fungible tokens, similar to fiat currencies, like a dollar. NFTs create unique tokens that can show ownership and convey rights over digital goods.

How to buy an NFT

You can buy, sell, trade and create NFTs from online exchanges or marketplaces. The creator or current owner can choose a specific price. Or it could be an auction and you have to bid on NFT.

• Foundation: A community-curated marketplace that requires creators to be invited by other creators who are already part of the platform.
• Nifty Gateway: An art-focused marketplace that works with major brands, athletes and creators.
• Open sea: One of the first and largest marketplaces where you can find NFTs for a wide range of collectibles.
• Rarible: Offers a variety of NFTs with an emphasis on art. Uses its own RARI token to reward members.
• SuperRare: A marketplace that focuses on curating and offering digital art.

The registration process may vary depending on the marketplace. Typically, you will want to buy NFTs using a cryptocurrency, such as ether (Ethereum’s original cryptocurrency), although the price may also be listed in dollars. Depending on the marketplace, there may be different fees associated with each transaction.

The bottom line

Although there may be many practical applications for NFTs in the future, they are used primarily with digital art today.

“For creators, creating NFTs is a seamless way to sell digital art that may not have much of a market. In addition, there are ways creators can be charged fees for each subsequent sale of the art,” says Ceesay. “On the flip side, collectors are able to speculate in digital art and boast of rare collectibles in the chain.”

If you are considering buying an NFT as an investment, you need to know that there is no guarantee that it will increase in value. While some NFTs sell for thousands or millions of dollars, others may remain or become worthless.