In our ever-changing digital society, new technology comes out faster than many of us can keep up with. You may have heard of NFTs but are not sure what exactly they are or how they work. In 2012, the creator of Ethereum Vitalik Buterin helped build “Colored Coins,” which are considered the earliest versions of today’s NFTs. The idea behind these digital coins was to bring real-world assets, such as real estate and artwork on a blockchain. These coins paved the way for a more diverse, robust blockchain. Let’s take a closer look at what an NFT is, how it works, and why it’s important.
What Is an NFT?
A non-fungible token (NFT) refers to a unique digital asset that is verifiably owned by a person or business. These assets represent real-world items, such as artwork, music, real estate, video clips, and one-of-a-kind trading cards. NFTs can also be digital items, such as digital art, GIFs, in-game items, and tweets. This is different from fungible tokens, which can be exchanged with something of equal value. For example, you can exchange one bitcoin for another bitcoin (fungible). However, NFTs are unique and can’t be replaced with something else. If you trade a unique item for something else, you will have an entirely different item.
Aside from having unique value, non-fungible tokens are also given unique identifying code like Bitcoin or Ethereum cryptocurrencies. Every NFT contains a digital signature that prevents it from being exchanged for or equal to another NFT. Indeed, this creates a reliable approach to buying and selling NFTs on the blockchain market.
Since NFTs are one of a kind, this can create a limited supply of digital assets. In turn, creators can increase the value of their assets if it’s in high demand. A good example of this is the famous NFT artwork by crypto artist Beeple, which sold for a staggering 69.3 million dollars. This NFT represents Beeple’s journey of creating art for the past 13 years and is irreplaceable.
How Do NFTs Work?
Non-fungible tokens are stored on a blockchain, which is an online public ledger that keeps records of every transaction. The blockchain is a crucial part of the cryptocurrency market because it allows buyers and sellers to see who has owned a specific NFT. NFTs are usually stored on the Ethereum blockchain but can be supported by other blockchains as well. Like other blockchains, Ethereum is a type of cryptocurrency that supports a variety of tokens, including bitcoins, dogecoin, and non-fungible tokens.
An NFT is created or “minted” from a wide range of digital items that represent tangible and intangible objects from the real world. This can include:
- Fashion items (i.e., clothes, shoes, bags, etc.)
- In-game items (i.e., gear, clothes, pets, skins, etc.)
- Virtual avatars
- Written work
Instead of receiving a physical item, NFT owners receive a digital file and have complete ownership rights of the token. Thus, non-fungible tokens can only have one owner at a time. The unique data for each token makes it easy to verify and trace ownership, as well as transfer tokens seamlessly to a new buyer. Additionally, owners or creators can add information to their NFT’s metadata, such as an artist’s signature or brief explanation of the token. If an NFT owner doesn’t want to broadcast their real name to the world, they can remain pseudonymous.
Why Are NFTs Important?
Now that we’ve discussed what NFTs are and how they work, you’re probably wondering why you should care. One of the many benefits the Internet has to offer is the endless sea of content freely available to consume and share. This includes everything from videos and art to articles and those entertaining cat GIFs. Why would you pay hundreds to thousands of dollars for something that can be viewed, copied, and downloaded for free? The reason is digital ownership. NFTs are like no other token on the market. When you purchase an NFT, you have ownership of the item. While the original creator can keep the copyright and reproduction rights, only one person can own the NFT at a time. Indeed, this is far different from having a copy of digital art or video.
If you are an artist, you have an incredible opportunity to create unique art that can be sold on a blockchain. Instead of being limited to selling your work in a gallery, store, or e-commerce site like Etsy, you can maximize your profits and exposure by joining a blockchain and selling your work directly to buyers. This is an excellent way to grow your brand, earn more profits, and connect with other creators. As a bonus, artists can also earn an ongoing percentage of the profits when their NFTs are sold or changes owners.
As a buyer, you can discover new ways to invest, support your favorite artists, and own original items that grow in value. Owning an NFT will give you specific ownership rights, such as being able to legally post an item online or use an image as your profile picture on social media networks. If you want to collect digital artwork, NFTs are a great way to obtain unique items. If an NFT becomes extremely popular, there is a good chance it can turn a huge profit for the current owner that sells it. On the other hand, there is a possibility that an NFT will not become popular and will likely not make you any additional profits.
How Do You Buy NFTs?
Whether you are just curious or are ready to buy your first non-fungible token, it’s helpful to cover a few of the basics. To make a purchase on a blockchain network, you will need a digital wallet. This will store your digital money and NFTs. The type of cryptocurrency you need will depend on the specific NFT provider you use. In most cases, you will need Ether, which can be purchased using your credit card information on various platforms, such as Coinbase, Kraken, or PayPal. Once you have your cryptocurrency, you can store it in your digital wallet and start browsing for NFTs.
Here are just a few of popular NFT marketplaces:
Keep in mind that every NFT marketplace will have different policies regarding buying and selling NFTs, verifying NFTs, and protecting buyers from fake items. Therefore, it’s a good idea to research the best NFT marketplace for your specific needs. A reputable provider will have rules in place to protect both buyers and sellers, such as verifying ownership and protecting buyers from impersonators that illegally list and sell someone else’s non-fungible token. After all, the last thing you want is to buy a fake item for a lot of money.
The Key Takeaway
As blockchain technology continues to evolve, many people wonder if things like NFTs and bitcoins will exist in the future. While the future is uncertain, what is certain is that cryptocurrency will continue to become more popular and eventually may become a new standard for digital money. We hope this article helped you better understand the interesting realm of NFTs and how they are changing the way people collect digital art in the 21st century. Stay tuned for another article about the differences between non-fungible tokens and tokenization.