NFT: What Is It and How Does It Work?


Non-fungible tokens, or NFTs, had gained so much momentum over the past year and so that even those quite unfamiliar with the crypto industry as a whole are talking about it constantly. Some even go as far as branding NFTs as the digital counterpart to traditional collectibles, as much as so Bitcoin (BTC) and other cryptocurrencies are to fiat currency. While many of us are now just patiently waiting for their chance to pounce on the booming NFT industry and participate, some are still left skeptical – believing that the particular bubble could easily burst.

With that in mind, what are NFTs actually? How do they work? How come celebrities, artists, collectors, and investors are head over heels towards this growing asset built within the crypto space? In this article, we will do our best to define NFTs as easily as possible while also indicating some of their applications and probable use cases for the immediate future. Without further ado, here is the starter’s guide to everything NFT.

What are NFTs, and how do they work?

At its very core, non-fungible tokens are non-interchangeable units of data built with some of the concepts now-prevalent within the crypto industry. Every NFT is one of a kind, meaning no NFT is the same no matter how many get produced. This is because every NFT created contains a piece of unique information that would render it distinguishable from all the other tokens that came before it and will eventually come after it. That being said, because no NFTs are the same, once you own it, you no longer can exchange or trade it for an equivalent rate. Nor can it be broken down into smaller units, much like currencies.

Due to it being powered by blockchain technology and its online exclusivity nature, NFTs are frequently purchased using crypto coins. Although most NFTs nowadays are found within the Ethereum blockchain, they work differently than the average ETH, or any other altcoin, for that matter. While both are considered digital assets and stored within digital ledgers, NFTs hold more information within them. NFTs can both be intangible and tangible items that can represent various forms. It can vary from GIFs, art, videos, avatars, collectibles, music, tweets, designer shoes, video game-based items, and so much more. Even the things that you may consider mundane or overly simple at first glance can be made an NFT by anyone and be sold for millions.

As much as the industry hates to admit it, NFTs are not primarily sold for how great they look or how wonderful they sound; their usually high-value price point lies in their exclusivity. Whenever someone purchases an NFT, they too own the original digital art itself. This is because the integrated authentication or digital signature serves as the purchaser’s proof of ownership. It is also worth noting that NFTs are basically just already-existing assets that are digitized. This particular characteristic of NFTs led many to wonder why people commit tons of money to purchase them when the same exact thing can easily be downloaded through other means or simply taken a screenshot of. Again, the answer here is exclusivity.

Although definitely polarizing, NFTs bring several benefits for content creators and artists alike. Not only do these digital assets bring in a new avenue to where they may express their creativity, but they also enable them to monetize their art without depending on auction houses or galleries. NFTs can directly be sold to any customer. This, in turn, eliminates the need for third-party entities, thus, allowing the artists to earn more profit for their work. On top of that, the sale could even be organized to earn royalties whenever their respective art gets resold, an opportunity they won’t necessarily find if NFTs did not exist.

While most would assume that NFTs are beneficial for artists only, they couldn’t be more wrong. Despite its controversial nature, NFT auctions had also quickly become a go-to means for investors or business brands to raise money for charities.

Purchasing NFTs

For those interested in purchasing NFTs for their own, lucky for you, there are now several platforms where you can easily catch one – so long as you have a digital wallet that can store cryptocurrencies and the NFT you are eyeing on. As briefly mentioned above, although NFTs are usually bought using cryptocurrencies that the particular NFT platform accepts, some allow investors to purchase NFTs using their traditional credit cards as well, like Robinhood and PayPal. Once accounted for, the purchased NFT can be transferred from the NFT marketplace, Rarible and as being the most popular ones, to a specified digital wallet.

NFT as an investment

It is best to remember that the price values of NFTs are primarily based on their demand. This means that one collector item may cost millions of dollars while others may only fetch for a few. While some may find it intriguing and ultimately interesting, NFT’s nature of not being dictated or influenced by any economic indicator turns off others – branding it as an investment not worth its inherent risks. This makes it so that NFTs as an investment should be considered more as a personal decision rather than a financial one. If you have money to spend and the NFT you are eyeing possesses a special meaning for you, then it is an avenue worth exploring indeed.

The Future of NFTs

Nowadays, many applications of NFTs are based on popular culture and the entertainment industry, thus, explaining the influx of famous artists and noteworthy personalities towards the booming digital asset class. The world has now seen how NFTs have been merchandized by game and movie franchises, musicians, and sports teams. However, as revolutionary as they may already be today, many believe that NFTs still have a lot more room to grow. Experts argue that NFTs hold the key to transforming how people see the intellectual property, copyright, and software licensing concepts for the better.

NFTs are also expected to become a primary component of the professed metaverse to come. Metaverse platforms such as The Sandbox and Decentraland have already utilized NFTs to represent digital plots of land and other in-game items, such as avatar skins or clothing. The next step towards a single, overarching metaverse will most likely utilize NFTs’ excellent interoperability, allowing users to transfer virtual items from one metaverse platform to the next.

Nevertheless, NFTs are here and would most likely be with us for the foreseeable future. Although still admittedly within its nascent stages, NFTs have already become a huge part of our everyday lives. So much so that the average man could see its concepts integrated into almost everything – like it or not. How it would evolve over the years, however, remains a mystery.



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