An Introduction to NFTs
As the cryptocurrency world continues to expand into new territories, new and innovative use cases for the technology have begun to emerge. While Blockchain technology was previously primarily used for cryptocurrency trading, non-fungible tokens have changed all of that.
Non-fungible tokens can be perplexing to those who have been primarily involved in cryptocurrency trading over the last few years. This article will provide an overview of NFTs, explaining what they are, how they work, and why they have grown in popularity in recent years.
What is an NFT?
Non-fungible tokens are unique, identifiable digital assets whose exchange between the creator and the buyer, via the financial transaction of a cryptocurrency such as Ethereum, is logged for anyone to view. NFTs aren't just the asset itself – the GIF, JPG, MP3, etc. – but also a digital certificate of authenticity for an increasing number of collectibles ranging from art and music to trading cards.
When you buy an NFT, you are buying a verifiable digital token that represents your ownership of the asset on that blockchain. Almost any digital image can be bought and used as an NFT. The "non-fungible" part of the name means they are not mutually interchangeable and cannot be replaced or exchanged with one another. No two NFTs are alike. That sets them apart from fungible “tokens” such as cryptocurrency (and even traditional currency) that can be exchanged for one another. The majority of NFTs reside on the Ethereum cryptocurrency’s blockchain. Similar to Bitcoin, Ethereum's blockchain creates permanent digital records of all transactions using that cryptocurrency. And it also creates an irrefutable ledger of NFT transactions.
What Are NFTs Used For?
Even after learning what an NFT is, it is natural to wonder what it’s purpose is. NFTs represent songs, digital artworks, and games that can be purchased through NFT marketplaces. Given that the NFT game is still in its infancy stage, many people are still coming up with new and creative ways to use these digital assets.
Blockchain technology and NFTs provide artists and content creators with a unique opportunity to monetize their work. Artists, for example, no longer have to rely on galleries or auction houses to sell their work. Instead, the artist can sell it directly to the consumer as an NFT, allowing them to keep a larger portion of the profits. Furthermore, artists can program royalties so that they receive a percentage of sales whenever their artwork is sold to a new owner. This is an attractive feature since most artists do not receive future proceeds after their work is sold.
More so,the NBA has recently begun to use NFTs to digitally transpose sports card trading. Today, these digital trading cards comprise an entire trading ecosystem. Decentraland, a project in a different vein, uses NFTs to create augmented realities with which users can interact.
While many NFTs are simply one-of-a-kind and authentic static images, many others have actual in-game applications. The NFT-based game CryptoKitties, which was released on the Ethereum network in 2017 but has skyrocketed in popularity over the last two years, is a typical example of this.
How do NFTs work?
It’s important to outline the distinction between cryptocurrency and non-fungible tokens. Although both are based on blockchain technology, the fundamental differences can help us to understand how NFTs work.
The key difference goes back to cryptocurrency being fungible. You can exchange a Bitcoin for another Bitcoin, for example. However, you cannot do so for an NFT. A non-fungible token is tied to one particular digital asset and cannot be replaced.
NFTs exist on a blockchain, which is a distributed public ledger that keeps track of transactions. NFTs are typically held on the Ethereum blockchain, although other blockchains support them as well.
An NFT is created, or “minted” from digital objects that represent both tangible and intangible items, including:
• Art
• GIFs
• Videos and sports highlights
• Collectibles
• Virtual avatars and video game skins
• Designer sneakers
• Music
Even tweets count. Twitter co-founder Jack Dorsey sold his first ever tweet as an NFT for more than $2.9 million.
NFTs are essentially digital collector's items, similar to physical collector's items. Instead of receiving an actual oil painting to hang on the wall, the buyer receives a digital file.
Conclusion
NFTs are now very simple to create for yourself. The quality and quantity of NFTs will continue to rise as the decentralized finance sphere expands its reach to more users. To summarize, NFTs are a highly innovative application of Blockchain technology, which is currently uprooting the worlds of computation and finance.
