What Are Non-Fungible Tokens (NFTs) And How Do They Work?
Unless you haven’t turned on your phone for the past month, you must have seen or heard about the splash NFTs have been creating. From enthusiasts’ tweets to news headlines of yet another NFT being sold for millions of dollars, it has been taking over the Internet. While some are convinced they are the new form of art as we (humans) transfix the ‘metaverse’, others question the longevity of this fad.
All speculation aside, we hope this article can give you an insight into the world of NFTs.
What is an NFT?
Simply put, an NFT is a collectable digital asset that holds its value as a form of cryptocurrency. It’s an art; digitally.
NFT stands for non-fungible token—a digital token that’s a type of cryptocurrency, similar to Bitcoin or Ethereum. The difference is that NFT is unique, and cannot be exchanged for another. It only makes sense because there are no pieces of art that are 100% similar to another; hence, the title of “non-fungible”.
On the more technical side, the NFT file contains extra information that brings its value above pure currency and into the realm of, well, anything. NFTs can be in a handful of formats; be it a piece of digital art, a poem, or even a music file. Picture this: they’re just like any other collector’s item, but instead of receiving an oil painting, you get a JPG file.
That’s all there is to NFTs.
How do NFTs work?
NFTs are individual tokens with extra information stored in them that are an extension of the Ethereum blockchain. This extra information is the crucial part of what makes it an NFT because it allows it to take the form of art, music, video, and so on, in the JPG, MP3, video, GIF, and other media formats. Even tweets. Twitter co-founder Jack Dorsey sold his first-ever tweet for more than $2.9 million.
Because it holds value, that allows the NFTs to be auctioned or bid by other buyers, just like a physical auction. And just like in our physical world, there will be copycats and imitations, but they most likely will not hold the same value as the original.
Also, right-clicking your screen and saving the image of an NFT won’t make you a millionaire. You can’t gain this system because your downloaded file won’t have the information that makes it part of the Ethereum blockchain. So technically, even if you saved the image, your image is worthless.
Where can I buy NFT tokens?
A variety of platforms are already offering the purchases of NFTs. Although, some formats will be dedicated platforms. For example, if you’re thinking of buying baseball cards or Pokémon cards, you may have better options on a site like digitaltradingcards.
Here is a small list of sites that sell NFTs:
You’ll then need to create a wallet on that specific platform and fill it with cryptocurrencies.
Beeple’s Everydays – The first 5000 days at Christies. Image from Forbes
Another piece of information (you determine whether it’s good or bad) is that some pieces are beginning to hit mainstream auction houses, too. Like the sale of Beeple’s Everydays (image above) that sold for $69.3 million.
Because of the high demand for NFTs, they are often released in ‘drops’. This means during the ‘drop’, there will be a frenzied rush of eager buyers, so if you’re planning on a purchase, just make sure you’ve got your wallet topped up.
Can I make an NFT?
Technically, yes. Anyone and everyone can create an NFT and sell it. This process is called ‘minting’. On top of the initial sale, you can even attach a commission to the file, which allows you to take a certain percentage every time someone buys the piece – including resales.
The prerequisite of this is to make sure you have a wallet set up, and that is topped up with sufficient cryptocurrency. This is where it gets tricky because the fees to complete the transaction can be prohibitively astronomical. And that is on top of a fee for buying and selling. It’s always great to keep this in mind as occasionally, the fees you’re paying can even be more than the price of the NFT itself.
It’s hard to tell if NFTs will be just as hot in years to come as it is now due to it still being in its infancy stage. But it is a surprising use case of blockchain technology. Even Ethereum’s founder, Vitalik Buterin, admits it. And this only signifies that blockchain technology is getting more and more widely accepted and worked on by programmers.
And if you’re thinking of joining the bandwagon to start investing in cryptocurrencies, you can read the article below to know if you’re right on time: