What is NFT?
A simple explanation of how it works and can be used by everyone.
An important note: all CheckNFT.iO materials are published for educational purposes only, not for financial advice. Please always #DYOR
NFT is an abbreviation of non-fungible tokens, a digital asset trend that has been continuously growing in the past few years. With NFTs sold for millions of dollars, this movement has caught the eyes of those who are not actively involved in the blockchain community.
Those involved in the NFT community are making the most of their online buying, selling, and trading processes. However, non-fungible tokens are only the beginning of tokenization. As NFTs will play a crucial role in the new Web3 economy, it will be interesting to see how it continues evolving and brings more value.
The Definition of NFT
A non-fungible token is a digital asset representing objects from the real world, such as music, art, videos, and in-game items. Unlike conventional assets, NFTs can only be bought and sold online with cryptocurrency. Non-fungible tokens are typically encoded with the same software as many cryptocurrencies.
Surprisingly, they haven’t appeared recently. Non-fungible tokens first appeared in 2014, but have only become popular a few years ago as a unique way to buy and sell digital artwork. In 2021, the trade volume of non-fungible tokens was $24.9 billion, according to DappRadar, which is an increase from $96 million from the previous year.
What makes NFTs different from everything else we’ve seen before is that they are not infinite in supply like all other digital creations. With NFTs being limited, people are even more motivated to enter the game of buying and selling them.
The real question here is why someone decides to spend up to millions of dollars on something they can download or screenshot for free. When you buy an NFT, you own the original item with built-in authentication that proves your ownership. For collectors, these authentications mean even more than the item that they purchased. With a growing number of non-fungible tokens in various spheres, from NBA to fashion, it will be curious to see how their usage will change over the years.
NFTs & Cryptocurrencies
Non-fungible tokens are mostly built utilizing the same type of programming as cryptocurrencies, with Bitcoin and Ethereum being the most popular ones. Other than programming, these two don’t have anything else in common.
Cryptocurrencies are fungible, meaning they can be easily traded or exchanged for another cryptocurrency. They are also equal in value, so you will always get one Bitcoin if you give one. Fungibility is the reason why cryptocurrencies make a trusted means of operating transactions on the blockchain.
With NFTs, there is no fungibility. Each NFT has its digital signature, making it impossible to exchange your BFT for another that has equal value. Due to being non-fungible, one sport-related NFT cannot be exchanged for another sport-related NFT, even though they are similar in theme.
Examples of NFTs
Although most of us will name Bitcoin as the number one cryptocurrency, you’d be surprised to hear that most NFTs help on the Ethereum blockchain. Not to say that other blockchains don’t support them, but Ethereum has converted into the dominant blockchain for everyone in the NFT world.
Non-fungible tokens are created from digital objects representing tangible and intangible items, such as art, videos, GIFs, sports moments, collectibles, music, virtual avatars, video game items, etc.
Even the most bizarre things were converted into an NFT and sold for skyrocketing prices. One example is the first tweet of Jack Dorsey, Twitter co-founder, which was sold for almost $3 million.
Another example is a Nyan Cat GIF which was sold as an NFT for $690,000.
However, the most impressive numbers come from the work of digital artist Beeple who sold one of his NFTs for $69 million at Christie’s. Undoubtedly, many see NFTs as a new chapter of art history, but will it stop there?
How do NFTs work?
NFTs are quite similar to physical collector’s items, only in the digital form. So, instead of purchasing an actual painting and hanging it on the wall in your living room, you will get a digital file instead.
One of the great things about NFTs is that the owner or creator of it can include specific information about their artwork, allowing the buyer to understand it better, or simply just add their signature on the artwork and distinguish the original from all the other versions you will be able to find on the Internet.
Using NFTs
With NFTs and blockchain technology, artists and content creators have quite a unique opportunity to monetize their work. For instance, an artist no longer has to see galleries to exhibit their work in the hope to sell a few of his pieces. They can sell it directly to the consumers who are seeking to purchase NFTs. This not only provides them with an option to earn more money but also to directly present their work to their target audience.
With NFTs, users can contribute to the development of the community and protocol. More importantly, digital artists are in control of their work, but they are not the only ones who can profit from this new technology. As it was with other emerging technologies like AI and machine learning, NFT has created new positions which are awaiting developers, designers, and other enthusiasts who wish to join the growing NFT community.
Another perk of NFTs is that artists can program in royalties which allows them to earn a percentage of sales every time their art has been sold to a new owner. After all, NFTs are not just digital assets that one buys and owns for the rest of their life, it is an investment that can circle in the community that cares about it.
That said, artists are not the only ones making money with NFTs. Many brands, like Taco Bell and Charmin, have created their themed NFTs to raise funds for charity or other causes. Content creators working on GIFs can also compete in this unique marketplace and find their perfect buyers.
Nowadays, even a lot of brands like Nike, Prada, and Gucci have started creating their own NFTs.
Besides these global brands, even celebrities like Snoop Dogg, Logan Paul, and Mark Cuban have started creating their own NFTs. Whether it’s only to jump on the NFT bandwagon or they are genuinely interested in new technologies, one cannot deny that NFTs are here to stay.
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