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A beginners guide to NFTs

In this article, we’re diving into NFTs: what they are, how they work, and what the future holds.

What is an NFT?

An NFT is a digital asset stored on a blockchain that is unique and impossible to replicate.

NFTs can represent anything from digital art to in-game items and even real-world assets like land or houses. Almost anything can be tokenized and stored on a blockchain as an NFT.

The key feature that makes NFTs so special and different from other digital assets is that they are non-fungible. This means that each NFT cannot be copied, substituted, or subdivided.

What does non-fungible mean?

‘Fungibility’ is a property of goods or commodities whose individual units are interchangeable.

For example, one US dollar can always be exchanged with another US dollar. A barrel of crude oil is pretty much the same as any other barrel of crude oil.

This is not the case with NFTs.

NFTs are ‘non’-fungible precisely because each one is unique and cannot be replaced.

Why do NFTs matter?

Each NFT has its own individual history that can be traced back to the original owner. This makes them perfect for collectibles, or for any digital asset where provenance (or ownership history) is important.

The uniqueness of each NFT means that they can also be used to represent real-world assets. For example, an NFT could represent a deed to a piece of land or a ticket to a concert.

While NFTs are still a relatively new phenomenon, they are already having a major impact on the world of digital art and collectibles. With more people becoming aware of NFTs, it is likely that we will see even more innovative uses for them in the future.

Listen to NFT artist pplpleasr on the Blockchain.com Podcast

How are NFTs stored?

NFTs are stored on a blockchain, which is a digital ledger that records all transactions.

While there are many different types of blockchains, the most popular ones for NFTs are Ethereum and Solana.

How do NFTs work?

NFTs are created using smart contracts, which are self-executing contracts that enforce the terms of a transaction.

For example, let’s say you want to buy an NFT digital artwork. The smart contract would automatically transfer the ownership of the artwork to you once it has been verified that you have paid for it. The data of this transaction is then added to the blockchain, creating a permanent record.

What are the benefits of NFTs?

They allow artists to sell their work directly to fans, without going through intermediaries.

  • NFTs offer a way for creators to sell their work directly to fans without going through intermediaries. This allows artists to retain a greater share of the profits from their work. The smart contracts may also embed a royalty component which means the artists continue to receive a royalty payment for subsequent sales of the art over time.

They help prove the authenticity of digital assets and ownership.

  • NFTs offer a way to create provable scarcity for digital assets. With traditional digital assets, it is very easy to make perfect copies. This means that there is no way to ensure that the asset you are buying is truly unique. With NFTs, each asset is stored on a blockchain and has a unique identifier. This means that you can be sure that you are the only person who owns that particular asset.

They have the potential to represent real-world assets.

  • Thanks to the blockchain, NFTs prove the authenticity of an asset, along with ownership, and that record can never be altered, faked, or forged–unlike most digital and physical records that exist today. Therefore, they have the ability to represent real-world assets.

What are the criticisms of NFTs?

Critics of NFTs argue that they are a waste of energy, as the process of minting an NFT requires a lot of computational power.

While it is true that most NFTs do not have any physical form, many people believe that they will eventually be used to represent real-world assets, which would give them value.

The future value of NFTs

NFTs have exploded in popularity in recent months and have resulted in some very high-profile sales, such as the $69 million sale of an NFT digital artwork by the artist Beeple.

As NFTs become more popular, we are likely to see even more unique use-cases arise.

NFTs have many ways to grow, and they’ll be important anywhere security, authenticity, and identity is valuable.

Find out more on our Crypto Basics: NFTs, Everything You Need to Know podcast episode

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