A Beginner’s Guide to NFTs: what are they and why do they hold relevance?
What are NFTs? This is probably one of the most asked questions around the world after some of them being sold for millions. From Nike and Disney to celebrities like Snoop Dogg, there are many big names that have jumped into the NFT bandwagon in recent years. NFT sales amounted to over $2.4 billion in just the first half of 2021. But what are NFTs? And why do they hold relevance in today’s world? Let’s take a deep dive to find answers!
What are NFTs?
NFT is an abbreviation for non-fungible tokens. Non-fungible tokens are digital units that cannot be exchanged with one another. Unlike currencies, each such token has its own identity and cannot be compared to other tokens. For instance, you can trade a dollar for rupees but cannot trade an NFT for other NFTs. It means that within those quirky artworks, you see being sold as NFTs, a unique and non-transferable unit of data that is stored on a digital ledger using blockchain technology to establish proof of ownership. NFTs are the cryptographic assets that store their data on a blockchain using unique identification codes and metadata to be distinguished from each other. In simpler terms, an NFT is everything that can be converted into a digital format.
From your drawings to photos, videos, GIFs, music, in-game items, selfies, and even a tweet can be converted into an NFT and then traded online. For instance, Twitter CEO Jack Dorsey sold his first tweet as an NFT at a whopping $2,915,835.47. No one can change the record of ownership or create a new NFT. NFTs are viewed as ownership certificates for digital files, and they add value to your crypto portfolio.
How do NFTs work?
NFTs are typically held on the Ethereum blockchain, but they are also supported by other blockchains like FLOW. For instance, if you are a photographer, you can convert your photographs into NFTs and get proof of ownership with the help of blockchain technology. But how does it work?
When you list your NFT on an NFT marketplace like LBank NFT Marketplace, you pay a gas fee (transaction fee) to use the blockchain, and your digital art is then recorded on the blockchain. This gives you complete ownership and control over the content, which cannot be edited or modified by anyone, including the marketplace owner. In this way, an NFT is “minted” from digital objects that represent both tangible and intangible items.
NFTs came into existence with the help of the ERC-721 standard. ERC-721 defines the minimum interface — ownership details, security, and metadata — required for the exchange and distribution of gaming tokens. However, the ERC-1155 standard takes NFTs to a new level by lowering the transaction and storage costs associated with NFTs and combining multiple types of non-fungible tokens into a single contract. This allows the original artist to have a “cut” of future sales of any already sold NFT. For instance, Mike Winkelmann or Beeple sold one of his NFTs called “Everydays: The First 5,000 Days” for a whopping $69 million. Further, for every future sale of “Everydays: The First 5,000 Days”, the original creator, Beeple, will receive 10% of the sales.
The unique identity and ownership of an NFT are verifiable with the help of the blockchain ledger. The purchase details of an NFT is recorded on a blockchain ledger. Each such transaction is meticulously maintained and safeguarded by computers located all over the world, which can be used to access the ownership data for any NFT. In a nutshell, NFTs are made by tokenizing artworks with ownership certificates for buying and selling purposes.
Why do NFTs hold relevance?
Around $41 billion worth of cryptocurrency was spent on NFT marketplaces around the world in 2021. What makes NFTs so relevant that the trading volume of NFTs rose by 704% between Q2 2021 and Q3 2021?
NFTs address some of the alarming issues that plague the internet today. As everything becomes more digital, there is a greater need to replicate physical properties such as scarcity, uniqueness, and proof of ownership. Today, anyone can download an image of the Mona Lisa and earn profits by selling its copies. But the original is only one. NFTs are ideal for ensuring ownership of one-of-a-kind products.
NFTs have become the new medium for creative expression. It allows artists, brands, and businesses to provide authenticity and originality in the digital age where anything can be copy-pasted. Creators often rely on the various distribution platforms to earn from their works. These are frequently subject to usage restrictions and geographical limitations. With the help of NFTs, the creators can sell their artwork from anywhere in the world to anyone in the global marketplace.
Moreover, NFTs also eliminate the issue of distribution platforms taking the most of the creators’ profits. NFTs allow creators to retain ownership rights over their own work. Furthermore, the original creator earns royalties for each resale of an NFT, regardless of how many times it is resold, as happened in the case of Beeple.
Every day 1000s of NFTs are sold around the globe. NBA’s Top Shots has already made over $700 million by selling NFTs. Moreover, art is not the only way to earn from NFTs. Charmin and Taco Bell, for example, have auctioned off themed NFT art to raise funds for charity. Charmin’s offering was dubbed “NFTP” (non-fungible toilet paper), and Taco Bell’s NFT art sold out in minutes, with the highest bids coming in at 1.5 wrapped ether (WETH), or $3,723.83. Moreover, you can even use NFTs as collateral to get a decentralized loan.
NFTs incorporate copyright and intellectual property rights for fair trade between the creators and the buyers. NFTs have the potential to be indispensable to every crypto trader by verifying ownership of a digital. However, it is important to choose a reliable NFT marketplace for trading. The LBank NFT Trading Platform is divided into two sections called Marketplace and Auction Market. You can buy NFTs from the Marketplace at a set price. Whereas from the Auction Market, you can bid for an NFT of your choice and have a chance to win 10% of the price spread.