If you’ve been paying attention to internet trends, you’ve likely heard of NFTs and know how they frequently start online flame wars 🔥. But if you’re here, you’re probably among the many people who still don’t quite get them.
NFT stands for “non-fungible token,” a unique, irreplaceable blockchain-based asset that cannot be exchanged at equivalency.
But that still isn’t very clear, right?
Don’t worry; we’ve got you covered. This article is a short crash course to help you understand the basics of NFTs and feel comfortable when these controversial tokens come up in conversation.
Ready? Let’s go.
What Exactly Are NFTs?
Non-fungible tokens entered the scene a decade ago. Still, they only began gaining momentum in 2021, when a piece of digital art by an artist called Beeple sold for a whopping $69.3 million. This caused a snowball effect that brought NFTs into the mainstream, and since then, they have been pretty much unstoppable.
But what are they, exactly?
An NFT is essentially a non-fungible token recorded on a blockchain that is linked to a digital or physical asset and represents ownership of it.
Let’s break it down.
- NFTs are tokens. Simply put, a token is a digital representation of value (just like cryptocurrencies), rights, or assets that can be bought and sold. Tokens can serve different purposes, such as enabling decentralized finance or granting access to exclusive content. They are based on blockchain technology (more on this concept later!).
- NFTs are indivisible. Unlike other tokens — such as cryptocurrencies, NFTs cannot be split into smaller denominations or pieces.
- NFTs are non-fungible assets. Fungible assets can be easily exchanged with one another because their value isn’t tied to their uniqueness. For instance, one dollar can be exchanged for another (they’re interchangeable). Non-fungible items, in turn, aren’t interchangeable at parity.
As non-fungible assets, each NFT is one of a kind, with unique identifying features and metadata that set it apart from the rest. Therefore, they cannot be replaced by one another. Each NFT is ‘unique.’
- NFTs are recorded on a blockchain. NFTs are supported by blockchain technology, that is, a secure, immutable, and distributed database for safely recording transactions, tracking assets, and building trust.
This record-keeping system guarantees data fidelity, immutability, and security while offering a safe method for people to transact directly with one another. So, NFTs can be bought and sold without intermediaries. Each transaction is public and easily verifiable to ensure security and transparency.
- NFTs are linked to other assets. Thanks to their blockchain capabilities and their non-fungibility, NFTs make great vehicles for proof of ownership. They can be tied to digital and physical assets and represent ownership of those assets securely, transparently, and in an immutable way.
So, with NFTs, we can now have a digital token that validates ownership of pretty much anything, from a digital piece of art to a concert ticket, a house, or even medical records.
- NFTs tend to be rare: NFTs are valuable because, generally, they are scarce. The creators could create any amount of NFTs, but they are often limited to increasing rarity.
In short, NFTs are digital representations of ownership recorded on a blockchain — a secure, decentralized, and immutable record-keeping system — and are unique, indivisible, irreplaceable, scarce, and capable of being bought and sold.
Better? Now that you know what an NFT is let’s solve some of the most common mysteries around them.
What exactly are NFTs used for?
NFTs first garnered attention in the art world. To protect their work from copy-paste bandits, digital artists began tokenizing their pieces, turning them into NFTs.
But with the surge in Web3 projects and the demand for proof of digital ownership, NFTs are now expanding beyond digital art, providing value and utility across many industries. They have slowly made their way into music, entertainment, real estate, and sports, among others. So, we’re now seeing songs, houses, tickets, and even football highlights turned into tokens.
At this point, and given the potential and flexibility of NFTs, pretty much anything can be tokenized. And as this technology continues to evolve, we’ll probably see many other use cases emerge.
If you’re interested in diving deep into real use cases of NFTs, you should check out our most popular email drip, where we break down 10 Real Use Cases of NFTs to master this amazing tech that’s already reshaping our world.
What’s the Difference Between Crypto and NFTs?
Many people still confuse NFTs with cryptocurrencies. That’s mainly because both solutions (technically called ‘primitives’) are based on blockchain technology. But they are not the same thing.
The main difference between cryptocurrency and NFTs is fungibility. As mentioned before, cryptocurrencies are fungible, so they can be exchanged at parity without either party losing or winning anything. For instance, if you trade one bitcoin for another, you’ll still have one, regardless of its value.
That is not the case with NFTs: they are not fungible and, therefore, can never be exchanged at equivalency.
To better understand this point, you can think of crypto as any other currency — like the U.S. dollar or the pound. NFTs, in turn, can be compared to unique, irreplaceable assets such as the Sixtine Chapel or the Mona Lisa.
What’s the Point of Purchasing an NFT?
Sometimes it’s hard to understand the appeal of NFTs because their utility can sound a bit abstract. On top of that, most people (not you now 😉) believe NFTs are confined to the realm of collectible art.
But there are many different benefits to purchasing an NFT. For instance:
- Copyrights: If you buy NFT art, you generally receive its copyright. So, you can use it as your profile picture on social media, display it online, and even exploit it for commercial purposes.
- Support: Purchasing an NFT also supports your favorite artists, musicians, and content creators. You can even contribute to charitable causes through NFT-based crowdfunding campaigns.
- Voting power: Some NFTs grant governance rights. So, by purchasing a given token, you get voting rights to decide on the future of a project you’re interested in.
- Proof of ownership: NFTs can be used in real estate to transfer land, provide proof of ownership, and keep track of changes in property value over time.
- Access: An NFT can provide access to exclusive content or experiences by a brand or an artist.
- Assets: NFT games use tokens as in-game assets or avatars for players. Some even allow users to evolve their NFTs to get additional value.
- Investment: Although highly volatile and unpredictable (maybe even more so than cryptocurrencies), NFTs can sometimes operate like investment vehicles.
The use cases of NFTs seem endless, each providing users with different utility and value. And more likely than not, they will only continue to grow as NFTs evolve.
NFTs are Stored in Wallets
After you purchase an NFT (or cryptocurrency), you must keep it somewhere; that’s when digital crypto wallets come in. Digital wallets are software programs or physical devices that safely store and manage (send, receive, and more) your NFTs and other digital assets.
These wallets have two sets of keys: private keys and public keys.
- Your public key is your wallet’s address, which you give people who wish to send you funds or tokens. This one you can share.
- Your private keys, in turn, should be kept secret because anyone who has access to them can take control of your balance.
It’s important to note that there are different types of wallets. Some are software programs; others are physical devices. Some have complete control over public and private keys, while others give up that control in favor of the user.
Choosing a wallet to store your NFTs is no easy task. Still, the decision largely depends on your specific needs and level of understanding of the ecosystem. But more on this in future guides.
NFTs facilitate accurate, verifiable proof of digital and physical goods ownership, opening up exciting new possibilities across all industries, especially those with a heavy online presence.
Although nothing’s set in stone, many tout NFTs as the drivers of digital ownership in Web3. Only time will tell what the future will bring for NFTs, but one thing’s certain: they hold quite a lot of promise.
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