Nfts
What does this mean and how does it work?
Ever since monkey photos were sold for millions of dollars, people have been wondering: what are NFTs? Here we will tell you everything there is to know about NFTs.
So, what is an NFT?
NFT stands for Non-Fungible Token.
“Non-fungible” means that the token is unique and can never be replaced by something identical, because one does not exist. NFTs are one of a kind.
For example, cash or Bitcoin are fungible. Each dollar or 1 Bitcoin is the same and can be used interchangeably. On the other hand, a one-of-a-kind trading card is unique. If you exchange it for another card, you will have a completely different card.
Along the same lines, an NFT is unique and no two non-fungible tokens are the same, making them non-fungible. You can trade with each other, but then you will end up with a completely different NFT.
Are they the same as cryptocurrencies?
This is a common misunderstanding since NFTs and cryptocurrencies are stored on the blockchain.
As we said before, the biggest difference between them is that cryptocurrencies are fungible, while NFTs are not fungible. Second, cryptocurrencies can be divided into smaller parts, so you don’t have to, for example, always exchange 1 BTC. However, an NFT is not divisible and must be traded as a whole.
Read: Many of the world’s richest companies are considering adding NFTs to their portfolios
If you translate them into the real world, cryptocurrencies can be considered currency or money. NFTs are more like property titles stored on the blockchain.
So how do NFTs work?
Although many blockchains support non-fungible tokens, the most popular blockchain is Ethereum. Ethereum (ETH) is a cryptocurrency, like Bitcoin (BTC). But Ethereum is also a blockchain that tracks who owns and trades NFTs.
On Ethereum, NFTs are built according to the ERC-1155 standard. Originally on Ethereum, they were built on the ERC-721 standard, but ERC-1155 arriving a few months later refined the process and helped reduce transaction costs.
As we said before, NFTs are unique and cannot be duplicated. Even though the digital file behind the tokens can be copied multiple times, ownership of the work cannot be tampered with.
Think about it from a collectible fine art perspective. You and your friends may have a copy of The Mona Lisa in your living rooms, but the real one is the one on display at the Louvre Museum in Paris. Along the same lines, anyone can copy the digital file behind an NFT, but there can only be one original.
What can be NFTs and where do they come from?
Digital art is the most visible form of NFTs these days. But in essence, they really can be anything digital. The popular NFT marketplace OpenSea offers several NFT categories such as music, photography, trading cards, art and more. In 2021, Twitter co-founder Jack Dorsey sold his very first tweet from 2006 as an NFT for $2.9 million.
Read: NFT on Bitcoin – To be or not to be
At its core, an NFT is just a mechanism to verify ownership. This means it can be used to own in-game items in the Metaverse. A popular application for these tokens is owning virtual real estate in Web3 games like Wolf Game and Decentraland. If blockchain stalwarts have their way, we might even one day be able to use NFTs to prove ownership of real land in the physical world.
And although NFTs have only recently become popular, they have now been around for almost a decade. Many credit Kevin McCoy’s digital artwork titled Quantum as the first NFT, designed and tokenized on the Namecoin blockchain in May 2014.
How are they created?
The process of creating a non-fungible token is called struck. During mining, the information in the digital file is encrypted and recorded on a blockchain.
There are various online platforms that will help you create non-fungible tokens, and most will also allow you to list and sell your creations.
OpenSea is the most popular platform for Ethereum-based NFTs. The platform lists millions of NFTs and has seen billions of dollars in trading volume since its launch in 2017.
Why are they important?
For artists and creators, NFTs allow them to sell their digital creations to a global audience. To sell a work of art in the real world, for example, an artist will have to rely on an auction house or gallery, which limits the audience, and will also take a significant portion of the sale proceeds .
Some marketplaces also allow artists to set a royalty for the digital artwork. This ensures that the artist receives a percentage every time the NFT changes hands. Actually, William Shatner (Captain Kirk from Star Trek) uses it as a source of passive income.
For collectors and gamers, non-fungible tokens allow them to become immutable owners of a digital asset. As we explained earlier, this could be a unique costume for their digital avatar or a piece of land or a structure in the virtual world.
Tokens can also function like any other speculative asset. You can buy it and hold it hoping its price will rise, then sell it for a profit.
Does anyone besides individuals use NFTs?
Oh yes. A few years ago, many brands used them as part of their marketing strategies. Tokens offered brands a new way to interact with their consumers.
Popular fast food giant Taco Bell has created a whole bunch of artwork called NFT Taco Art inspired by their tacos. Similarly, TIME magazine created and auctioned off a handful of their most iconic covers as non-fungible tokens.
Read: Here’s how to make money by lending your NFT
McDonalds also used them to boost engagement. Instead of auctioning off the NFTs to the highest bidder, the fast food chain offered them as prizes in a competition.
French automaker Citroën has created NFTs of its cars, which owners can use to race in the game Riot Racers.
Are they safe?
They are virtually impossible to hack. However, just like with cryptocurrencies, the weak link in a non-fungible token’s security is key. As long as your keys are safe, so is your NFT. But the devices you hold the key to can be stolen, lost or destroyed. So the cryptocurrency mantra, not your keys, not your coin, also applies to NFTs.
That said, scams are not uncommon.
Nothing stops someone from copying an already NTF digital asset and then creating another non-fungible token for it. However, it would not be the authentic original, but a counterfeit. This is one of the biggest scams around.
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