In recent years, blockchain technology has been embraced by various industries for its innovative features and security. One such application of blockchain technology is non-fungible tokens (NFTs), which are revolutionizing how digital items are managed and traded.
While $10 to $20 million in NFTs are traded weekly on the blockchain network, over 70% of Americans are unaware of what a non-fungible token or NFT is. This article will explore NFTs’ meaning, digital economy, how they work, and the benefits of owning one.
What are non-fungible tokens (NFTs)?
NFT stands for “non-fungible tokens”, which are digital collectibles that are considered unique assets that cannot be replaced. You can browse NFT collections for cryptographic assets representing real-world items. NFT artwork may be the best-known type of non-fungible token, but there are also video clip, digital signature, and digital data NFTs.
Unlike cryptocurrencies, which are all interchangeable (“fungible”), NFTs have properties that distinguish them from other non-fungible tokens. This means that each NFT can be bought or sold individually, and no two NFTs are alike.
Digital asset & digital artwork NFTs
NFTs have been around since 2014, but they are now becoming well-known since they are a common way to acquire, trade, and sell digital art. A startling $41 billion was the value of the NFT market in 2021. This means that a non-fungible token could be a viable investment option for people interested in digital collectibles.
NFT vs. cryptocurrency
Cryptocurrency is a digital or virtual currency that uses cryptography as a security measure. Cryptocurrency is decentralized and not subject to government or financial institution control. Bitcoin, Litecoin, and Ethereum are all examples of cryptocurrency.
An NFT, on the other hand, is a digital representation of a physical asset and can be used to represent anything from physical artwork to in-game items. Nobody can steal NFTs since a certificate of this kind cannot be forged. Each NFT contains identifiable information including who owns the digital asset and who sold it, making them distinct and simple to verify.
For your digital valuables, such as games, music, and art, an NFT creates a blockchain-based digital certificate. This certificate gives your creations a unique identity.
Some examples of NFTs
One example of an NFT is the virtual world game, CryptoKitties. Players can buy, sell, or trade digital cats stored on the Ethereum blockchain in this game. These digital objects are considered NFTs because each is unique and stored on a blockchain.
Art is a very popular application for NFTs. A group of NFTs by digital artist Beeple sold for over $69 million in March 2021, which set a record for the most expensive digital art piece sold thus far. The artwork was a collage comprised of Beeple’s first 5,000 days of work.
How are NFTs created?
NFTs are created using the ERC-721 standard. The ERC-721 allows the creation of unique non-fungible tokens with identifiable information stored on the blockchain. This information includes who owns the digital asset and who sold it. ERC-721 also allows for minting NFTs.
Minting is known as the process of creating new NFTs. To mint NFTs, you can create smart contracts on the Ethereum blockchain. This smart contract will act as a template for your NFT ownership. Once the agreement is made, you can mint new NFTs using this template.
What are NFTs used for?
NFTs are considered modern collectibles that serve as digital proof of ownership for any particular item (which can also be rare digital items) and are purchased and sold online. Securitized NFTs guarantee the uniqueness of the asset on a blockchain, the same blockchain technology used to power cryptocurrencies.
How to buy NFTs
1. Cryptocurrency or NFT exchanges
A cryptocurrency exchange is a way to buy, sell, or trade NFTs. However, there are also some dedicated NFT marketplaces for NFT transactions.
When you’re planning on owning NFTs, you should first research the asset you are interested in and consider what currencies your NFT provider accepts. Once you have found an NFT you’d like to purchase, you can then use a cryptocurrency exchange to buy your new NFT.
When using a cryptocurrency exchange to buy an NFT, you must first deposit physical money into your account. With funds deposited, you can use the exchange’s order book to find someone selling the NFT you are interested in.
Once you have found someone selling NFTs you like, you can negotiate a price and purchase the NFT from the NFT provider. Once you complete the transaction, the NFT will be stored in your account on the cryptocurrency exchange.
2. Dedicated NFT marketplaces
You can also buy NFTs through popular NFT marketplaces. There are several of these marketplaces available, and they work similarly to cryptocurrency exchanges.
When using a marketplace to buy an NFT, you must first create an account and deposit funds into your digital wallet. With funds deposited, you can browse some of the largest NFT marketplaces to purchase NFTs.
Once you have found a seller, you can negotiate a price, purchase the NFT, and store it in your account. Some NFTs are sold for millions of dollars, which means your investment in a new NFT may pay off someday.
Why should you buy an NFT?
Non-fungible tokens based on blockchain technology give artists and content producers a unique chance to monetize their works. Buying NFTs is a way to support NFT creators of digital assets or applications. By purchasing an NFT, you can encourage the continued development of digital artwork from artists that sell NFTs.
Buying non-fungible tokens is necessary to gain access to the NFT world. For example, some games require you to own an NFT to play. There are also exclusive clubs, like the bored ape yacht club, that require an NFT for entry.
In addition, investing in NFTs can also be something you choose to do for personal finance reasons. NFTs continue to rise in popularity and are expected to continue to grow. When you buy an NFT now, you may be able to sell it for a higher price in the future.
The bottom line
Non-fungible tokens are an exciting way to invest in digital assets. They offer several benefits, including the ability to support digital artists directly, access to the NFT art world, and the potential for investment purposes.
However, caution is still warranted as the NFT market is still in its early stages and is subject to high volatility. Before buying any NFT projects, be sure to do your research and only invest what you can afford to lose.