NFTs had been in existence since 2014. But they shot into prominence after a whopping $174 million worth of NFTs changed hands in 2017. Now that they have our attention, it’s important to ask: do we know and fully understand what they are?
To begin with, a Non-Fungible Token (NFT) is a digital asset stored in a blockchain. Each NFT comes with its unique identification code and metadata. That is what makes them non-fungible—meaning, irreplaceable. So while anyone can buy and sell it using cryptocurrencies, an NFT is hard or impossible to replicate.
Cryptocurrency investors can purchase NFTs from developers’ desks.
What are NFTs and How do they work?
NFTs mark the beginning of a conceptual shift from a physical asset to a digital representation of the asset’s value. One use of an NFT is that it can represent the value of a product (art or otherwise) and can thus eliminate intermediaries. By doing so, NFTs simplify selling.
That’s why an NFT can provide content creators and artists the opportunity to develop and sell their masterpieces directly to clients.
In addition to this, NFTs bring efficiency to identity management, fractional ownership of digital assets, safety, and the creation of new markets for underlying cryptographic assets.
Art and content creators use blockchain technology to develop NFTs and find potential buyers in the distributed public ledger. The underlying blockchain technology allows creators to encrypt unique tokens to safeguard their designs or artwork before putting them up for sale. The art or content created can take the form of tangible and intangible assets but in a digital format.
Since an NFT represents value, owners can transfer digital tokens within a blockchain using cryptocurrencies as a means of exchange. Such provisions enable creators to earn significant income and include digital signatures for ownership. Additionally, there’s a possibility of earning royalties from the initial content created.
Due to the nature of NFTs, ownership of the underlying digital asset is exclusive. The ownership of the NFT is transferable through blockchain technology by means of a verification process between the owners.
What are NFTs used for?
NFTs have many applications, here are a few:
- NFTs may be employed to represent digital asset ownership of different thinks like art, craft, music, among others. The key notion is that NFTs could be used to verify that a digital item is legitimate and has been confirmed by the creator. This would assist to prevent piracy while also ensuring that authors are fairly rewarded for their efforts.
- NFTs could also be utilized to establish decentralised markets. An NFT might, for instance, symbolize a piece of artificial real estate in a virtual environment. By purchasing an NFT, you will own the property and will be able to sell or rent it to other users.
- Loyalty points or prizes are another intriguing application for NFTs. A business, for example, can offer NFTs that can be exchanged for rebates or offers. Users would be encouraged to continue buying the company’s products or services as a result of this.
- Digital collectibles may also be created using NFTs. A game, for instance, may generate NFTs that symbolize rare in-game objects. Collectors would be interested in these NFTs, which may be exchanged on secondary markets.
How do you buy an NFT?
Buying an NFT involves following certain simple validation processes required to own a piece of the digital asset. However, there is much to consider before deciding on the best way to buy NFTs.
To buy an NFT, having crypto is a prerequisite. Blockchains that offer NFTs have cryptocurrencies to help potential investors with the process. It’s best to ensure whether your crypto can be used beforehand since many NFT purchases are done through Ethereum. Alternatively, credit cards can be used to purchase cryptocurrencies from several digital platforms.
Identifying and using a trusted digital wallet to store the NFTs purchased is the next step. Digital wallets can hold cryptos and NFTs to support transactions in the digital asset markets.
Remember, crypto exchanges usually charge transaction fees. These fees can significantly impact your NFT purchase. Online NFT marketplaces such as Rarible will help you finalize the transaction. (More on this below.)
NFTs and cryptocurrencies: How are they different?
The programming underlying NFTs and cryptocurrencies is similar. However, they have distinct features and uses in the digital assets landscape.
Non-fungible tokens or NFTs are unique and have the signatures of their creators to protect their value. Such features mean that NFTs—which are, in effect, digital tokens—can’t be exchanged in the same way as one would exchange a digital currency or crypto with another of the same kind.
Cryptos are similar to physical money in that they are fungible and function as trading tools. So, one crypto may be exchanged for another of the same value in the digital space. For instance, one bitcoin (BTC) is equivalent to another BTC in the blockchain and can participate in the cryptocurrency trade market.
No two NFTs are alike in this way so they cannot be exchanged in that manner. NFTs may only change hands using crypto. Having a digital wallet is thus mandatory for NFT investments.
What are NFTs and metaverse: Do they coexist, or are they the same?
Both NFTs and metaverses have blockchain as the underlying technology that binds them together.
NFTs represent ownership in art ware, real estate, and the gaming industry and promise to impact other markets. The NFT tokens minted serve a unique function in the digital space and are irreplaceable.
Metaverse, on the other hand, is digital 3D. The metaverse is a digital environment used to enhance NFTs. It does this by leveraging VR and AR technologies to transform the visual concept into reality.
The two digital concepts depend on each other to develop digital assets. So, the two digital concepts are definitely not the same although they do support each other in the digital space.
And do they coexist? Yes, they do. The first case of their coexistence dates back to 2019. Access to a certain event was made to rely on metaverse NFT-based tickets.
Which are the most popular NFT marketplaces?
To participate in the digital asset ecosystem, you will need to visit one of the marketplaces for NFTs. These NFT marketplaces offer many avenues to buy digital assets.
The following are some of the well-known NFTs based on sales volume, fees, crypto community, and upvotes (an invitation for artists) to the platforms:
1. OpenSea.io: A user-friendly platform that allows users to browse through NFTs. Opening an account is simple. An ideal partner for peer-to-peer transactions. The platform is open to a selection of NFTs and content creators.
2. Rarible: Rarible is similar to OpenSea but it controls NFT holders’ privileges with a refined twist. Users have to buy RARI tokens for identification, plus they have digital wallets for security and efficiency. They are democratic and encourage platform users to contribute to crucial management matters with a view to enhancing service provision.
3. Foundation: The platform is a creator’s paradise, but with there are some caveats. Users need “upvotes” for admission to the content development field. Minting comes with an entry fee at first and a gas fee. The Foundation is known for having facilitated the sale of the famous Nyan Cat, which made a fortune for its creator Chris Torres.
4. SuperRare: Like Foundation, SuperRare will audition creators who want to join the platform to mint NFTs. It provides a link for physical and digital artworks and pays royalties to creators. Not ideal for newbies, though.
Irrespective of which marketplace you ultimately pick, we hope you will remember a friendly word of caution from us: Most reliable marketplaces impose strict verification processes for content creators and NFT listings. It is prudent to try to study and understand these processes fully before investing, especially because they require you to maintain a funded account. Remember, scams and the impersonation of art creators are rampant in the digital asset domain.
Besides, the NFT market is still in its infancy. And that’s a boon and a bane.
What exactly are NFTs used for?
NFTs (Non-Fungible Tokens) are used to represent ownership of unique digital items like art, music, collectibles, and virtual real estate on blockchain. They certify authenticity and enable buying, selling, and trading of digital assets.
How does an NFT make money?
NFTs generate income through sales, royalties, licensing, virtual worlds, and potential investment value. Earnings depend on creators, secondary sales, and specific use cases.
Is Bitcoin an NFT?
No, Bitcoin is not an NFT. Bitcoin is a cryptocurrency used as digital money for transactions. NFTs are unique digital tokens representing ownership of specific digital items or assets.
Why should I buy an NFT?
Buying an NFT allows you to own unique digital items, support creators, and potentially invest. Consider your interest in the item, its value, and the NFT’s long-term potential before buying.