NFTs 101 - The New Digital Frontier You Need to Understand

The New Digital Frontier You Need to Understand

NFTs (Non-Fungible Tokens) were around for a while, but it was not until 2020 that they finally started getting attention. Since that time, they have only become popular. People are now buying and selling digital art and music through NFTs.

If you are wondering what NFTs are, how they work, and why they are such a big deal, this article will break it all down for you in simple terms. Let us get started!

What Makes NFTs Unique

NFT stands for Non-Fungible Token. "Non-fungible" is just a fancy way of saying something is one of a kind and cannot be replaced by something the same. Money serves as one of the examples that help us understand NFTs better. The ownership of a $100 bill can be exchanged for another $100 bill while it still maintains its original value. This makes money fungible.

The world contains multiple items that prove impossible to replace. NFTs represent unique digital items and act as proof of ownership for those assets.

For example, Someone bought an NFT version of Jack Dorsey's first-ever tweet, which in turn made the tweet into a one-of-a-kind digital item, like a rare trading card; since NFTs use blockchain technology, the ownership of this tweet is verifiable and unique, meaning there's only one official owner. Despite the similarity to cryptocurrencies like Bitcoin, where one coin is the same as another, each NFT is of no comparison.

How Do NFTs Work

The operation of NFTs works on blockchain technology, which primarily uses the Ethereum blockchain platform. But they are not limited to just Ethereum. The blockchain functions as an electronic record system that maintains ownership information.

Here is a breakdown of how NFTs work:

Minting the NFT

To make an NFT, one must first take part in the minting process. The process of digital file conversion creates blockchain-based unique tokens from items such as art, music, or memes. Creating an NFT involves transforming digital content while maintaining proof of your creator status similar to sharing photos online.

Once minted, the token stores key details like who made it, when it was created, and any special rules. The blockchain securely protects the token after minting, making it permanent and unchangeable by any party. Blockchain technology provides clear evidence that establishes your ownership of the original content.

Smart Contracts

Smart contracts play a vital role in NFTs. They establish the rules of ownership, royalties, and how the transfer will happen. For instance, some artists code royalties in the smart contract to receive a percentage each time their NFT is resold.

Verification via Blockchain

After an NFT is minted, all the information, such as ownership history and transactions, is stored on the blockchain. That is what makes NFTs secure.

The blockchain is similar to an online ledger that is open to everyone but cannot be altered by anybody. This means:

  • Transparency: Anyone can view the owner of the NFT.
  • Security: After a transaction is recorded, nobody and nothing can alter it.
  • Proof of Authenticity: You can ensure that your NFT is the original.

Buying, Selling, and Trading

NFTs are bought, sold, and traded on online marketplaces. Some of the most popular NFT marketplaces include:

  • OpenSea
  • Foundation
  • Rarible

Most NFTs rely on cryptocurrency, particularly Ethereum (ETH). When you purchase an NFT, the token is deposited into your digital wallet, and the transaction is logged into the blockchain. It is convenient to verify ownership of the NFT.

Where NFTs Are Used Today

NFTs have found their way into many industries and have created creative ways to own and trade unique items. Let us look at some of the popular places and sectors where NFTs are being used today.

  • Music: NFTs are changing the music industry by offering artists a new path to earn money from their work. Artists can put out albums, tracks, or even concert tickets as NFTs. NFTs enable fans to claim music heritage or get exclusive benefits like VIP entry. For artists, it is a chance to connect directly with the fans and earn more money.
  • Digital Art: Many artists have embraced NFTs to sell and mint their artwork directly to fans — agents or galleries are no longer required. This gives creators more control and allows them to earn more money from their art. And, with smart contracts, artists can earn royalties every time they resell their art.
  • Gaming: In games like Axie Infinity, in-game items are turned into NFTs. Players can resell, exchange, or buy these items; the twist is that they own them. If you buy a valuable skin or gun, you can sell it in the future for a profit. In some cases, players have made thousands of dollars just from exchanging in-game items.
  • Virtual Real Estate: Yes, you read correctly! People are buying virtual land in the form of NFTs. Platforms like Decentraland enable users to buy, build, and sell virtual land. But why would anyone pay for land that does not exist physically? Virtual property is used for parties, games, or as an investment. As hard to believe as it sounds, virtual property is a hot market.
  • Collectibles: Collectibles are a huge use case of NFTs. Whether memorabilia or sports moments, NFTs enable fans to have unique digital collectibles. An example is the well-known NBA Top Shot, in which fans are able to buy and sell legendary basketball moments. Some of them have been sold for hundreds of thousands of dollars.

Final Thoughts

NFTs have changed how we own and trade digital content. They give creators more power and enable consumers to own rare, unique things. What was once a trend is now revolutionising industries, and as technology keeps changing, NFTs are likely to be around for a while.