Non Fungible Tokens, or NFT, are quickly becoming the most popular digital assets of the year. In the previous article, we explored the meaning and nuances behind the term token, as being a virtual currency or digital asset that can be issued and exchanged on a blockchain. For instance, these tokens include bitcoins and XRP. Below, we will focus on what NFTs are and what is the technology and functioning behind these tokens.
What is an NFT?
An NFT is a digital asset which represents a real-world object such as music, videos, or in-game items. These tokens are created on the Ethereum smart contract platform and very different from regular crypto tokens as we may know them. Indeed, the term “non fungible” implies that each of these tokens are unique and nonreproducible. In addition, each NFT has a digital signature which makes it impossible for these tokens to be exchanged for or be equal to one another. Thus, NFTs stand in contract with other crypto tokens, such as bitcoins or real money, as those are fungible, which implies that each token is identical and exchangeable. Crypto tokens’ fungibility make them a trusted mean of conducting transactions on a blockchain.
With their uniqueness, NFTs have taken on an important monetary value, especially in our increasingly digital world.
How does an NFT work?
NFTs, being digital assts, are held on a blockchain. Although many blockchains can support them, they are most generally held on the Ethereum blockchain. Hence, NFTs are tokens containing supplementary data. It is this data that gives value to NFTs and allows them to stand for art, videos, music, or even in-game items.
In addition, NFTs are “without authorization”, which implies that anyone can create, buy, exchange, or sell these tokens without authorization.
Apart from their monetary value, the value of NFTs also reside in the information stored in the blockchain, such as the traceability of the owner, the creator, the date of creation as well as all the information pertaining to past transactions.
How to buy and sell NFTs
Before purchasing any NFT or token, one needs to acquire a digital wallet, which will store the NFTs and other cryptocurrencies. NFTs can be acquired through payment or exchange of cryptocurrency, such as Ether. Hence, some amount of cryptocurrency needs to be acquired before being able to get NFTs. Once your wallet is set up and contains crypto tokens, one needs to use an NFT marketplace of choice to get these unique tokens. The most popular marketplaces are OpenSea, Mintable, Nifty Gateway or Rarible. Each marketplace may have varying fees.
When it comes to selling NFTs, the same process is applicable as one can sell NFTs on these marketplaces and receive crypto tokens in exchange.
NFTs have been increasingly used by artists, gamers, and actors of the cultural sector.
Thus, NFTs constitute an important expanding market. Indeed, according to BNP Paribas, in 2020, over 250 million dollars were exchanged on the NFT market. This is a drastic increase as, in contrast, only 63 million dollars had been exchanged in 2019. Hopefully, this article will have given you a good understanding of NFTs and their properties.
Keep an eye out for upcoming articles!