What Are NFTs? An NFT, or non-fungible token, is a digital asset that exists on the Ethereum blockchain. It represents a unique asset that can't be reproduced and can be created for any conceivable reason.
The blockchain is an interesting technology in the sense that it allows for the exchange of value in a decentralized manner.
While most of the focus has been on Bitcoin, the underlying technology has been picked up by new companies providing decentralized solutions for a range of other services. One such service is Non-Fungible Tokens, better known as NFTs.
In this guide, we’ll take a look at what an NFT is and how it works, while also providing some use cases to give you an idea of what they can be used for.
Let's get started:
Table of contents [Show]
- What are Non-Fungible Tokens (NFTs)?
- What are some potential use cases for NFTs?
- What determines the value of an NFT?
- How do you create an NFT?
- What are the Benefits of NFTs?
- Where can you buy or sell NFTs?
- Wrapping Up
What are Non-Fungible Tokens (NFTs)?
An NFT, or non-fungible token, is a digital asset that exists on the Ethereum blockchain. It represents a unique asset that can't be reproduced and can be created for any conceivable reason.
Simply put, when an NFT is created, only one entity can exist, and its singular existence is enforced by the blockchain. NFTs can be unique digital artwork or collectibles, or they could represent a unique event ticket or share in an asset like real estate or an investment fund.
This article explores everything you need to know about Non Fungible Tokens and examples of NFTs. But first of all, let’s see how NFT is different from the usual cryptocurrencies you know.
How is NFT different from Bitcoin?
NFT is different from a traditional cryptocurrency token like Bitcoin or Ether because each one is unique. An NFT could represent ownership of a physical or digital item, access to an application or service, or even assets like real estate or investment funds.
We'll cover more on what can be NFTs in subsequent paragraphs.
Difference Between Fungible and non-fungible Tokens
Any item that is fungible can be exchanged for another fungible item with the same value. Bitcoin and Ethereum are examples of fungible tokens.
Non-fungible items on the other hand are unique and can't be exchanged for another identical item. It's that uniqueness that makes them such an exciting component of blockchain technology.
What can be an NFT?
In the simplest case, any digital good that is unique can be an NFT, from artworks to land ownership documents. Even music albums and videos can be NFTs. As long as its uniqueness can be guaranteed by the blockchain.
However, the most popular NFTs out there is artwork because it's easier to raise the value from them.
What are some potential use cases for NFTs?
There are a ton of use cases of non-fungible tokens. Let's take a look at some:
- Trading digital collectibles, like CryptoKitties, is the most obvious use for NFTs. Non-fungible tokens allow users to prove ownership of a unique token and be able to transfer that token to another user. This can also be used to create and trade unique digital art, or other collectibles like watches or sneakers.
- NFTs can also be used as stand-ins for rare physical items, such as concert tickets or sports memorabilia, which are extremely valuable to collectors but impossible to sell or trade online without verification of authenticity.
- In the gaming world, NFTs could be used in games where users earn unique pieces of equipment that may have different abilities. Having a database of unique pieces could allow gamers to trade and sell off their extra equipment.
What determines the value of an NFT?
The value of a non-fungible token (NFT) is determined by the collective belief in its holder community and on several characteristics such as scarcity, utility, fame, and aesthetic value.
Let's take a look at two other important elements:
Collectibility measures how desirable it is to own or possess an asset that demonstrates a certain quality or characteristic. For example, a unique piece with a rare design could end up being valuable simply because it's different from anything else already on the market.
Demand and supply
The more demand for a certain NFT, the higher its price will be. If not enough people want your NFT, its price will drop until someone does.
To put this into perspective, the more people who want an NFT and the fewer available, the higher its price will be. And if people think it might go up in value in the future, they're more likely to buy it now and hold onto it until its price increases later on.
How do you create an NFT?
Now that we've covered some basic knowledge of NFT, it's time to create your non-fungible token.
Follow the steps below to get started:
- Pick your item
When it comes to NFTs, there are many types of items that can be represented. We've highlighted some of these earlier. Arts, property documents, or even music can be sold as NFTs.
2. Choose your blockchain
Once you've decided on your tokenized item, it's time to choose what blockchain you want to use. There are many exciting projects out there right now which can work for this purpose, but the most popular and stable right now is Ethereum.
3. Set up your digital wallet
Once you've chosen your item and your blockchain platform, set up a wallet, so you can sell. MetaMask, TrustWallet, and AlphaWallet are credible options. In addition, do well to read the instructions on each platform carefully, then follow the steps to set up your account with your preferred wallet provider.
4. Select your NFT marketplace
After you've created an NFT using one of the above methods, there are several marketplaces where it can be listed for sale. The two most popular marketplaces for NFTs are OpenSea and RareBits. Each of these marketplaces has its own fee structure.
5. Upload your file
Depending on which method you used to create your NFT, you'll need to upload it in a specific format to these marketplaces for them to display it correctly.
6. List your item for sale
Once you have selected a marketplace and uploaded your file, you'll be asked to provide basic information about the item, such as its title and description, as well as pricing information. You'll also need to agree to the marketplace rules and other terms before listing an item for sale.
What other ways can you own an NFT?
Besides creating an NFT, you can own one by:
- Buying an NFT
- Being gifted an NFT
What are the Benefits of NFTs?
Some NFTs have been sold for quite an outrageous price so you might be wondering, “why do people buy NFTs?” and why there is so much buzz about NFTs.
Well, NFTs provide a unique quality for the owner. In the sense that the owner retains the original right of ownership to the NFT. But asides from the unique right it offers, NFTs can offer other numerous benefits to users.
These benefits are as follows:
- No trade fees
Many exchanges require users to pay a fee for every trade they make. But with NFTs, you can buy as much as you want without having to worry about any fees whatsoever.
Plus, there are no tax or brokerage fees that get added on top of the value of your purchase
- NFTs are liquid
Non-fungible tokens (NFTs) can be easily bought or sold with ease and convenience at any point in time. Also, you can trade them at your convenience through exchanges or via peer-to-peer platforms. So, if you have an NFT, it won't be a pain in the neck to sell it when the need arises.
- NFTs are secure and authentic
Since non-fungible tokens are stored in a blockchain, the probability of fraudulent activities such as forgery or duplication is very low. This makes NFTs a more secure digital asset.
- NFTs can be traced
If a property or a digital asset is registered on the blockchain using NFTs, it becomes easy to trace it back to its previous owners. This is possible because every token has its own unique identity that can't be changed or altered.
Where can you buy or sell NFTs?
Unique marketplaces for non-fungible tokens (NFTs) include, but are not limited to, the following:
- Axie Infinity
- Nifty Gateway
Getting started on NFTs can seem like a lot to take in at first. However, it's something that requires steady practice and attention to detail. If you've gotten to this point, you're well on your way to mastering NFTs and creating a lasting legacy for yourself.