Non-fungible tokens (NFTs) are crypto assets that enable holders to prove ownership of real or digital assets – but primarily the latter. There are many different kinds of intangible items, ranging from virtual real estate plots in games to digital artwork and even cartoon images of apes.
Despite how this might seem unimpressive to the average person, it’s vital to realize that in today’s ever-evolving digital world, it is extremely hard to justify or substantiate ownership over things that can be easily screenshotted, copied, or downloaded.
Imagine you are a concept artist creating digital art for a gaming company. Now consider the scenario of selling your digital artwork online as an independent artist with your business set up in Dubai. In order to do this, purchasers would need some way of tracking ownership so they could prove they were buying your original pieces rather than mere screenshots. People wouldn’t spend money on it if it wasn’t authentic.
This is why NFTs are necessary.
What Are Non-fungible Tokens (NFTs)?
A non-fungible token is a digital asset that can be traded and come in different forms, such as art, music, in-game items, videos, and more. Generally, they are bought and sold online, frequently with cryptocurrencies, and are encoded using the same software as many cryptocurrencies.
A NFT contains information which essentially indicates that the recipient of the crypto wallet address is the owner of a computer file stored there. From images to GIFs or audio clips, the computer file can be anything.
NFTs are fascinating because they represent individual ownership of identical images or files regardless of how many copies you make. In case there are 1000 copies made, each NFT token will contain unique information (called metadata) specific to that particular image or file, making it unique from all other copies. As a result, 1,000 investors can all claim ownership of the copy number “x’’ even though they all basically have the same image in their wallets.
The creators of these kinds of NFT collections take this concept one step further by incorporating varying degrees of rarity to increase their value and scarcity. From different colored backgrounds to patterned backgrounds, investors interested in the collection are likely to want to own the most unique pieces in the hopes that they will increase in value over time.
In terms of fungibility, even though NFTs themselves may be exchangeable (you can buy and sell NFTs from/to other people), each NFT has its own distinctive value due to its unique features. For instance, you couldn’t trade a Pokemon card for a “Shoeless” baseball card like-for-like. This is what the term “non-fungible” means when people usually speak of NFTs.
How Do Non-fungible Tokens (NFTs) Work?
It is important to have a transparent, immutable ledger of all NFTs, who has ownership of them, and where the files they point to are stored in order to be able to prove ownership of something digital. The blockchain technology plays a critical role here. All NFTs can be stored transparently on blockchains because blockchains are publicly distributed and immutable, allowing anyone to check their authenticity at any time.
The blockchain records every time an NFT is transferred or created and timestamped, making it possible to trace any single NFT back to its genesis. If you want to be sure your cartoon ape or virtual cat is real, this feature is useful.
A NFT cannot be listed on an exchange, bought or sold on a decentralized or centralized platform like all other cryptocurrencies. The listing and trading of these assets is instead done through tailor-made NFT marketplaces.
For those interested in starting their own NFT collection, the first step will be to get a digital wallet where you can store NFTs and cryptocurrencies. Depending on your NFT provider, you may need to buy some cryptocurrency. You can purchase cryptocurrencies using a credit card, after which, you can transfer it from the exchange to your preferred wallet.