If you’ve been following the latest tech news, chances are you’ve heard of terms like Bitcoin and blockchain. Both artists and collectors are fascinated by the stories of multimillion-dollar digital asset auctions. But what exactly are NFTs and how do they work?
We’ll be looking at the basics and technology behind non-fungible tokens as well as their everyday use. We also cover some of their skills and knowledge.
What are NFTs exactly? Key terms
Let’s begin by looking at some of our key terms and definitions. A broader understanding of NFTs is essential to understand their function and the context in which they are used:
NFT
NFT stands for non-fungible token. At this stage, it doesn’t signify much; the word “fungible”, isn’t an especially common one. It simply means that the same thing can be used interchangeably.
Money, for example, is a fungible financial asset. It has units and can easily be swapped with no loss or gain. It can also be used to store shares, crypto, and gold.
We’ll be looking at fungible assets as part of our cryptocurrency open steps. It can be divided up and used in many ways. There can also be an endless supply. They can be used for payments and to store value in a variety of ways.
Non-fungible assets are, on the one hand, unique items such as paintings, houses, trading cards, and so forth. Even though a painting can be copied or photographed in some cases, the original is always the best and the replicas don’t have the same value.
NFTs refer to data units stored on a Blockchain digital ledger. Every token, which is not fungible, acts as a certificate proving that a digital asset can be unique and not interchangeable. An NFT is unique because it cannot be modified, altered or stolen.
A digital asset is simply anything that exists digitally and has a right of use (the right to reproduce, copy, modify, or otherwise use it). You can consider documents, audio or video content and images as digital assets.
Blockchain
It refers to a collection of data that has been electronically stored. A blockchain, which is not like a regular database, is a set of data ‘blocks’ that can be linked together. This creates the shared digital ledger that tracks the activity and records information within the blockchain.
Each blockchain ledger’s data is kept globally on thousands upon thousands of servers. This allows anyone on the network to see and verify each other’s entries. This peer to peer and distributed ledger technology is so secure that data can’t be altered or falsified within blocks.
A blockchain is, as IBM defines it, a shared, immutable (permanently, unalterable) ledger which facilitates the recording and tracking transactions.
NFTs are created on a Blockchain and cannot be imported into another blockchain ecosystem. It will remain on that blockchain and be able to prove its authenticity.
Non-fungible tokens vs cryptocurrency
It is important that we distinguish crypto currency from non-fungible tokens. Although they both use blockchain technology, understanding the basic differences can help us understand NFTs.
The key difference comes down to cryptocurrency being fungible. It is possible to exchange Bitcoin for Bitcoin. For NFT, however, this is not possible. A non-fungible token can only be used for one digital asset.
Why do NFTs have value?
A non-fungible token is, as we’ve already said, a certificate of ownership for digital assets. It is the ability to collect that asset and its potential future selling value that determines its value. NFTs can also be traded.
Art is another great example of NFTs’ value. Digital artist Beeple purchased the NFT for their Each Day – The First 500 Days artwork in February 2021 for a remarkable $69.3 million via Christie’s auction house.
Examples NFT Sales
NFT art doesn’t sell well alone. NFTs have experienced a few notable sales over the past months. But, this has led some to speculate that there may be a bubble in the market (more details later).
NFT sales could include the following:
- The initial Tweet. Jack Dorsey sold Twitter’s NFT to his founder for $2.9million.
- The Nyan Cat GIF. At the time, the NFT for the colorful GIF was 300 Ether (a cryptocurrency), or about $561,000
- Watch the ‘Charlie Bit me’ video. YouTube has viewed the video, which shows a baby biting its brother’s finger, over 800 million times. The NFT to the video sold at around $500,000.
For what purpose can non-fungible coins be used?
Many people ask if NFTs can be used in certain situations. Although NFTs are still in their infancy, many applications have already been suggested. We have selected some of our most popular uses below.
Tickets
NFTs can be used to create event tickets, which was discussed in the open step. It is claimed that tickets that are created using a non-fungible token can be exchanged for another ticket.
It is therefore impossible to sell tickets for a profit, steal tickets, or make fake tickets. Because there is no way to replace the token on the ticket’s blockchain, it cannot be done.
Fashion
The use of NFTs could help address several major issues within the fashion industry. To help combat counterfeit goods, you need a digital record to prove your authenticity. It is possible to attach an NFT to luxury items so that it can be proven genuine.
The same goes for non-fungible tokens. They could reveal crucial data such as the origins of the item, the source materials, the distance travelled, and the route they came from. This could assist people in making more ethical decisions as fashion and sustainability issues continue to become more pressing.
Collectables
This topic has been covered before. People enjoy collecting trinkets, memorabilia, and other items similar to it. NFTs allow you to prove authenticity by using a digital stamp or signature.
Gaming
NFTs offer gamers a way to get unique in-game items. These tokens can be used for fun, authenticity, and competitive nature to create in-game ecosystems.
Create an NFT
NFTs can be a great way to show your creativity if you’re an aspiring digital artist. There are many platforms out there that will assist you in getting started. It is relatively easy to get started, and various platforms will assist you.
There are however a few things to remember before you can start:
- NFTs use a particular blockchain to support their development. The Ethereum blockchain is currently the most popular for non-fungible tokens.
- You will need a cryptocurrency wallet that supports cryptocurrency. Currently, ether or ETH is the most common.
- You can use an NFT marketplace to sell or create your digital assets. OpenSea is a popular platform that uses Ethereum.
The pros/cons of NFTs
Therefore, non-fungible tokens seem to be very in demand right now. What are the pros and cons of NFTs? Below, we’ve listed some potential pros as well as cons:
Pros of NFTs
NFTs are known for their many advantages, such as:
- They give artists the right to digital assets. An NFT allows content creators the opportunity to prove their authenticity while also making a profit. A creator might make a significant income stream from memes, for example.
- These are collectable. The excitement of finding something new or unusual is enjoyed by many people. Collectors of rare or unique content have an additional layer of legitimacy with NFTs, especially when it comes to digital assets.
- They’re immutable. Because they are non-fungible tokens, they can’t be altered, erased or changed. This is also a valuable quality for proving authenticity of the origin of digital content.
- They may also contain smart contracts. The blockchain technology has another intriguing feature: smart contracts. These contracts store instructions that can be executed when certain conditions exist. Artists could earn a percentage of the profits if the NFT is later sold.
Cons for NFTs
Like any new technology there are also potential disadvantages. NFTs are not without their disadvantages.
- It’s a speculative market. The real question is whether NFTs offer any value. Are they a long-term asset? Or are they just a fad? It’s not easy to say. Currently, NFTs’ emotive quality is all that gives NFTs their value.
- Digital assets can also be copied. A copy of a digital asset can be copied even if the NFT is owned by someone else. GIFs can easily be shared thousands of times, videos uploaded to multiple websites, and art can be copied, pasted, and GIFs republished thousands upon thousands. Even though you may own the NFT, it doesn’t make you the owner of the asset. It is merely a token that authenticates your ownership.
- Environmental costs. Many have been talked about the environmental consequences of blockchain-based cryptos like Bitcoin and Ether. It takes a lot to upload records onto a blockchain. It remains to be seen if assets that are based on the blockchain can sustain their existence.
- They can easily be stolen. NFTs’ technology is secure, but not all platforms and exchanges. As such, several NFTs have been stolen in the wake of cyber security breaches.
Are non-fungible coins the future?
Hopefully you now know what NFTs are, and how they function. Although we have seen the potential applications of non-fungible tokens in the real world there is still a need for them. But are they the technology of the future?
It is hard to predict whether NFTs can be widely used in years to come. They have many benefits, and there is huge interest at the moment. However, the technology is still relatively new and there are still many challenges.
A wide variety of courses are available if you’re interested in learning more about NFTs or blockchain technology. These new industries are in desperate need of skilled workers. Knowing the key principles could help your career. They are the future of technology, and they are an interesting part of popular culture.
