NFTs are making a splash everywhere these days. They’re being sold in the twink of an eye for vast amounts of cash. Some experts say it’s just hype, while others claim that NFTs are here to stay. Let’s dive deeper to figure out what NFTs are and how they work.
What is an NFT?
An NFT, or non-fungible token, is a digital item representing real-world objects. It can be anything digital such as real estate, designer sneakers, drawings, GIFs, music, videos, in-game items like avatars, domain names, event tickets, real estate, etc.—you name it.
NFTs have been around since 2014. Yet, they’ve only recently been gaining traction, especially as a way to buy and sell digital art. These tokens are being touted as a solution to the endless reproduction of artwork, providing digital creators the opportunity to sell their original items for a large amount of money.
What does “fungible” mean?
Fungible things can be exchanged for another amount of the same thing. True, NFTs are built using the same programming as Bitcoin or Ethereum, but they aren’t equal to cryptocurrencies.
Fiat money and cryptocurrencies are fungible as they’re identical to each other and can be traded or exchanged for one another. Their value is always the same—one dollar will always be equal in value to another dollar, just like one Bitcoin will always be worth another Bitcoin. This is why they serve as a medium for transactions in the real world and on the blockchain.
Something that is non-fungible can’t be interchanged with something else as it has unique properties. Each NFT has a digital signature, i.e. a unique identification code and metadata that distinguish it from others. Therefore, one non-fungible token can’t be equal to another.
NFTs can’t be exchanged for one another. They’re simply irreplaceable. Thus, people often see NFTs as a way for potential buyers to purchase digital items, gaining the right to own the original (unique) version or at least a digital certificate implying exclusive ownership.
How do NFTs work?
These kinds of tokens use blockchain technology to record who owns what. Blockchains are more commonly associated with cryptocurrencies. Such records can’t be forged as they are recorded on and maintained by thousands of computers worldwide.
NFTs are typically held on the Ethereum blockchain, although other blockchains also support them. NFTs may also include smart contracts that guarantee the creator a percentage of future sales.
Blockchains make it easy to verify ownership and transfer tokens between owners. However, the blockchains that power NFTs require a lot of computer power, which translates to an extensive carbon footprint. No wonder some point out that the technology NFTs use isn’t environmentally-friendly.
How to buy NFTs
Buying NFTs is easy. Just follow these three steps:
- Purchase a digital wallet that allows storing NFTs and cryptocurrencies.
- Get cryptocurrency, like ether, depending on what currencies your NFT provider accepts.
- Browse different NFT marketplaces (e.g. OpenSea, Rarible, Foundation, etc.) to buy the NFTs that interest you the most.
Examples of NFTs
This is a perfect example of how NFTs sales can reach incredible levels. In March 2021, Digital artist Beeple sold a group of NFTs (a collage) for $69 million. These are the most expensive pieces of digital art sold so far.
These are digital images of apes created with the help of a computer script, which matches various colours and designs to make each picture unique. Since these artworks only have a limited run of 10,000 items, creators often display their apes as profile pictures on social media.
Wizardia is a new play-to-earn strategy game with unique NFTs at its core. It offers two types of NFTs: Arena Genesis and Wizards.
With Arena Genesis NFTs, you won’t need to play the game to generate passive income. Instead, you’ll get revenue from all the transactions players make within the game (in the Arena). With Wizard NFTs, you can win rewards in the form of $WZRD tokens for battling in the Arena. You can also rent out or sell your Wizard NFTs to other players.
The NFT market is very personal because the value of an NFT depends entirely on what others are willing to pay for it. You may earn much more than you’ve invested, but you may also be unable to resell your NFTs if no one wants them. Remember that in the NFT world, demand drives the price, not political, technical, or economic factors.