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What is NFT - the full guide

June 6, 2022

Understand the full meaning of non-fungible tokens. Find out what is NFT and why it matters

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What is an NFT?

Non-fungible tokens, known by the acronym NFTs, are cryptographic properties on a blockchain that include distinct identification codes and information that distinguish them from one another. They cannot be purchased or swapped at equivalency,

This is in contrast to fungible tokens, such as cryptocurrencies, which are identical to one another and may thus be used as a standard currency for transactions. .

  • NFTs are one-of-a-kind cryptographic tokens that reside on the blockchain ahat cannot be copied or duplicated.
  • NFTs may be used to symbolize physical objects such as artwork or real estate.
  • NFTs also can also be used to verify ownership of digital items or even real-life products.

NFTs, which are part of a cryptocurrency blockchain, may also be used to eliminate intermediaries and link artists directly with consumers, allowing them to efficiently monetize their work.

The present market for NFTs is dominated by collectibles such as digital artwork, baseball cards, and music. NBA Top Shot, where fans gather NFTs of NBA highlights in digital card form, is for example a very popular platform. 

These kinds of cards have been auctioned off for thousands of dollars. Twitter CEO Jack Dorsey just posted a link to a tokenized version of the first tweet ever made, when he tweeted  back in 2006: "just establishing my Twitter." The NFT version of that original tweet sold for $2.5 million.

What is the significance of Non-Fungible Tokens?

Non-fungible tokens are a step-up from the relatively straightforward notion of cryptocurrencies. Modern financial systems are made up of complex trading and financing systems for many kinds of assets, such as real estate, loans, and artwork. NFTs offer a new form of ownership since they enable virtual models of digital or physical assets.

To be clear, neither the concept of digital depictions of physical goods nor the application of unique identifiers of ownership are revolutionary. But when these ideas are applied with the advantages of a digital currency blockchain where identity fraud is impossible, they create a powerful force for change.

The use of NFTs on a blockchain to symbolize physical or digital artwork eliminates the need for agencies and lets artists communicate directly with their consumers. It also enables them to monetize their work for life, and not just earn from their first sale.

How do NFTs work?

At the moment the majority of NFTs are part of the Ethereum blockchain. Ethereum, like bitcoin, is a cryptocurrency, however, this blockchain also supports unique tokens: NFTs.  These non-fungible tokens hold additional information that allows them to function differently than, say, an ETH coin. Different blockchains, it should be noted, can sustain different forms of NFTs.

NFTs alter the crypto paradigm by rendering each token distinct and irreplaceable, making sure someone's non-fungible token is never identical to another. These are scanned copies of assets that have been compared to digital passports since each token carries a distinctive, non-transferable identification that allows it to be distinguished from other tokens. They are also extendable, which means you may "breed" a third, distinct NFT by combining two NFTs. This mechanism, known as “breeding” has become popular in the world of NFTs. The best example of these types of NFTs is the Cryptokitties collection, created in 2017. They breed between themselves and generate new offspring wich combine characteristics and values of their “parent” NFTs. Within weeks of their release, Cryptokitties established a fanbase that invested $20 million in Ethereum. Some fans invested over $100,000 in the project.

On the Ethereum blockchain, The ERC-721 standard gave rise to NFTs. ERC-721, which was created by some of the same individuals who created the ERC-20 contract, defines the fundamental interface – property information, security, and metadata – necessary for the exchange and delivery of gaming tokens. 

The ERC-1155 standard expands on the notion by lowering the processing and storing costs associated with NFTs and combining various kinds of non-tokens into a single process.

What do non-fungible tokens (NFT) look like?

NFTs can be any type of digital item: artwork, photos, movies, GIFs, music, or anything else. A Non-Fungible Token (NFT) is a unique digital token. It attests to the piece's provenance and legitimacy. A type of digital property. One prominent example is  a computerized collage of photographs, by the digital artist Beeple, which sold for $69.3 million at a Christie's auction in March.  Among collections of NFT art, the pixelated art of cryptopunks, and the distinct style of the Bored Ape Yacht Club collection, lead the way in sales volume. 

What's the difference between an NFT and a cryptocurrency?

The main difference is that cryptocurrencies are fungible while NFTs are non-fungible. That means there are less transactions that can be made with an NFT, but on the other hand NFTs are unique. They can also potentially increase in value much more than your standard cryptocurrency, if you choose your investment wisely.

How to buy NFTs?

In order to buy NFTs, first you need to have an NFT supporting digital wallet with cryptocurrency. So for example Metamask supports Ethereum and Ethereum based NFTs, while Phantom does the same for NFTs stored on the Solana blockchain. So if a person wants to buy an NFT on the Ethereum blockchain, they need to buy Ethereum and store it in their wallet. Then go to any platform that is selling NFTs that exist on the Ethereum blockchain. The buyer will then have to connect that wallet to the website. They can then browse and find an NFT they want. There will usually be a “buy” button on the page of that specific NFT if it is up for sale. The user will then just press that button and initiate the sale, assuming they have enough cryptocurrency in their wallet. The purchase has to be verified on the blockchain and will thus cost a gas fee.

Popular NFT marketplaces

  • OpenSea is currently the most popular NFT marketplace, with the highest sales volume. Selling NFTs on the Ethereum blockchain. 
  • LooksRare is another popular marketplace for Ethereum NFTs which grants rewards for participating on the platform. 
  • Magic Eden is the most popular marketplace for Solana NFTs, which includes a launchpad exhibiting future collections that will be released. 
  • Snowflake.market is a marketplace specializing in the Avalanche cryptocurrency, with significantly lower gas fees then other blockchains.
  • NFTKey is a marketplace that supports multiple blockchains, such as Ethereum, Polygon, Fantom, Harmony and Avalanche.

Should you buy an NFT?

There are lots of reasons why you should buy an NFT. It can be a unique piece of art you want to collect, a proof of ownership granting access to various services, or maybe just an investment in an NFT you believe will increase in value over time. You can sell that NFT down the road for profit if you choose your investment wisely.

Who was the first to come up with the NFT?

Anil Dash and Kevin McCoy were the people who came up with the idea and the proper coding required in order to create the first NFT, to enable artists to sell digital creations and monetize their work.

Conclusions

NFTs enable digital assets to become unique and impossible to copy, while also verifying the ownership of those digital assets. In a world which in which a greater and greater part of our activity is happening in digital spaces, the ability to buy, own and sell digital items just like physical items should become more and more valuable and natural.

Q&A

What is an example of an NFT?

Art is currently one of the most common forms of NFTs. So for example, a photographer who captures a beautiful photo on his camera and wants to sell that photo, he can store the photo on the blockchain as an NFT. Now that photo is a unique piece of art and can no longer just be copied. 

What does NFT crypto mean?

NFTs are stored on the blockchain of a specific cryptocurrency. Therefore many people view them as a form of “crypto”, even though NFTs are not like a standard unit of a cryptocurrency, because they are non-fungible.

What do you mean by non-fungible?

A unique identifier stored on the blockchain that cannot be duplicated, replaced, or subdivided. 

What are the best NFT coins?

NFTs don’t have coins, but there are certain token’s or currencies that are closely associated with the metaverse or a particular group of NFTs.

For example Decentraland is a virtual environment, or metaverse, in which individuals interact with one another using augmented reality devices. MANA is the coin used in that environment. Other crypto associated closely with NFTs are:

  • Axie Infinity (AXS)
  • The Sandbox (SAND)
  • Tezos (XTZ)

What can I sell as an NFT?

You can sell many things as an NFT. artwork, gaming avatars, virtual property, or an original tweet. NFT sales reached $2.5 billion in the first half of 2021, marking a year of growth for the industry.

Is Bitcoin an NFT?

Cryptocurrencies are meant to function as currency, including bitcoin. Bitcoins are interchangeable, there is no difference between them. The Bitcoin blockchain currently does not support NFTs, but even Ethereum, which does, is not an NFT. However non-fungible tokens on the Ethereum blockchain are NFTs.

What is metaverse crypto?

The metaverse is a three-dimensional online environment that merges numerous virtual places. It's like a real world only on the internet. Customers will be able to cooperate, meet, play games, and communicate in this environment. 

Are NFTs mainstream now?

NFTs underwent a huge surge in popularity in 2021, with total sales of 17.7 billion, so they are definitely gaining popularity. Yet they are still not as well known or understood as cryptocurrency, and there is still a significant portion of the population that don;t know what NFTs are nor own one.

Are non-fungible tokens safe?

NFTs are safe, but it is advised to be careful when connecting your digital wallet to a website. As long as an NFT user only connects to secured and established websites they should remain safe and secure.

Every NFT is unique?

The beauty of NFTs is the ability to create a completely unique digital item with only a single owner. This is currently the main way NFTs are used. It is also possible to create an NFT that is not unique, such as a membership card, where there are say 100 copies of that same NFT, in the same collection, performing the same function. But they will have different owners who can be verified with blockchain technology.