NFTs represent ownership of assets in the digital world. Essentially, NFTs are tokens like buying cryptocurrency, but they allow you to own something online.
Officially, these items and NFTs can only have one owner at a time, and they’re secured by the blockchain, which means nobody else can modify records of ownership or create a new NFT. Sound confusing? Don’t worry. In this article, we’ll discuss what NFTs are and how they work.
What is an NFT?
NFTs, or non-fungible tokens, were created based on the world of economics. After all, non-fungible is a term you would use to describe items such as your couch, computer, or even a digital file such as a song. These items are not-interchangeable with any other type of item due to their unique properties.
On the other hand, a fungible item can be exchanged because it is defined by the value of the item rather than any unique properties. For example, dollars are fungible because they are exchangeable for one another.
Assets
NFTs seek to solve problems that exist within the internet. As more aspects of everyday life become digital, there needs to be some way to replicate the properties of unique and owned items. Not only that but digital items can’t be resold and only work within the context. For example, you can’t resell song files or exchange gift cards on another company’s website.
Examples of NFTs
Because the concept of NFTs is new, it can be difficult to understand, especially if you’re not familiar with the world of cryptocurrency.
To help you understand NFTs a little better, here are some examples that currently exist:
- Unique digital artwork
- In-game items
- Essays
- Digital collectibles
- Domain names
How Do NFTs Work?
Each NFT is unique. Essentially, they give you the ability to claim ownership of digital data that can be trackable by the blockchain as a public ledger.
NFTs could represent:
- Digital Art, such as GIFs, music, or videos
- Real-World Items, such as deeds, tickets, and legal documents
NFTs can only have a single owner at any given time, and ownership cannot be replicated. These digital assets are created through contracts that assign ownership and manage the transferability of NFT ownership.
When an NFT is created, a code is executed and stored in smart contracts. That information is then added to the blockchain in which the NFT is managed.
The process to mint or create an NFT goes as follows:
- Creating a block
- Validating data and information
- Recording data into the blockchain
NFTs have specific properties to set them apart from one another, including:
- Unique identifier
- Not directly interchangeable with other tokens
- Has an owner and information is easily verifiable
If you own an NFT, you can easily provide that you own it. When you purchase an NFT, the ownership of the token is transferred to your wallet, proving your copy of the digital file is the only original. Then, your private key acts as proof of ownership.
The person who created the content has a public key that will serve as the certificate of authenticity for your digital asset. This public key is a permanent part of the token’s life and can demonstrate your token was created by the content creator.
Similarly, you can also prove you own the NFT by signing messages to prove you own the private key. A signed message is proof you own any private keys without revealing those keys to anyone else.
On the other hand, if you create an NFT, you can also easily prove you created it while determining the scarcity and earning royalties every time it’s resold.
NFT Scarcity
Creators of NFTs determine the scarcity of the asset. For example, consider a piece of digital art. The artist can choose how many pieces of art to sell, just as the creator of the NFT can decide how many replicas of the NFT exist. There can be exact replicas, such as the same piece of digital art many times. You can also choose to mint several NFTs that are similar but all different in one aspect, such as art with a different feature image. Content creators can also create NFTs where there is only one, and it’s considered rare.
In any instance, each NFT has its unique identifier and one owner.
NFT Royalties
Some NFTs pay our royalties to creators every time they’re sold. However, the concept of NFT royalties is still in development. Original owners can earn a significant royalty each time their NFTs are sold. NFT royalties are automatic, which means content creators don’t have to put in any work to earn more money. Unfortunately, figuring out royalties is still manual and can lack accuracy.
What Do You Use NFTs For?
NFTs have many uses, including:
Digital content
NFTs are most commonly used for digital content. Content creators can continue to get royalties each time their NFTs are sold, which means they can continue to make money without creating more content. Artists are the most common NFT creators because they have a difficult time selling their creations on other platforms.
NFTs allow creators to take control of their work and earnings without worrying about losing it to other platforms. When an artist sells their content, they immediately get paid. Once the new owner sells the NFT, artists can automatically receive royalties, which are guaranteed every time the NFT is sold.
Gaming content and items
Artists aren’t the only ones benefiting from NFTs, though. Game developers may also create NFTs because they provide records of ownership for in-gram purchases. Items purchased as NFTs mean you could make your money back by selling them when you’re done. If the NFT you purchase ends up becoming more desirable in the future, gamers can even make money.
Game developers can also earn a royalty every time the item is sold to another owner.
Physical items
Although this concept isn’t as developed as digital content or gaming items, physical items can also become tokenized. Many projects are going on to tokenize things like real estate and one-of-a-kind items.
The Future of NFTs
Much like cryptocurrency trading, NFTs are still developing, and there are many different opinions about it. Whether NFTs will be used widely in the future is not yet clear, but there is a lot of interest in them right now as they offer many benefits to creators. If you’re interested in NFTs, do your research before you become a creator or a buyer.
