A Complete Guide To NFTs

NFT stands for Non-Fungible Tokens. If an item is exchangeable, it can be easily replaced with another item of equal value. For example, fiat currency is exchangeable, as you can replace a 20 dollar note with another 20 dollar note, which will still have the same value.

In contrast, you cannot easily exchange non-fungible items. For example, although the Mona Lisa and The Starry Night are both paintings, they do not have the same value and cannot be exchanged.

NFTs are pieces of data attached to a digital asset (such as images, music or videos) that serve as proof of ownership of that asset. Although the asset can be copied and stored by other people, you are the legal owner of that digital asset.

Most NFTs are unique items – a good example is the Bored Ape Yacht Club (BAYC) generative NFT collection. There are 10,000 images of monkeys in this collection and none of them are repeated. The fact that there is only one copy of each monkey makes them valuable.

Although NFTs have been in circulation since 2014, their circulation really increased in 2021 due to a huge push from celebrities and sports figures. Endorsements from celebrities like Grimes and Matt Damon, as well as the success of NBA Top Shot, have brought NFTs into the mainstream. Since then, more and more people have been turning to NFTs (even creating their own) to benefit from this boom.

NFTs exist on the blockchain, which is a public digital ledger that records transactions. While most NFTs are recorded on the Ethereum blockchain, some are hosted on alternative blockchains like Solana and Polygon.

Creating an NFT is called minting. This involves attaching a digital certificate to an artwork and registering it on the blockchain. A digital certificate verifies your ownership of the artwork and records the NFT transaction history. If you buy an NFT from someone else, you can see all of its previous owners in the digital certificate.

Like Bitcoin and other cryptocurrencies, you “store” the NFT in a digital wallet. Unlike physical wallets that store money, digital wallets provide access to NFTs recorded on the blockchain.

NFTs are primarily used to represent ownership of digital assets and prevent fraud. But due to developments in this field, there are also many other ways to use NFTs, such as:

One of the main uses of NFTs is to prove your ownership of digital assets. Let’s say you have the CryptoPunks #124 NFT. Although anyone on the internet can save the painting, you are the legal owner because you have a digital certificate of ownership.

Some NFTs are designed as digital collectibles, much like people collect stamps or baseball cards. Marketplaces like NBA Top Shot and Topps NFTs are bringing sports collectibles into the 21st century with digital collectibles that you can trade with other collectors.

The scarcity of NFTs makes them a great instrument for investing and speculation. Many collectors “flip” NFTs by initially purchasing them at a low price and then immediately selling them for a higher price. Other collectors prefer to hold on to NFTs in the hopes that their value will increase in the future.