What is an NFT and how NFT works

Non-Fungible Tokens (NFTs) have become a focal point of discussion in the digital asset landscape. An NFT, or non-fungible token, is a unique and non-interchangeable unit of data stored on a blockchain, serving as a digital certificate of ownership for specific assets.

The term 'non-fungible' means uniqueness and non-interchangeability. Unlike cryptocurrencies such as Bitcoin (BTC), where one BTC is equivalent to another, NFTs represent different assets with individual value.

This distinction shows the difference between fungible tokens, which are identical and exchangeable, and non-fungible tokens, which are singular and irreplaceable.

NFTs encapsulate a wide array of digital products, including photographs, videos, artworks, music, and more, all recorded on blockchain systems.

This digital representation ensures provenance and ownership, providing creators and collectors with a verifiable method to authenticate and trade digital assets.

Since their emergence around 2015, NFTs have experienced significant growth, propelled by the increasing acceptance of cryptocurrencies and interest in virtual projects.

In 2021, NFT sales surged, with over $2 billion worth of NFTs sold. However, the market has exhibited volatility; for instance, by February 2024, monthly NFT sales had declined to approximately $8.5 million, a stark contrast to the $881 million observed in August/September 2021.

While NFTs were initially launched on the Ethereum network, they have expanded to other platforms, including the Bitcoin network. This expansion reflects the adaptability of NFTs across various blockchain ecosystems, each offering unique features and capabilities.

NFTs function as unique digital assets, conferring individual ownership and, in certain cases, associated intellectual property rights. The value of an NFT often derives from these rights, granting owners the ability to utilize, display, or license the underlying asset.

NFTs have gained prominence across multiple sectors, notably in entertainment, art, and sports. Creators and rights holders leverage NFTs to monetize content and intellectual property, offering new avenues for revenue and audience engagement.

This article aims to elucidate the concept of NFTs, address critiques and perceptions, and guide readers on the process of acquiring NFTs.

What are NFTs?

Non-Fungible Tokens (NFTs) are unique digital assets that represent ownership of various items, including videos, art, music, photos, and certificates. While NFTs utilize the same blockchain technology as cryptocurrencies, they are distinct in nature and should not be conflated with cryptocurrencies.

Each NFT possesses a unique identifier, employing cryptographic keys to assign ownership to specific physical or digital products. This uniqueness has led to NFTs being regarded as modern-day collectibles, encompassing a wide range of digital and physical items.

In the current landscape, content creators have the capability to sell ownership rights of their digital art or physical products to collectors. Blockchain technology plays a pivotal role by providing a transparent platform where ownership can be easily verified by anyone.

NFTs offer innovative solutions in ticketing systems. By assigning a unique identifier to each NFT-based ticket, the issue of ticket reselling can be mitigated, ensuring authenticity and reducing fraudulent activities.

The potential applications of NFTs extend into the realm of education, where they have been proposed as a means of verifying certificates issued by educational institutions. The immutable nature of blockchain technology ensures that each certificate is unique and verifiable, making it virtually impossible to produce counterfeit credentials.

A significant majority of NFTs operate on the Ethereum network, which has been a primary platform for NFT transactions. However, NFTs are not limited to Ethereum; they have also been developed on other blockchain networks, including Bitcoin.

NFTs have been utilized to tokenize a diverse array of products. For instance, iconic sports moments, such as top NBA shots, have been transformed into NFTs and sold to collectors. Upon creation, a unique identifier is added to the blockchain, facilitating verification and establishing provenance.

The surge in interest surrounding Non-Fungible Tokens (NFTs) has led numerous investors to allocate substantial funds toward acquiring these unique digital assets.

Notable NFT Sales:

Beeple's "Everydays: The First 5000 Days": In March 2021, digital artist Mike "Beeple" Winkelmann sold his artwork "Everydays: The First 5000 Days" for $69.3 million at Christie's auction house, marking one of the most ground breaking sales in the NFT space.

Twitter CEO Jack Dorsey's First Tweet: On March 22, 2021, Twitter CEO Jack Dorsey sold an NFT of his first tweet for $2.9 million, highlighting the several range of digital assets that can be tokenized and sold as NFTs.

Value Proposition of NFTs

The aforementioned instances underscore the intrinsic value of NFTs, which lies in their scarcity and authenticity.

For example, while numerous replicas of the Mona Lisa exist, only one original painting holds the true value. If the Mona Lisa were an NFT, the blockchain would unequivocally identify the owner of the original piece, ensuring verifiable ownership and provenance.

How to buy NFTs

Acquiring Non-Fungible Tokens (NFTs) has become increasingly and healthily accessible, this has allow individuals to buy, sell, trade, and create NFTs through various online marketplaces. Here's a concise guide on how to engage with NFTs:

Setting Up a Digital Wallet:

To begin with, you'll need a digital wallet compatible with cryptocurrencies, particularly Ethereum, as it's widely used and acceptable in NFT transactions. You can download any wallet of your choice which include MetaMask, Trust Wallet, and Coinbase Wallet. These wallets enable you to store cryptocurrencies and manage your NFT holdings.

Purchasing Cryptocurrency:

After setting up your wallet, you should proceed to acquire the necessary cryptocurrency (commonly Ethereum) through reputable exchanges like Coinbase, Binance, or Kraken. Ensure your wallet is funded to process the NFT purchases.

Exploring NFT Marketplaces:

With a funded wallet, you can explore various NFT marketplaces to find assets of interest. Notable platforms include:

OpenSea: This is one of leading marketplace, they offers a vast array of NFTs across multiple categories or option.

Superrare: This is also a renowned community-owned platform, this platform allows users to create and sell NFTs.

Foundation: This platform focus on digital art, and allows artists to auction their creations and painting.

Purchasing or Bidding on NFTs:

NFTs can be acquired through direct purchases or via auctions:

Direct Purchase: This process involves buying the NFT at a fixed price set by the seller.

Auction: This process is quite tricky, it involves placing a bid within the auction time-frame. If you are outbid, your funds are returned to you , allowing you to bid again or on different items.

When purchasing an NFT, it's advisable to distinguish between ownership and copyright. Some creators retain the copyright of their work, therefore granting the buyer ownership of the NFT but not the rights to reproduce or profit from the underlying content. Additionally, certain NFTs are programmed to provide creators with royalties from secondary sales, ensuring they benefit from the increasing value of their work.

Critics and reception of NFTs

NFTs have experienced favorable reception in the cryptocurrency ecosystem, and this is evident in the market value and the number of dollars spent in a bid to buy and sell NFTs.

Stakeholders in sports have shown interest in the new platform as a means of generating more income. Dapper Labs, a blockchain technology-based company, has partnered with the NBA to create Top NBA shots and clips sold as NFTs.

The fashion industry has also joined the bandwagon. In 2019, Nike got a patent that allows blockchain to attach unique identifiers in NFTs to physical products.

NFTs are also gaining ground in academia, where ownership of innovations, patents, and inventions are auctioned as NFTs.

Notwithstanding the significant progress witnessed with the growth of NFTs, not all who ask the question 'what is an NFT' favor the new concept. Critics have not failed to issue warnings concerning NFTs.

People frown at NFTs offering Porn stars a platform to tokenize their work and auction it as NFTs.

There has also been a general concern about the environmental effect of NFTs. The proof-of-work is a prerequisite for validating transactions on the bitcoin network. There are reports that these transactions consume a large amount of electricity.

There have been cases of fraud and plagiarism in NFT transactions. Unscrupulous individuals also copy others' work and sell it. There are cases of identity fraud, as seen in the Banksy case, which drew media attention.

Conclusion

NFTs are digital assets that retain unique and verifiable ownership of the blockchain system. As stated earlier, NFTs are not cryptocurrencies but represent ownership of a digital or physical product.

While there is a positive review of NFTs, investors should trade and conduct comprehensive research before buying or selling any NFT products.

NFTs deal with value, scarcity, and authentication; thus, creators and owners can use NFTs to raise funds for charities, foundations, and NGOs.