What is a NFT, you might ask? Well, a NFT is a non-fungible token. It’s built on the same programming as Bitcoin or Ethereum, but there are significant differences between them.
These non-fungible tokens are digital assets that represent real-world projects like art, music, in-game items, and videos. They are traded online using different cryptocurrencies.
Although they’ve been in existence since 2014, NFTs are gaining more and more attention now because they’re becoming increasingly popular for purchasing and selling digital art. Since November 2017, $174 million has been invested in NFTs.
Why are NFTs a point of interest?
The fact that each token is one-of-a-kind, or at least part of a limited run and has its own identifying code, distinguishes it from other financial assets. Most digital works, on the other hand, are almost always infinite in supply. Assuming a certain asset is in demand, cutting off the supply should increase its value if it’s finite.
Anyone can look at the individual pictures—or even the entire collage of images online for free. So, why are people prepared to spend large amounts of money on something that may be easily screenshot or downloaded? Well, because an NFT allows the buyer to own the original item itself. It also contains built-in identification, which serves as proof of ownership.
Many collectors prize these “digital bragging rights” much more than the item itself, often setting their NFT as their online profile picture. Essentially, these tokens offer a sense of a digital identity. Some buyers tend to buy NFTs that they identify with, while others choose their next purchase based on other traits, which make that token rare and more valuable.
But how do NFTs work?
Now that we made it clear what is a NFT, we need to go a little more into detail about the inner workings. NFTs exist within a blockchain, which is a decentralized public ledger that keeps track of transactions. You might be familiar with the blockchain as being the technology behind bitcoin and other cryptocurrencies. When it comes to NFTs, they are usually stored on the Ethereum blockchain, although they may be kept on other blockchains as well.
An NFT is minted or formed from digital objects that represent both tangible and intangible assets, such as:
- Digital art
- In-game skins
- Texts (even on social media)
Technically speaking, any digital format can be an NFT, but the most common forms are the ones mentioned above. NFTs are similar to physical collector’s items. As a result, instead of receiving a genuine oil painting to put on the wall, the buyer receives a digital file.
Ownership rights are also unique. In other words, NFTs can only have one owner at a time. The ease with which NFTs’ ownership and transfers may be verified makes them ideal for ensuring the legitimacy of assets. The owner or creator may also save certain information inside the NFT. Furthermore, signatures of the artists may be included in an NFT’s metadata. This explains the sheer value of an NFT. Yes, anybody can download a copy of that token, but it has no value without the specific encoded data.
How can you get your first NFT?
You now know what is a NFT, how it works, but what if you want to get one? If you want to start collecting NFTs, you will need to follow a few steps. To begin, you’ll need a digital wallet (such as Metamask), that can store your NFTs and cryptocurrencies.
Depending on the currencies your NFT provider accepts, you may need to acquire some cryptocurrency, such as Ethereum, Bitcoin or others.
You may now use a credit card to purchase cryptocurrencies on platforms such as Coinbase, Kraken, eToro, and even PayPal and Robinhood. After that, you’ll be able to transfer it from the exchange to your preferred wallet.