Non-fungible tokens are digital assets that contain identifying information recorded in smart contracts. Each NFT is distinct due to this information. As a result, they cannot be directly substituted by another token. Since no two NFTs are the same, they cannot be swapped like for like. On the other hand, banknotes can be easily swapped for one another if they have the same value; for example, to the bearer, there is no distinction between a $1 bill and a twenty-dollar bill.
Non-fungible tokens are typically not divisible, similar to how you cannot send someone a portion of a concert ticket because a portion of a concert ticket would not be redeemed and would not have any value. However, several investors have been experimenting with fractionalized NFTs lately, even if they are still in legal limbo and might be considered securities.
When an NFT is bought or sold, one pays for ownership that is symbolic; the product is virtual, which means it is a digital image residing somewhere on the cloud, like on IPFS or even on-chain, while the actual token representing the transfer is present on the blockchain. This concept might appear absurd and bizarre, and yet it has opened up a sea of possibilities that are not limited by the physicality of things.
Looking at a painting on the internet does not hold any worth. It's the ownership that makes a person richer in NFTs. It is an ownership on the blockchain that can be seen by everyone.
Blockchain technology is a revolutionary technology that is impacting businesses and sectors like never before simply because Blockchain applications go far and beyond the cryptocurrency usage that it is popular for.
What is a Non-fungible Token?
What is NFT? A Non fungible token or NFT is a singular, unique digital asset that cannot be traded for self-same stuff. NFT stands for non-fungible tokens. These are not some kind of cash reserve of a bank or minted money of a country; they are virtually created by using programming that is used for cryptocurrencies. Simply put, NFT means cryptographic assets with unique identification codes and metadata that distinguish them from each other. It is based on blockchain technology. Unlike cryptocurrency or Bitcoin, or Ethereum, creators can divide their work into various editions during the NFT minting phase, with possible differences limited to the blockchain side. This implies that several editions of the same work may visually be similar to one another yet have unique edition numbers or token IDs.
An NFT is very different from fungible tokens like cryptocurrencies which can be used as a medium of commercial transaction due to their being the same in equivalency. This is a digital asset that may represent objects from the real world. Moreover, NFTs can be a combination of both physical and digital. These objects could figure from art, music, game, videos, and even toilet paper. Their market is online, and the currency used is crypto, being encoded with the same software as many other cryptos. NFT cryptos have been around since 2014, but they have gained momentum only recently, in 2021. It is recent that its market has seen a multi-million-dollar trade, projected to touch $3,546M in 2023, becoming a very popular way to buy and sell digital artwork.
It is often pointed out that this digital artwork, famous paintings, or lyrics of a superhit song are all available online to be accessed for free then, which makes people spend millions to own a virtual image of creation. The answer lies in the psychological satisfaction that a person enjoys in owning something exclusively on the blockchain. NFTs award the buyer authentic rights to own the artwork and show it off as a part of their "collection." The built-in certificate of authenticity in an NFT serves as proof of ownership. The buyer can display it on their walls for everybody to look at it, but they also get a digital file declaring them to be the owner. Its unique data ensures its single ownership that can only be transferred from one to the other with the help of tokens and crypto wallets.
Since you know what an NFT is now, let's proceed to how NFTs work.
How Does NFT Work?
The full form of NFT is Non fungible Token. They are the currency of the virtual market, where the commodity is a digital representation of a status symbol, any inanimate object, etc. It is the most popular form of cryptocurrency and is gaining strength with continual celebrity endorsements pushing it to be the frontrunner of media outlets. The NFT is based on blockchains and therefore has made the traditional middle-man completely redundant. It connects artists and buyers/audiences and simplifies transactions. These non-fungible tokens are minted (the act of creating or producing something) directly on NFT platforms and uploaded on a blockchain. A unique identification code and metadata are assigned to it. The latter is the information stored by the creator or buyer that serves as a security feature also. There are multiple blockchains supporting NFTs, but Ethereum is the most popular of them all.
NFTs were created to overcome the limitations brought by fungible tokens like bitcoin. They were created to work as a medium of transfer of ownership in a digital form without the fungibility aspect. This could be a painting, a book, a slogan, a poster, or a short video. Anything that could be worth having as a collector's item. The condition is that it should be unique and exclusive, which makes it scarce and, therefore, much in demand. Once an NFT has been minted, it has to be stored on a blockchain. It is a permanent record of the NFT that has been created, so it has to be chosen with care.
Ethereum hosts thousands of NFTs that use the ERC-721 standard, storing metadata that is a prerequisite for the exchange and distribution of NFTs. The standard stores all the information pertaining to the NFT - ownership details and timestamp of the transaction. Currently, this blockchain operates on proof-of-stake (PoS), a consensus mechanism that validates transactions on the network. Transacting in NFTs on Ethereum will include the added expense of gas fees. There are fees that participants pay for transacting or executing a contract on this blockchain. The fees are in a cryptocurrency called Ether, and its denominations are Gwei. This is to be stored in a crypto wallet.
Blockchain and fungibility
Bitcoin, NFTs, and all the other cryptocurrencies are based on the core technology of Blockchain. It is an accounts ledger in a digital form maintaining debit and credit in cryptocurrency. This digital ledger has a network of computers to maintain it and protect the recorded data with stringent security to prevent hacking or alterations. The buyer and seller can interact and have close dealings with each other without any governmental or institutional intervention. Peer-to-peer computer networks verify every transaction, stamp it with time and date and then add it to the ledger. The latter is a series of records of such transactions called blocks. These blocks together resemble a sequential chain linked by cryptography. Once the process is recorded in the ledger, the data cannot be altered or changed. It is also called distributed ledger technology.
To understand how blockchains work, the concept of fungibility has to be decoded first. Anything that can be easily exchanged and interchanged without a dispute on equal valuation is fungible. Money is a fungible currency. It is a medium of exchange because of its fungibility. A dollar bill or a pound note can be liquidated to the same value but in cents, dimes, or shillings. This means that being fungible is being divisible.
The most popular blockchain network is the bitcoin blockchain. Anyone can have a bitcoin wallet or be a node on the network. Bitcoins are also fungible and divisible. They are virtual currency, knowing no political allegiance or geographical border. But it shares characteristics (one bitcoin is equal to another) with traditional currencies with security features like verification of transactions based on cryptography. This has greatly encouraged the blockchain economy to flourish. The latter is largely based on fungible bitcoins, and companies looking to the future are building cryptocurrencies and applications using fungibility.
So, encryption is the keystone of blockchain technology. It is cryptography that makes a crypto transaction on the blockchain trustworthy. All transactions are permanently, immutably, and transparently recorded on the blockchain. This, in turn, means that anything that carries any value and can be exchanged for something else can be bought and sold online due to the existence of blockchain.
What are NFTs Used for?
An NFT is an individual, unique digital asset and cannot be duplicated or counterfeited. It is a blockchain token that gives proof of ownership and the authenticity of an asset that has been bought or sold virtually. This token is very different in design as compared to fungible tokens like BTC, ETH, or SOL. Each NFT token has associated metadata such as a video, an image, or a document attached to it that serves as its security against hacking and fraud.
In a world that has become increasingly virtual, a non-fungible token is an identifier of things that could be duplicates of the original. A prospective buyer might question the feasibility of buying an astronomically priced painting that is virtual, particularly when it can be easily copied or downloaded. It is NFT on the blockchain that convinces him to buy this digital asset in the original. It also gives him the complete and unconditional right of ownership and custody. The buyer can have complete possession of the digital asset without having to share its custody with a web server or an intermediary. He can store the bought asset in a software wallet or hardware wallet, thus exercising complete sovereignty over it.
Technologically innovative heights can be further scaled with NFTs. Understanding what NFT is opens up new paths for its usage. The concept gives a whole new NFT meaning to owning digital assets. NFTs on the blockchain allow the transfer of assets across platforms, making it malleable enough to fit the bill for interoperability. They are perhaps the best way to transact virtual goods.
The most recent industry to adopt the NFT way of building finances is Hollywood. Studios and streaming platforms like Paramount, Netflix, and Lionsgate are turning their intellectual properties into a new source of income as more audiences turn to stream and virtual files. Netflix started giving away NFT posters of the show's stars of 'Stranger Things' as a reward for completing weekly online games. Warner Bros. replaced a DVD with an NFT of 'Lord of the Rings' that gives a copy of the film along with special features. These and the like have become 'collectibles' that cryptocurrency traders are trading in to build exclusive virtual wealth.
Some NFTs even give complete and sole access to popular artists for a certain time span. Another NFT the design can help preserve memories, like the John Lennon collection of NFTs that includes the Beatles' memorabilia.
An NFT can even be turned into a 3D picture or a toy to be displayed on a shelf in the drawing room. An example of a displayable NFT is that of Nike Cryptokicks, which changed the NFTs into real wearable sneakers for its users. It offers a chance to own virtual property also. More and more people who could not have afforded real estate are buying virtual real estate as they are considerably more affordable than buying a real home. As people begin to understand what an NFT is, the more they indulge in investing in it. So, it can be safely stated that NFTs would be the next big thing in digital rights management.
How to Buy NFTs?
Buying an NFT is like shopping for a piece of art. An artwork that might appear worthless to one buyer might appear priceless to another. Different NFTs are priced differently and range from the cheapest to the most expensive NFT. It all depends upon an individual's purchasing power. An NFT price could range from more than a million dollars to a mere dollar or even less. Once a user mints an NFT, he can put it up for sale on the NFT market, trade it with somebody, or even gift it. Some NFT marketplaces like Nifty Gateway accept credit cards for purchases made, but many others only deal in cryptocurrencies. A crypto wallet is a must, whichever platform the buyer might be using.
This is where the keys to the NFT will be stored after its purchase. These wallets can be online or offline, but it is the latter that is more secure. The purchased, transferred, or minted NFT appears in the wallet after the deal with the current owner is sealed and the payment made. It should be remembered that when an NFT is bought, it is only the token ID where the token is actually stored. If the NFT is a piece of art, then physical copies of it can be printed, or a digital image can be downloaded, but ultimately, it is only a token Id that has been bought and owned. Unless it has been specified in the contract, buying an NFT does not mean that the copyright to the original image has been bought. A person interested in joining the NFT world would be better equipped if he goes for successful completion of the Blockchain Professional Certification course.
What are NFT Marketplaces?
A non-fungible token can only be sold in a marketplace that is especially suited to it. There are two kinds of NFT marketplaces:
- Universal or art-oriented NFT marketplace- The universal marketplace has a decentralized system where anybody can upload, mint, or sell an NFT. This marketplace has its own way of verifying that the asset or collection being sold is original. As a mark of authentication, it puts a blue mark in front of the name of the art. This ensures that there is no duplication or copying.
- Niche NFT marketplace- A niche marketplace deals in specific NFTs. An example of this is virtual land, wearables, blockchain games, and other NFTs, which are rare and premium. So, an NFT marketplace is a digital platform that works as a public blockchain platform where these tokens are stored/displayed or sold and bought by traders. The currency used is either cryptocurrency or traditional fiat currency. An account has to be created; digital artwork is then uploaded, ready to be auctioned or sold, and a digital wallet has to be downloaded to store the tokens that have been bought. A seller, after exhibiting his goods, will have to specify which payment tokens would be his preferred currency and his expected fees. When a user makes a sale, the transaction is added to the user's wallet which activates a smart contract for a private transaction. These marketplaces are centralized, with less risk of being defrauded by scammers and fraudsters.
Top NFTs marketplaces
There are a number of marketplaces for NFTs, but to locate and join a genuine one requires thorough due diligence, or it may turn out to be a complete dud. Each marketplace has its own standards for the auction of digital assets that they are putting up for sale. Each one follows either the Dutch way of auctioning or the English way. Recognized NFT Marketplaces are:
- OpenSea: Its blockchains are Arbitrum, Ethereum, Solana, and Polygon, and its area of focus is Art, collector's items, domain names, music, photography, trading cards, etc. It is the first Ethereum-based NFT trading platform with more than a million registered users.
- Magic Eden: It is based on blockchains Ethereum and Solana and focuses on Collectibles, art, and gaming. However, it only supports creators and assets that are verified, thus preventing new and upcoming artists from coming onto the platform.
- Rarible: Its blockchains comprise Ethereum, Flow, Polygon, Solana, and Tezos. The products being dealt with are collections, art, gaming, and virtual worlds. The most unique feature of this platform is that it provides a filter for buyers wanting to connect with top influencers and buyers. This allows buyers to join a community of like-minded people with similar interests. It also allows buyers to buy NFTs from competitors through the services of an aggregator.
- Nifty Gateway: It is based on Ethereum and is focused on art, collectibles, gaming, music, etc. It is a premium marketplace for influencers, celebrities, and brands to create limited-edition artworks. It is affiliated with the Crypto Exchange Gemini.
- Binance NFT: Based on Ethereum and BNB chain, it deals in collectibles, gaming, art, music, photography, virtual worlds, and sports. Besides selling individual items, it also sells mystery boxes that contain curated items and collections.
Each marketplace comes with its own advantages and limitations. Whichever the user chooses depends upon whether he wants to get into minting NFT or NFT trading or actually start an NFT project.
What's worth picking up at the NFT supermarket?
NFT markets have a complete array of virtual and physical goods that people with interest in collectibles might want to own. These could be digital images of anything worth buying and building a collection of. For example, the former President of the U.S. Donald Trump launched a series of trading cards showing him as an astronaut, a cowboy, a superhero, and other avatars. Some editions allow you to call and talk to him over Zoom. NFT examples that might interest a buyer might veer towards music, sports cards, or a doll collection; it can also be the picture of bored apes that sold for millions of dollars. An example of what people buy most is Human One artwork, a hybrid technique of digital and physical art designed by Beeple.
Notable NFT Scams
NFTs have translated into big money. It has become an industry dealing in millions. Everybody wants to get on to the bandwagon and earn quick money. But not everybody is equipped enough to play it with knowledge and astuteness. So it is that the scammers can easily defraud people who are not up on how the NFT trading on the blockchain is carried out. There are scams that people fall prey to. These are most commonly concerning:
- Fake NFT stores: These are stores that are copies of a marketplace like OpenSea. It would look almost identical to the real one. Many-a-times, most experienced people can get duped into spending large amounts of money on fake paintings or artworks that are probably fake copies of the original, worth nothing.
- Social Media Impersonation: A Twitter page or an Instagram post can be replicated by scammers without the buyer being able to discern a real page from a fake. The scammers create fake pages that exactly resemble the original ones by copying NFT accounts. The users, being convinced of their authenticity, are inveigled into investing in fake artworks and NFTs, thus ending up defrauded off large sums of money.
- Customer Support Impersonation: Scammers are able to harvest customer information service pages. They call the user impersonating customer support and are able to get sensitive information from them, like passwords or user IDs. If a user, unfortunately, connects to one of the fake customer support personnel, they could be defrauded by way of sharing their personal details.
- Investor Scams: An NFT project called 'evolved apes' had investors sinking huge amounts of money into it. The anonymous creator just disappeared with the money. People who had been promised the NFT artworks as a prize for winning a competition were also left with nothing. In the end, it turned out to be a marketing scheme to collect funds and then disappear.
- Giveaway scams: The scammers create a fake NFT account that messages users. It could be a fake Twitter or Discord, congratulating them on having won NFT as a prize. This NFT account sends a link to the user asking them to log into the fake website and connect their crypto wallet along with entering their seed phrase or private key. As soon as the scammer gets hold of the key or the phrase, they can clear out your account in no time.
How Does the Future of NFT Look?
Conservative stock and share investors have been naysaying the NFTs. But perceptions are gradually changing as the power of virtual gradually grows; remote working, virtual meetings, online shopping, and digital products are gaining robustness. NFT creators are designing utilities that are very engaging for a user. For example, some companies sell tickets to music concerts as NFTs.
This means that the NFT market will grow bigger as people become more inclined to mimic the real world as a virtual one. The creation of NFTs, blockchains and cryptocurrency will catapult the creation of job opportunities also. It will enjoy a pivotal role in building online communities and removing middlemen as artists offer their creations as digital originals directly on the blockchain platform. Its decentralized platform and its security features will make interactive dealings more fruitful and result oriented. The world is decidedly moving towards a future that will have NFTs as a permanent and omnipresent feature.
Is NFT mainstream now?
Non-Fungible Tokens have been around since 2012, but they became a part of the mainstream in 2021. It is time to learn KnowledgeHut Blockchain applications as NFTs gain more popularity. NFT sales are skyrocketing as celebrities join the bandwagon. Some of the NFT projects, like the Bored Ape Yacht club, The Sandbox, and Cryptopunks, have started a revolution in the NFT industry that has given a new meaning to creative and financial gains. The ready adoption of NFTs by celebrities, the increased demand for gaming, and the growing demand for digital art have thrust non-fungible tokens into the mainstream like never before.
Conclusion
Clearly, NFTs are an emerging form of currency that is now being used for many purposes. The NFTs help make high-end purchases or unique commodities with proven ownership more quickly, significantly lowering the likelihood of fraud. They likewise represent identities, property rights, and other physical goods. The purchaser of an NFT can engage with and join a community that is a part of the Web3 environment, a developing place and technology. These intangible properties are exceedingly exclusive and do not have copies or reprints. NFTs are expensive and precious simply because they are unique assets. The future of digital ownership is NFTs. These brand-new, safe assets are revolutionizing the world of digital ownership. The possibilities are astounding!
