What are NFTs? Non-fungible tokens for beginners

In the vast and ever-evolving landscape of blockchain technology and cryptocurrency, one term has recently captured the imagination of creators, collectors, and investors alike — non-fungible tokens or simply NFTs. They represent a concept that has reshaped the way we think about ownership, art, and digital assets.

From multimillion-dollar art sales to digital collectibles and virtual real estate, NFTs have enjoyed the limelight of being one of the most innovative technologies that this growing industry has produced.

But what exactly are NFTs, and why are they so significant in the blockchain and cryptocurrency space? In this guide, we'll break down the concept of NFTs, their history, how they work, their diverse applications across industries, how they differ from cryptocurrencies, what gives them value, and how you can get started buying and selling NFTs.

What is an NFT?

At its core, a non-fungible token (NFT) is a unique digital asset that represents ownership or proof of authenticity of a specific item, piece of content, or collectible on the blockchain. Unlike cryptocurrencies like Bitcoin (BTC) or Ethereum (ETH), which are fungible and interchangeable with one another, NFTs are one-of-a-kind. This attribute makes them perfect for representing digital or physical assets in the digital realm.

Before the 2021 NFT boom, the concept of such assets dates back to 2012 when the Colored Coins project attempted to tokenize physical assets on the Bitcoin blockchain. In 2014, artist Kevin McCoy created or “minted” the first NFT, “Quantum,” on the Namecoin blockchain.

However, the true breakthrough occurred in 2017 when the Ethereum blockchain introduced the ERC-721 standard, allowing developers to create unique, indivisible tokens. This laid the foundation for NFTs as we know them today.

In 2021, the NFT market made history by surpassing $40 billion. This year was marked by multimillion-dollar sales and high-profile figures, including Shawn Mendes, Paris Hilton, and Melania Trump, joining in on the trend. It unofficially earned the title of “the year of NFTs.”

How does an NFT work?

NFTs rely on blockchain technology, specifically smart contracts, to create and manage these unique digital assets. A smart contract contains the rules and properties of the NFT, including ownership details and any associated metadata. When someone purchases an NFT, the ownership is recorded on the blockchain, making it immutable and transparent.

NFTs can be likened to digital passports for unique items in the virtual world. Just as a passport is a distinctive and irreplaceable document that proves your identity and citizenship, an NFT is a distinctive and irreplaceable digital token that proves the authenticity and ownership of a specific digital asset, like digital art, collectibles, or virtual real estate.

Imagine you have a famous painting in the physical world, like the Mona Lisa. This artwork is unique and valuable, and there's only one original. If you want to prove that you own the genuine Mona Lisa, you have a certificate of authenticity and ownership issued by a trusted authority, like a museum or an art gallery. In the digital realm, NFTs serve a similar purpose.

Each NFT contains a distinct code that verifies its authenticity and records the ownership history. So, just as you wouldn't confuse a replica of the Mona Lisa with the original, NFTs ensure that you can distinguish between an original digital asset and a copy in the digital world.

NFT use cases in various industries

While the 2021 craze mostly highlighted the technology’s disruptive nature in the art world, NFTs have also transcended into various industries. From gaming to education, key decision-makers have tapped into the innovation to interact and engage in new ways. Below are several NFT use cases for different industries:

Art and collectibles

• Artists can tokenize their digital artwork, giving them greater control and royalties.
• Collectors can prove the authenticity and rarity of their digital collectibles.

Gaming

• In-game assets and characters can be tokenized, allowing players to truly own and trade them.
• NFTs can be used for unique in-game experiences and cross-platform compatibility.

Music

• Musicians can sell limited edition albums or concert tickets as NFTs.
• Fans can own exclusive music memorabilia.

Real Estate

• Tokenizing real estate properties can simplify ownership and investment in the real estate market.

Education

• NFTs can represent academic certificates, providing secure and tamper-proof credentials.

Differences between NFT and cryptocurrency

While both NFTs and cryptocurrencies operate on blockchain technology, they serve different purposes:

• Cryptocurrencies like Bitcoin are fungible and used as digital currency.
• NFTs are unique and represent ownership of specific assets, collectibles, or content.

What makes NFTs valuable

The value of an NFT is driven by several factors:

• Rarity: Scarce or unique items tend to be more valuable.
• Ownership and provenance: Proving authenticity and ownership is crucial.
• Creator's reputation: Established artists or brands often command higher prices.
• Demand and popularity: Items in high demand can fetch premium prices.

How to buy and sell NFTs

1. Choose a marketplace: There are various NFT marketplaces, such as OpenSea, Rarible, and NBA Top Shot. Select one that suits your needs.
2. Create a digital wallet: You'll need a cryptocurrency wallet like MetaMask to store your NFTs and interact with NFT marketplaces.
3. Browse and bid: Explore the marketplace for NFTs that interest you. You can place bids on items you want to purchase.
4. Complete the transaction: Once your bid is accepted or you decide to buy an NFT, complete the transaction by paying with cryptocurrency.
5. Ownership: Your newly acquired NFT will be stored in your wallet, and you can choose to keep, sell, or trade it as you wish.