NFTs explained in under 400 words
NFT is an acronym that stands for non-fungible token. These unique tokens are usually assigned to digital assets, such as art or music, and are usually found on an NFT marketplace. Regardless of what they are assigned, the tokens serve one main function: to prove ownership.
So when people talk about buying and selling NFTs – literally – they are not talking about the art, music or anything else associated with the token. They are talking about the token itself, which gives them the right to claim ownership over the digital asset. These tokens are kept in digital or physical wallets that are purpose-built for storing either NFTs or cryptos.
How do NFTs work?
How do these tokens provide users with proof of ownership? It’s all thanks to self-authentication of smart contracts embedded in tokens – i.e. pieces of code that work on the blockchain.
When an NFT transaction occurs, smart contracts automatically authenticate themselves by asking each computer on the blockchain to verify ownership of the NFT. This energy-intensive process is why critics often raise concerns about the potential harm NFTs pose to the environment.
So why go through all this trouble of buying an NFT if you can just download a JPEG of it?
What is it about?
NFTs are a significant development precisely because people on the internet can download JPEG images for free. With NFTs, artists are able to imbue their digital work with scarcity. Despite how easily reproducible the images are, NFTs represent an agreement between an artist and collector.
Artists are able to communicate digitally to collectors: “I hereby acknowledge you as the owner of this work.” This allows artists and musicians to sell their work for what it’s worth. Especially without the cooperation of centralized establishments such as art galleries, record companies and the like.
At that point, things work pretty much the same as they do in the traditional art world. Collectors can choose to display their pieces on their accounts, on the metaverse, or even IRL. Depending on the NFT, they may even choose to create something entirely new using the purchased piece as a base. The possibilities are endless.
Want to know all about NFTs? See our comprehensive guide. Do you prefer to have the key points explained in under 400 words? See the other articles in our NFTL;DR series:
