What is an NFT and how does it work? Understand the technology behind NFTs
In recent years, non-fungible tokens or NFTs have gained immense popularity with the mainstream adoption of cryptocurrencies and blockchain technology worldwide. Although the peak of the NFT craze has subsided, they are still popular among the crypto enthusiasts and the NFT collecting community. So what exactly are NFTs that have taken the internet by storm? Let’s try to understand.
Non-fungible tokens or NFTs are a type of digital token or asset that can be used to represent real-world items such as photos, music, video, in-game funds, certificates of ownership, etc. These non-fungible tokens can be bought and sold online through NFT marketplaces using digital cryptocurrencies.
Moreover, NFTs are made to be artificially scarce, which increases the demand among the buyers and ultimately raises the prices of these digital assets to absurdly high prices. Hundreds of NFTs have reportedly been sold for millions of dollars across online NFT marketplaces. Their popularity is so huge that even wealthy auction houses have started selling them. Essentially, NFTs are limited edition collectibles, only they are digital instead of physical.
NFTs are built using blockchain technology and each NFT is coded with its own unique signature that makes it unique from all other NFTs. This is one of the main reasons why NFTs hold so much value among the crypto and enthusiast community, as they have a unique identity and their proof of ownership can be linked to an individual through the blockchain. The owners of the NFTs can also transfer their NFTs to others through the blockchain. Some of the most popular NFT sets are held on blockchains such as Ethereum or the Binance Smart Chain. An NFT can be used to represent digital or real-world objects such as artwork, GIFS, videos, virtual avatars, in-game currencies and items, music, certificates of ownership, legal contracts, and more.
NFTs have given digital artists and creators a unique opportunity to monetize their work. Unlike in older times, artists and creators do not need to physically visit stores and galleries to sell designs or artwork. NFTs have made it possible for even amateur artists and designers to develop their own designs, create them as NFTs and sell them on popular NFT marketplaces. As the popularity of cryptocurrencies increased, investors also began to look at NFTs as investment opportunities since they are unique and identifiable in principle. However, anyone on the internet is still free to copy these NFT images, designs, music, etc. and store them on their computers, but the rights of ownership of the original NFT will remain with the owner, stored immutably on the blockchain.
Many organizations and brands have also used NFTs to raise funds for charity by selling unique NFT artwork and content pieces at auctions and NFT marketplaces. Following the NFT trend, many celebrities have also released their own NFT artwork for their followers. Also, NFTs have found popular use as in-game digital assets in online games. These online games have complex built-in economies where players can purchase various avatars, skins, collectibles, upgrades, etc. Many popular games released in recent years have in-game markets where digital game assets are stored in the form of NFTs.
If you wish to purchase an NFT, you must have access to your own cryptocurrency wallet where you can store cryptocurrencies as well as NFTs. You can buy cryptocurrencies on any trusted NFT marketplace like OpenSea, Binance NFT Marketplace, WazirX NFT Marketplace, etc. However, NFTs are speculative assets and have no real value except the price collectors are willing to pay. As a result, the prices of NFTs fluctuate wildly in the open market. Investors are advised to do their own research on the risks of buying cryptocurrencies and NFTs.
