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What are NFTs?

NFT stands for non-fungible token. Simply put, it is a digital token that exists on the blockchain to record proof of ownership for the person holding it. Each token is completely unique because it has its own unique metadata which can never be replicated or replaced for another.

An example to better understand this is: bitcoin is a fungible token, and each bitcoin has the same value. However, imagine you’re trading NFT collectibles such as CryptoPunks. One CryptoPunk NFT will have completely different traits and value to another.

cryptopunks-2021

A real-life example of this would be: A dollar is a dollar. It is fungible. A plane ticket on the other hand, is non-fungible. Each plane ticket has different information and characteristics and can’t be swapped with another.

NFTs can be anything digital. Literally anything can be tokenized, including a photograph which is special to you, one of your tweets, or a two second video of yourself (yes, there are such NFTs).

The most common types of NFTs are:

  • CryptoArt
  • In-game items
  • Virtual land
  • Music
  • Crypto Collectibles

Are NFTs a cryptocurrency?

No. NFTs are a type of asset which can be bought with cryptocurrency, but behave differently to cryptocurrencies like Bitcoin or Ethereum. This is because cryptocurrencies like Bitcoin are fungible and all the tokens are the same and equal. With NFTs, every token is different and unique.

You’ll often hear of Ethereum and NFT mentioned together. Ether is a cryptocurrency similar to Bitcoin and is the native currency of the Ethereum blockchain. It is also used for NFT creations
and transactions and is currently the most popular blockchain for NFTs, especially for CryptoArt.

Why are NFTs valuable?

NFTs allow for proof of ownership in the digital world. Think of it like this, there is only one person who can own the real Mona Lisa, but millions can have copies of it. The value lies in the real Mona Lisa though. The same applies to digital collectibles and artwork. Before the invention of NFTs, there was no way to prove the ownership or authenticity of digital artworks or collectibles.

Due to blockchain technology and NFTs, the principle of ‘scarcity’ now also exists in the digital world. This is because each NFT is rare, unique and indivisible. And so when a digital asset is tokenized this creates value as it is possible to prove its authenticity and ownership, which also means it can be bought and sold many times over.

However, there can be many NFTs of the same trading card or even art piece if the creator wishes to make many of them. In such cases, the first few editions of say 100, will usually be the highest in price.

How is an NFT created?

You will need a crypto wallet with cryptocurrency in it to create an NFT.  An NFT is created by ‘minting’ your digital asset (whatever it may be) on a blockchain. Decryptionary defines minting as the computer process of validating information, creating a new block and recording that information into the blockchain.

For example, if you want to create an NFT of one of your digital artworks (known as NFT art and CryptoArt), then you will have to use one of the CryptoArt platforms and mint your artwork through their smart contract. It’s very simple to do it once you have connected your crypto wallet to a website.

How do you buy and trade an NFT?

How you buy an NFT depends on the type of NFT you want to buy and the platform you are using. Most NFTs are purchased with a cryptocurrency (ETH the most common one) and some with fiat currency. You will have to exchange your fiat currency through an exchange platform such as Coinbase, and then set up a crypto wallet (for example, MetaMask) where you can send the money to once you have exchanged it.

Once you have some ETH in your wallet, it is super simple on most platforms to connect your wallet with one-click and make a purchase.

If you want to sell it or trade it, again it depends on the platform and whether you can send it to other platforms or only keep it on that platform.

Why would I want to own an NFT?

It comes down to two main reasons: for fun and as an investment. Just like you would buy a physical item simply because you fancy it and you think it’s super cool, it’s the same with NFTs. People purchase them because they like them.

The other major reason (maybe bigger than the first?) is as an investment or what is called flipping. Many people are buying NFTs and reselling at higher prices. Many are also holding them as long-term investments.

>> Learn more about the best NFT marketplaces
>> Learn more about the fees each marketplace charges, and a full run down of their services
>> Learn how to become a CryptoArtist in 10 simple steps
>> Read the latest NFT News

 

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