What You Need To Know About Non-Fungible Tokens (NFTs)
NFTs are the new kids on the crypto block – brands are embracing them, collectors are loving them, and speculators are jumping aboard. Some describe these crypto tokens as something akin to an "iTunes of Crypto." But what exactly is an NFT? Let's find out!
Non-fungible tokens (NFTs) are a new and exciting part of the blockchain world and could add security, privacy, and transparency to our everyday lives. The tokenization of non-fungible assets such as property titles, artwork, collectibles, and other real-world assets is a groundbreaking innovation.
If you're like many, perhaps the first time you heard about non-fungible tokens was when CryptoKitties became all the rage. But what are they?
What is an NFT?
A non-fungible token or NFT is a specific kind of cryptographic token or digital asset - in essence, any digital asset can become an NFT. The word "fungible" is used in economics to describe a good or asset that can be interchanged with other identical goods or assets; for example, a kilogram of crude oil is interchangeable with any other kilogram of crude oil, and one kilogram of gold can be exchanged for another kilogram of gold. In contrast, each NFT is unique and cannot be exchanged with another identical token.
The idea is simple: Instead of a blockchain securing a digital currency like Bitcoin or Ether, it secures a unique digital asset, just like a physical object. That asset could be anything from a digital baseball card to a digital house deed.
Some of these use cases include:
NFTs have been used mainly as an alternative form of cryptocurrency. However, their utility and importance go far beyond just being a currency. In fact, NFTs are ushering in a new era of digital ownership—one in which goods like art, music, real estate, and even software can be represented digitally as non-fungible tokens on the blockchain.
To summarize, the use cases of NFTs
- A tokenized representation of an asset on a blockchain (e.g., CryptoKitties) - This could easily be applied to real estate holdings, art pieces, or even a car.
- A tokenized representation of an identity on the blockchain could be used in voting systems or proof-of-individuality applications.
- Proof of ownership: Proof of ownership of (limited edition) physical items can be represented as NFTs and provide provenance (trail of ownership) in the world of arts.
- Non-fungible tokens may also act as smart contracts.
Attributes of an NFT
The first thing to know is that non-fungible means unique. As mentioned earlier, an NFT cannot be substituted for another token. This is important because each token has a value only because of its properties. The fact that each token is unique means that it can be tracked, verified, and traded as a singular item. This also means that each token can be independently verified to exist by the Ethereum network and other blockchains with non-fungible support.
NFTs and Copyright
Non-fungible tokens are changing how we think about copyright, trademark, and art.
One of the most important aspects of these tokens is that they can identify and protect the copyright of a piece of digital content. So, what does this mean if you download "the same image" that was sold for millions of dollars? Apparently, they look the same. You're mistaken. NFTs are used to represent ownership over unique digital assets - therefore can only be owned by one party, meaning your download is just a copy and not the real thing, even if they appear to look the same. For example, each CryptoKitty is different from any other CryptoKitty) and you can only transfer ownership using a smart contract on the Ethereum blockchain.
Significance of NFTs
Non-fungible tokens are valuable because they uniquely represent their owner on the blockchain. They are also valuable because they can be easily traded with other traders on platforms such as OpenSea.
- For artists and creators: It is an opportunity to earn their skills. Additionally, it is a promising concept for artists and creators to safeguard their intellectual property.
- For Collectors: Collectors are likely to get a very special thrill out of Non-Fungible Tokens (NFTs). These unique pieces of code can be used for everything from proving ownership of rare digital artworks to creating unique, collectible digital pets.
NFTs: Safety and Security
To reiterate, NFTs are based on the ERC 721 protocol, which allows the creation of unique, identifiable, and tradable assets to be built using smart contracts. To transfer ownership of an NFT, you need a serial number or some other information that identifies it on the blockchain ledger, making them one of the most secure digital assets.
How to create and sell NFTs
Before you create an NFT, the first step is to decide your content type. It could be anything from digital painting, text, tweet, photo, audio file, or even video.
The next step is Minting. To "Mint" an NFT, i.e., the process of creating NFTs (Minting is a term that describes the process of transforming any digital item to an asset on the blockchain), creators would use Ethereum blockchain and MetaMask plus Ether tokens ETH) for transaction fees ("gas fees").
Generally, a simplified process can be described in the following steps:
- Step 1: Accessing the website of the marketplace of the appropriate blockchain from your computer (Mac/PC)
- Step 2: Sign in to your crypto wallet (you might be prompted to do so)
- Step 3: Upload your digital content by clicking on "create" or "Add New Item"
- Step 4: Name and describe your file, then click on "Create"
Note: The above process is just a simplified process for minting NFTs on Ethereum using Metamask. The steps would vary depending on the blockchain and tools used.
- The first step is to choose the appropriate NFT marketplace to sell your NFT. Examples are OpenSea and Rarible; others include SuperRare or Nifty Gateway.
- Next, set up your wallet and fund it with cryptocurrency supported by the blockchain.
- Follow the instructions of the marketplace on how to list and sell NFTs. The two most common ways of selling NFTs are Fixed price or Auction depending on the NFT platform.
- Promote and sell your NFT
Non-fungible tokens aren't just hype. There are many reasons to use them and plenty of good reasons to create your own. It's not hard to program a token, either, especially if you can get help from someone in the blockchain space. While it might seem like we're just speculating about how big an impact NFTs will make on our lives, we truly believe that they will change some aspects of our culture as we know it.