What is an NFT? Non-Fungible Tokens (NFT) are digital assets such as collectibles, gaming, art, and virtual assets that are exchanged over blockchain platforms such as Ethereum, OpenSea, Rarible, Axie Marketplace, or NBA Top Shot Marketplace and come with their digital signature that designate ownership of the asset.
Thanks to the growing popularity of NFTs creators, businesses, and celebrities now buy and sell NFTs in a bid to explore ways to commercialize their brand and generate revenues through NFT collections.
What Exactly is an NFT?
Non-Fungible Tokens (NFT) are interchangeable digital assets traded over the internet. NFTs are generated and traded in cryptocurrency which is digital cash with an encrypted key often in the form of a random string of numbers.
NFTs are popular today because they offer a unique marketplace for digital assets with even companies creating their own NFTs as part of their marketing mix. Besides these NFTs allow users a flexible way to store, control, and protect the information related to their identity.
NFTs creatives can also receive royalties from their NFTs and receive a percentage of future sales of their NFTs.
What does NFT stand for?
Simply put NFT stands for Non-Fungible Token, which is a one-of-a-kind digital asset that belongs to its owners only. To create an NFT one would have to mint an NFT from a digital asset. Popular NFTs include digital works, digital collectibles, videos, and anything that can be digitalized.
How do Non-Fungible Tokens Work?
Essentially a non-fungible token transforms a digital work of art and other collectibles into a one-of-a-kind, verifiable digital asset that can be traded on the NFT market or NFT blockchain technology.
Many NFTs come with their own unique information, including ownership and transaction details stored under its smart contract. NFT creators can also add details to their NFTs such as the creator’s identity, secure links to files, and more during transactions,
Those interested in collecting or investing in non-fungible tokens need a digital NFT wallet.
A digital wallet is a cryptocurrency wallet that supports the blockchain protocol on which NFTs are built. Users often use Bitcoin, Ethereum network, and Dogecoin as cryptocurrencies which are the medium of exchange.
NFT Vs. Cryptocurrency
Cryptocurrencies as digital versions of physical money that are controlled by a private cryptographic key that often involves a string of random numbers. Like paper money, cryptocurrencies offer the same values and help to fuel the digital economy acting as currency.
Ownership of cryptocurrency is determined by holding a private key and using the private key to make transfers. Cryptocurrencies helps in converting a digital file into a non-fungible token referred to as ‘minting’ as well as act as the medium of transaction for NFTs.
Similar to cryptocurrencies, NFTs are issued on blockchains, Each NFT comes with its unique digital signature which allows owners to prove ownership as well as the authenticity of the NFTs.
While NFTs and cryptocurrencies often operate within the same ecosystems and leverage similar technologies, they serve distinct purposes and exhibit different characteristics. Here’s a side-by-side comparison to help you understand the differences between them:
| Feature | NFTs (Non-Fungible Tokens) | Cryptocurrencies |
|---|---|---|
| Uniqueness | Each NFT is distinct and cannot be replaced with something else. | Cryptocurrencies are fungible, meaning each unit is the same as every other unit. |
| Purpose | Represents ownership of a unique item or piece of content. | Acts as a medium of exchange, store of value, or unit of account. |
| Tradeability | Traded on specific NFT marketplaces. | Traded on various cryptocurrency exchanges worldwide. |
| Creation Process | Minted to create a unique digital item. | Mined or staked, depending on the underlying blockchain protocol. |
| Underlying Technology | Often issued on blockchain platforms that support smart contract functionality, like Ethereum. | Can be based on various blockchain protocols, not necessarily requiring smart contracts. |
| Supply | Typically limited in number, making them scarce. | Most cryptocurrencies have a maximum supply, but the exact number varies by coin. |
What Can be Made into an NFT?
The realm of NFTs is vast, encapsulating a myriad of digital creations. From photographs capturing fleeting moments to pieces of contemporary art, music that resonates, or even whimsical GIFs, the options are nearly limitless.
The beauty of NFTs is their inherent ability to bestow uniqueness on digital items, giving them a rarefied value. It’s not just limited to traditional forms of art either; even the casual tweet or internet meme can be transformed into an NFT.
Thanks to the NFT marketplaces that act as auction houses they have made it easy for trading in NFTs and offer support on how to sell an NFT.
Music
For the musicians and audio creators out there, NFTs present a promising avenue. Various platforms such as Rarible, OpenSea, Mintable, Ethereum blockchain, Axie Infinity Market, and more, are ready to host your music.
Once you’re registered, you get to decide the nature of your release. Do you want to offer an exclusive, one-off track? Or perhaps a series, allowing multiple fans to own a piece of your creation? The possibilities are rich, ensuring that artists can express and monetize their music as they see fit.
Digital Artwork
The digital age has revolutionized art, allowing artists to craft their masterpieces using modern devices. Once they’ve created their vision, whether it be on a tablet, computer, or smartphone, artists can convert their pieces, whether they’re in JPG, PNG, or MP4 formats, into NFTs.
This brings a tangible value to their digital art, offering them a way to monetize their craft in the expansive NFT marketplace.
Games
Gaming has transcended just being a hobby; it’s an entire ecosystem now. Within this realm, in-game items, such as avatars, exclusive skins, weapons, or rare armor, hold significant value.
Dedicated players who’ve spent hours, days, or even years accumulating these digital assets can now reap real-world benefits by selling them as NFTs. This intersection of gaming and blockchain tech has opened up new streams of revenue for players.
Videos
Video content, given its dynamic nature, has found a significant spot in the NFT universe. NBA Top Shots, for instance, provides collectors the chance to own iconic moments from basketball history.
But the horizon is broader; scenes from cult movies, curated video art, or even user-generated content can be tokenized and traded. Platforms like OpenSea have become bustling digital bazaars, offering video NFTs that cater to diverse interests.
Physical Artwork
Physical artwork has its own beauty and charm. But in the digital age, artists have discovered that they can extend their reach by converting these physical masterpieces into the NFT format. This process involves creating a digital replica of paintings, sculptures, photographs, or any tangible art piece.
By transitioning to the NFT marketplace, artists can eliminate the need for intermediaries, often galleries or agents, and engage directly with their audience. This not only provides them with the lion’s share of the profit but also empowers them to retain more control over their work.
Furthermore, by embedding royalty clauses within the NFTs, artists can ensure a continued stream of revenue from secondary sales, fostering a sustainable income model.
Collectibles
Digital collectibles, powered by NFTs, have surged in popularity due to the unique value proposition they offer. Unlike traditional collectibles, these assets benefit from blockchain’s immutability, ensuring proof of rarity and authenticity.
From rare player cards capturing moments of sports magic to exquisite digital art renditions, game paraphernalia, or even sought-after celebrity mementos, the scope is immense.
The rarity and limited availability of such NFTs often make them sought-after assets, often fetching impressive prices at auctions. Platforms such as CryptoKitties, CryptoPunks, and NBA Top Shot have become bustling hubs for collectors and enthusiasts, bringing vibrancy to the NFT collectible ecosystem.
Tweets and Memes
In an age of social media dominance, tweets and memes have evolved from being mere modes of entertainment to valuable digital assets. This was aptly demonstrated when Twitter’s co-founder, Jack Dorsey, auctioned his maiden tweet, garnering a staggering sum of nearly 3 million dollars.
Similarly, influencers and content creators are tapping into the meme culture, minting and selling iconic memes as NFTs. The fusion of humor, culture, and blockchain technology has birthed a lucrative niche, much to the delight of creators and collectors alike.
Virtual Real Estate
Virtual reality, once the stuff of science fiction, is now a tangible digital frontier. And NFTs have played a pivotal role in enriching this landscape. Beyond just gaming or experiencing alternate realities, users can now own a piece of the virtual world.
From buying plots of virtual land, designing their dream digital homes, to even cultivating virtual relationships, the possibilities are limitless.
Platforms like Decentraland stand as testament to this evolution, offering a life-like simulation where users can traverse landscapes, establish connections, and even conduct business through their avatars.
Pros of NFT’s
Non-fungible tokens come as tradeable and unique digital objects thanks to smart contracts. Their unique metadata acts as a digital ‘title deed’ that offer the authenticity of ownership and is trackable. Some of the pros of NFTs include:
- Cost and time friendly: NFT can be made with relative ease and valuations are straight forwards thanks to the existing NFT marketplaces that make it cheap to mint, sell, price, and bid for NFTs.
- Boost Engagement: NFTs besides being more than a collectible or piece of art can be used by businesses to boost brands recognition by connecting better with customers and fans by offering them access to exclusive offers, and the opportunity to earn rewards.
- Customer Relationship Management: Unlike physical goods, NFTs are trackable and help to identify the owners helping businesses glean valuable insights into their owners. These come in handy for segmentation and engagement strategies for their brands. In addition, they offer a nifty gateway to target tech-savvy clients.
- Potential Revenue Streams: because NFTs are driven by digital scarcity, creators can sell these exclusive, limited digital assets that can fetch them a tidy sum.
Cons of NFT’s
Though NFT trading is an exciting phenomenon many people are now learning how to make money with NFTs it does come with its own challenges though:
- Physical assets still reign supreme: as much as owning NFTs is enticing the NFT remains a digital asset that pales in comparison to one-of-a-kind physical assets like a painting or sculpture.
- Environment impact: Minting and transactions of NFTs come with a significant computing process requiring massive amounts of energy.
- Price volatility: Prices for digital collectibles are subject to volatility opening risks of losing money from the investment of NFTs and hurting your personal finance.
Creating Your First NFT
Creating your first Non-Fungible Token (NFT) is an exciting journey into the digital art world. Here’s how to get started:
- Choose Your Artwork: Anything digital can be an NFT – art, music, videos, or even a tweet. Ensure it’s original content that you have the rights to.
- Select a Blockchain: Ethereum is the most popular for NFT creation due to its widespread use and support, but other options like Tezos or Flow offer lower gas fees.
- Set Up a Digital Wallet: You’ll need a wallet that supports NFTs and the blockchain you’ve chosen. MetaMask is a popular choice for Ethereum.
- Mint Your NFT on a Platform: Platforms like OpenSea, Rarible, or Mintable allow you to mint NFTs. This process involves uploading your digital file and turning it into an NFT on the blockchain.
- Decide on Pricing and Royalties: Set a price for your NFT. Many platforms also allow you to earn royalties from future sales.
- List Your NFT for Sale: Once minted, you can list your NFT for sale on a marketplace. You’ll need to connect your digital wallet to the platform.
NFTs and Intellectual Property Rights
Navigating intellectual property (IP) rights in the context of NFTs is crucial for creators and collectors:
- Ownership vs. Rights: Buying an NFT typically grants ownership of the token but not the copyright of the underlying digital asset unless explicitly stated.
- Creator Rights: Creators retain copyright to their work unless they transfer it. They can earn royalties from secondary sales of the NFT.
- Licensing: Creators can license their work for specific uses while minting NFTs, allowing for flexibility in how digital assets are utilized by buyers.
- Infringement Concerns: Both creators and buyers should be aware of copyright infringement risks. Creators must ensure they have the rights to the content they’re minting, and buyers should verify the authenticity and rights associated with an NFT.
The Future of NFTs
The future of NFTs holds vast potential as they continue to evolve:
- Wider Adoption: As understanding and interest grow, expect broader adoption across various industries, including art, gaming, entertainment, and even real estate.
- Technological Advances: Innovations in blockchain technology could reduce environmental impacts, lower transaction fees, and enhance security.
- Expanded Use Cases: Beyond art and collectibles, NFTs could revolutionize ticketing, certifications, identity verification, and more, offering a secure and verifiable way to represent ownership and rights.
- Regulatory Landscape: The increasing popularity of NFTs will likely attract more regulatory attention, which could shape the market’s future, potentially adding more security but also more complexity.
What is an example of an NFT?
The NFT artwork by the digital artist Beeple ‘Everydays: The First 5000 Days’ is by far the most popular NFT that brought the discussion of NFTs into households around the world.
The digital artwork was auctioned by auction house Christie’s and sold for a whopping $69,346,250. In fact, price-wise NFTs are projected to offer the same value as real-world items.
Are NFTs Worth It?
The NFT market is currently witnessing an explosive surge, transforming digital images and other forms of art into tangible assets on the blockchain. But the million-dollar question remains: Are NFTs truly worth the investment?
As with any emerging market, the waters around NFTs are still murky. Their novelty means many areas remain uncharted, and uncertainty abounds. Here’s a closer look at some of the challenges and considerations:
- Legal and Regulatory Concerns: The legal framework around NFTs remains in its infancy. Issues related to contractual obligations, property rights, intellectual property considerations, privacy concerns, and securities regulations are still largely unaddressed. This poses potential risks for NFT investors and creators, as they navigate a landscape that could see dramatic shifts as laws and regulations evolve.
- Cross-Jurisdictional Challenges: NFT marketplaces function on a global scale, operating seamlessly across borders thanks to the internet. This international dimension further complicates the legal landscape. With different countries likely to approach NFT regulation in varied ways, ensuring compliance and understanding the legal nuances across different jurisdictions becomes a daunting task.
- Market Volatility: The NFT market is characterized by its extreme volatility. Prices can skyrocket, but they can also plummet. As with any investment, there’s potential for high rewards, but the risks are equally pronounced.
- Perceived Value: Unlike traditional assets, the value of an NFT is largely subjective and tied to cultural and social trends. While some NFTs have sold for millions, others struggle to find buyers. It’s essential for potential investors to conduct thorough research and understand the market dynamics and the specific niche they’re looking to invest in.
- Longevity Concerns: While NFTs are the talk of the town today, it’s uncertain how they’ll fare in the long run. Will they continue to grow in popularity and become a mainstay in the investment world? Or will they fade as a temporary trend? Time will tell.
In conclusion, while NFTs present exciting opportunities and have already proven lucrative for some, they come with a unique set of challenges and uncertainties. As with any investment, thorough research, understanding the risks, and perhaps even seeking expert advice is crucial before diving into the world of NFTs.
Image: Depositphotos
This article, “What is an NFT?” was first published on Small Business Trends