What is an NFT? How Do NFTs Work?
Unless you have avoided reading any tech news for the past few months, you have probably started to notice the acronym NFT beginning to pop up everywhere.
Similar to the craze that is cryptocurrency, or trading Gamestop stock, the term NFT has been making people go into a frenzy.
But what is an NFT? How do NFT’s work, and are they actually worth investing in? In this article, we will take a quick overview of NFT’s, how they work, and how they can be used to convert digital work into a saleable asset.
What Does NFT Stand For?
NFT stands for ‘Non-fungible token.’
Essentially, an NFT is a collectible digital asset, similar to a physical piece of art or collectible coin. NFTs can take the form of art, music, video, images, all in the format of JPG, MP3s, videos, and GIFs.
Where copyrighted works such as artwork hold physical value, an NFT holds value as the original digital item (which can only be proven by sourcing the information coded inside).
Think of someone owning the ‘rights’ to a song by a famous musician. Although the song is well known, and others can sign and play it, the song’s ownership belongs to the person who wrote it or it was sold to.
This is similar to an NFT. One person owns the ‘rights’ (meaning they can sell it), whereas everyone else can view it and even reproduce it digitally.
Essentially, an NFT is just like any other physical collector’s item, but instead of receiving a painting on a canvas, you get a JPG file.
How Do NFTs Work?
Again, NFT stands for ‘Non-Fungible Token.’ A digital token is a form of cryptocurrency, similar to Bitcoin or Ethereum.
However, unlike a standard ‘coin’ in the Bitcoin blockchain, each NFT is unique. What this means is that an NFT can’t be exchanged like-for-like. This is where the term non-fungible comes in. NFTs cannot be traded as a form of currency, even though they hold value.
NFTs are part of the Ethereum blockchain and are individual tokens with extra information stored inside them.
Compared to a regular cryptocurrency coin, the NFT file stores extra information, which elevates it above pure currency and brings it into the realm of being a valuable entity.
Who Creates NFTs?
The creators of NFTs include artists, gamers, and even brands across the spectrum of culture. Every day it seems like new NFTs are being offered in the marketplace.
Of course, NFT’s aren’t only for artists and creative types. Taco Bell, for example, was one of the first brands to launch an NFT of limited edition digital art. The virtual art was sold via 25 tokens, and they all sold within a half hour.
According to Taco Bell’s listing, “100% of the profits earned from this sale will be donated to Taco Bell Foundation, Inc. to empower youth to discover and pursue their career and educational pathways.”
This is an excellent example of doing something valuable for charity while drawing attention to your brand at the same time.
Another recent launch was via entrepreneur Gary Vaynerchuck’s VeeFriends NFT. The initial launch offered 10,255 tokens, including many one-of-ones.
Essentially like a virtual market of trading cards, Vaynerchuck launched the NFT project as a way to ‘create meaningful intellectual property and create an extraordinary community.’
How Do You Buy an NFT?
Because of the current high demand for many types of NFT, they are often released as ‘drops’ (much like at fashion events, when batches of a product are released at different times).
This high demand causes a frantic rush of eager buyers when a ‘drop’ starts, so it is a good idea to be registered and have your wallet topped up ahead of time.
In terms of where to buy NFT’s here is a current list of sites:
Are NFTs Here To Stay?
Some proponents claim that NFTs are here to stay because they are more secure and tap into the digital shift that has been supercharged since the Covid-19 pandemic.
However, there is also a lot of uncertainty about the long-term value and usefulness of the NFTs that have been sold. Like items such as baseball cards, NFTs may prove to have value in collectors circles, or they may be suitable for publicity in the short term.
In any case, the future of cryptocurrency has taken another turn with the creation and adoption of NFTs. Being aware of their influence may prove valuable in the long term.