In this article, we’re diving into NFTs for beginners: what they are, how they work, and what the future holds.
What is an NFT?
An NFT is a digital asset stored on a blockchain that is unique and impossible to replicate.
NFTs blockchain technology allows them to represent anything from digital art to in-game items and even real-world assets like land or houses. Almost anything can be tokenized and stored on a blockchain as an NFT.
The key feature NFTs have that makes them so special and different from other digital assets is their non-fungibility. This means each NFT cannot be copied, substituted, or subdivided.
What does non-fungible mean?
‘Fungibility’ is a property of goods or commodities whose individual units are interchangeable.
For example, one US dollar can always be exchanged with another US dollar. A barrel of crude oil is pretty much the same as any other barrel of crude oil.
This is not the case with NFTs.
NFTs are ‘non’-fungible precisely because each one is unique and cannot be replaced.
Why do NFTs matter?
Each NFT has its own individual history that can be traced back to the original owner. This key feature NFTs has makes them perfect for collectibles or any digital asset where provenance (or ownership history) is important.
The uniqueness of each NFT means that they can also be used to represent real-world assets. For example, an NFT could represent a deed to a piece of land or a ticket to a concert.
While NFTs blockchain technology is still a relatively new phenomenon, they are already having a major impact on the world of digital art and collectibles. With more people becoming aware of NFTs, it is likely that we will see even more innovative uses for them in the future.
How are NFTs stored?
NFTs are stored on a blockchain, which is a digital ledger that records all transactions.
While there are many different types of blockchains, the most popular ones for NFTs blockchain applications are Ethereum and Solana. These platforms make it easier to create, store, and trade NFTs for beginners.
How do NFTs work?
NFTs are created using smart contracts, which are self-executing contracts that enforce the terms of a transaction.
For example, let’s say you want to buy an NFT digital artwork. The smart contract would automatically transfer the ownership of the artwork to you once it has been verified that you have paid for it. The data of this transaction is then added to the blockchain, creating a permanent record—a key feature NFTs has to ensure transparency and trust.
What are the benefits of NFTs?
- They allow artists to sell their work directly to fans, without intermediaries.
NFTs offer a way for creators to sell their work directly to fans without going through intermediaries. This allows artists to retain a greater share of the profits from their work. Additionally, smart contracts may embed a royalty component, meaning artists continue to receive payments for subsequent sales over time. - They help prove the authenticity of digital assets and ownership.
NFTs offer a way to create provable scarcity for digital assets. With traditional digital assets, it is easy to make perfect copies, making it hard to ensure uniqueness. However, key feature NFTs provide is their unique identifier on the blockchain. This ensures you can be confident you are the sole owner of a particular asset. - They have the potential to represent real-world assets.
Thanks to blockchain technology, NFTs prove the authenticity of an asset along with ownership. These records cannot be altered, faked, or forged—unlike most digital or physical records today. As a result, NFTs for beginners and experts alike hold great promise for representing real-world assets, such as property deeds, concert tickets, or even identity verification.
What are the criticisms of NFTs?
Critics of NFTs argue that they are a waste of energy, as the process of minting an NFT requires a significant amount of computational power.
While most NFTs currently do not have a physical form, many believe that their potential to represent real-world assets in a verifiable and secure way will give them lasting value.
The future value of NFTs
NFTs have exploded in popularity in recent months, resulting in some high-profile sales, such as the $69 million sale of an NFT digital artwork by the artist Beeple.
As NFTs blockchain technology continues to evolve, we are likely to see even more unique use cases arise. From digital art to real-world applications, NFTs have many ways to grow, and they will be vital wherever security, authenticity, and identity are valuable.