How Do NFTs Work?

August 31, 2022

With numerous tokens out there, the NFT is taking the world by storm. Here’s all you need to know about NFTs, how to buy them and the benefits that come with it. Let’s start with what NFTs are and work our way down to the benefits of the NFT.

What Are NFTs

NFT is the colloquial shortened form of Non-fungible token. It is one that has taken the art world by storm and is gaining momentum as each day passes. The very first project that entailed a Non-fungible token was launched on the Ethereum blockchain, back in 2015.

Since then, the interest has grown in tandem with the interest that traders have in the cryptocurrency market. Statistics provided by NonFungible.com shows that the sales of Non-fungible tokens in the very first quarter of 2021 surpassed the $2 billion mark. This is much more than double of the volume of the previous quarter.

With this new realization, celebrities and artists have begun to trade and perfect their trades and works on the new Blockchain technology as the market has gained so much momentum and is rapidly growing by the day. By using and utilizing this avenue, artists and celebrities have discovered that there is a new way to monetize their work, get more audience, broaden their reach and earn more, and this way is digitally through Non-fungible tokens.

Non-fungible tokens is a digital token that is created from the blockchain technology and connected to any original content or a work of art. It could be any original content that involves websites, videos, pictures, artworks, musics, or even GIFs. However, unlike the cryptocurrency, Non-fungible tokens cannot be replaced, cannot be exchanged and cannot be divisible.

A non-fungible token is one that is linked to a specific work of art which verifies the authenticity of the art and also ascribes ownership to the one who created it. When it comes to the art forms, anyone can create a non-fungible token for their work. However, this does not guarantee that they will successfully sell their work of art on the non-fungible marketplace. For a sure-fire sale of non-fungible tokens, the work of art must be unique, one of a kind and one that appeals to the populace of the digital spectrum.

This inadvertently means that NFTs are unique and one of a kind assets that can only be verified and sustained when using the blockchain technology and cannot be replaced at all. NFTs are usually attached to a specific asset and have distinguishing characteristics. One quality or feature of NFTs is that they can be used to establish the ownership of any digital item like the game skins, but that’s not all, they can also be used to establish the ownership of physical assets. Banknotes and coins are tokens that are fungible and when two tokens that are fungible are exchanged, they are meant to have and share the same value and attributes.

In no particular order, here’s a shortlist of some of the most popularly known and most expensive non-fungible tokens;

Everydays: The First 5000 Days valued at $69.3 million
CryptoPunk #7804 valued at $7.57 million
Ocean Front valued at $6 million
Crossroads valued at $6.6 million
CryptoPunk #3100 valued at $7.58 million

How To Buy NFTs

NFTs are accessible for acquisition on several marketplaces for non-fungible tokens and this includes Enjin marketplace, OpenSea, and Rarible marketplace. The minting of non-fungible tokens can be done on a plethora of platforms.

However, the very first step to buying a non-fungible token is to create an Ethereum wallet. There are several options for creating an Ethereum wallet, you could use an Enjin wallet, Math wallet, Metamask, etc. Using the Metamask comes on the extension of the Google Chrome and this helps to make the work easier. Let’s take a look at the steps of buying an NFT token. I have broken them into seven simple steps for you to follow and they include the following:

Step One - Create an Ethereum wallet and purchase some Ethereum.
Step Two - Connect your Ethereum wallet to a non-fungible token marketplace, such as Zora, Decentraland, Rarible, OpenSea, Enjin, etc.
Step Three - Create your first non-fungible token once you have successfully linked your wallet.
Step Four - Click on the “Create” button and add in your art form for sales
Step Five - Add the file or files that you want and upload it in an MP4, GIF, PNG, JPG, etc. format.
Step Six - Give the file a name and add in some details or descriptions of your chosen art form. This would ensure that there is better visibility in the non-fungible token marketplace. That’s because the right naming and proper description of the art form you have chosen ensures that people get to see it to.
Step Seven - Create your non-fungible token and Voila! You are good to go.

NFT Benefits

There are so many benefits of NFTs and we will run through the key ones.

Security - When it comes to NFTs, they can be bought or sold in ways that are mostly secure and transparent unlike the traditional art. The non-fungible token functions as an immutable digital signature that delivers nothing but unprecedented confidence to collectors. Non-fungible tokens guarantees ownership, uniqueness and authenticity of unique assets.
Authenticity and Transparency - The transactions of non-fungible tokens are seamlessly traceable and this assures proof that it has value and that there is confirmable scarcity.
Accessibility - Digital collection is one that increases in utility as more and more people are starting to work remotely and this means that instead of a wall of art to display your art pieces, you can easily access your collections on your mobile device.
Royalties and Revenues - The technology of the non-fungible token enables royalties to be hard-coded into NFTs itself and ensures that every time a non-fungible token is sold and resold, a certain percentage of the proceeds goes to the creator automatically.
Composability - This means that when you create a non-fungible token, you can leverage it and build another on the success of the previous one. It’s just like building a Lego tower.

Conclusion

In conclusion, it is worth mentioning that in most cases, royalties given to non-fungible tokens are not explicitly expressed into the smart contract signed and are instead stipulated by the non-fungible marketplace to the owner of the smart contract.

NFTs are innovative applications of the blockchain technology and their mode of adoption and application in businesses will continually see growth in the future to come. However, it will be appraising to ensure that NFTs fulfil all of the promises that they have made to NFT investors and to do so, legally.

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