What are NFTs? Why are NFTs?

NFT is an abbreviation for Non-Fungible Token.

Non-Fungible simply means that it can be replaced with something similar to it. In Layman’s terms, it can be deemed as being ‘unique’. It can somewhat be compared to limited-edition or collector’s-edition items. You can trade goods and services in return for money, but for NFTs, one has to trade in their unique item to acquire some other unique item.

NFTs have been around since 2014, but their recent increase in popularity is due to their ability to buy and sell digital artwork. The NFT market has already processed an amount of $174 million since 2017.

How do NFTs work?

NFTs are a part of the Ethereum blockchain. Ethereum is a cryptocurrency, like bitcoin or dogecoin, but its blockchain also supports these NFTs, which store extra information that makes them work differently from, say, an ETH coin.

Physical money and cryptocurrencies are “fungible,” meaning they can be traded or exchanged for one another. They’re also equal in value—one dollar is always worth another dollar; one Bitcoin is always equal to another Bitcoin. Crypto’s fungibility makes it a trusted means of conducting transactions on the blockchain.

NFTs are different. Each has a digital signature that makes it impossible for NFTs to be exchanged for or equal to one another (hence, non-fungible). One piece of unique art may not be necessarily equivalent to another.

NFTs exist on a blockchain, which is a distributed public ledger that records transactions. You’re probably most familiar with blockchain as the underlying process that makes cryptocurrencies possible.

Specifically, NFTs are typically held on the Ethereum blockchain, although other blockchains support them as well.

An NFT is created, or “minted” from digital objects that represent both tangible and intangible items, including:

• Art

• GIFs

• Videos and sports highlights

• Collectables

• Virtual avatars and video game skins

• Designer sneakers

• Music

What are NFTs used for?

Blockchain technology and NFTs afford artists and content creators a unique opportunity to monetize their wares. For example, artists no longer have to rely on galleries or auction houses to sell their art. Instead, the artist can sell it directly to the consumer as an NFT, which also lets them keep more of the profits. In addition, artists can program in royalties so they’ll receive a percentage of sales whenever their art is sold to a new owner. This is an attractive feature as artists generally do not receive future proceeds after their art is first sold.

Art isn’t the only way to make money with NFTs. Brands like Charmin and Taco Bell have auctioned off themed NFT art to raise funds for charity. Charmin dubbed its offering “NFTP” (non-fungible toilet paper), and Taco Bell’s NFT art sold out in minutes, with the highest bids coming in at 1.5 wrapped ether (WETH)—equal to $3,723.83 at the time of writing.

Nyan Cat, a 2011-era GIF of a cat with a pop-tart body, sold for nearly $600,000 in February. And NBA Top Shot generated more than $500 million in sales as of late March. A single LeBron James highlight NFT fetched more than $200,000.

Even celebrities like Snoop Dogg and Lindsay Lohan are jumping on the NFT bandwagon, releasing unique memories, artwork and moments as securitized NFTs.

How to Buy NFTs

If you’re keen to start your own NFT collection, you’ll need to acquire some key items:

First, you’ll need to get a digital wallet that allows you to store NFTs and cryptocurrencies. You’ll likely need to purchase some cryptocurrency, like Ether, depending on what currencies your NFT provider accepts. You can buy crypto using a credit card on platforms like Coinbase, Kraken, eToro and even PayPal and Robinhood now. You’ll then be able to move it from the exchange to your wallet of choice.

You’ll want to keep fees in mind as you research options. Most exchanges charge at least a percentage of your transaction when you buy crypto.

A comparison

An NFT internet	The internet today
NFTs are digitally unique, no two NFTs are the same.	A copy of a file, like a .mp3 or .jpg, is the same as the original.
Every NFT must have an owner and this is of public record and easy for anyone to verify.	Ownership records of digital items are stored on servers controlled by institutions – you must take their word for it.
NFTs are compatible with anything built using Ethereum. An NFT ticket for an event can be traded on every Ethereum marketplace, for an entirely different NFT. You could trade a piece of art for a ticket!	Companies with digital items must build their own infrastructure. For example, an app that issues digital tickets for events would have to build its own ticket exchange
Content creators can sell their work anywhere and can access a global market.	Companies with digital items must build their own infrastructure. For example, an app that issues digital tickets for events would have to build its own ticket exchange.
Creators can retain ownership rights over their own work, and claim resale royalties directly.	Creators rely on the infrastructure and distribution of the platforms they use. These are often subject to terms of use and geographical restrictions.
Items can be used in surprising ways. For example, you can use digital artwork as collateral in a decentralized loan.	Platforms, such as music streaming services, retain the majority of profits from sales.

NFT Examples

The NFT world is relatively new. In theory, the scope for NFTs is anything that is unique that needs provable ownership. Here are some examples of NFTs that exist today, to help you get the idea:

• A unique digital artwork

• A unique sneaker in a limited-run fashion line

• An in-game item