Non-Fungible Token (NFT): Everything You Need To Know
- 1 Non-Fungible Token (NFT): Everything You Need To Know
- 1.1 What is an NFT?
- 1.2 How does NFT work?
- 1.3 What is an example of NFT?
- 1.4 What are the Benefits of Using NFT?
- 1.5 Is NFT a Good Investment?
- 1.6 How do you make money from NFT?
- 1.7 NFT Minting and The Process
- 1.8 What Items Can be an NFT?
- 1.9 Is every NFT unique?
- 1.10 How do I know what NFT to buy?
- 1.11 Do NFTs go up in value?
- 1.12 How to Make an NFT
I guess you might have heard of NFT (Non-fungible token) before or you are just coming across this word NFT for the first time. Whichever one, In this article, we will be discussing in detail, everything you need to know about Non-Fungible Token (NFT). Sit tight and enjoy this piece.
What is an NFT?
NFTs are used to tag unique units of data with cryptography. This means that content can become registered by means of blockchain, making it possible to trace who owns what and revoke access rights whenever necessary.
Non-fungible tokens are a type of crypto token that lets you give unique data units from digital content. They can be used in many different ways, from videos to music to images.
Non-fungible tokens are a clever way of logging content onto cryptocurrency blockchains. Your videos, songs, and images are more secure when they are on an NFT.
The NFTs are non-fungible digital collectible items, meaning they are items that are not interchangeable.
NFTs are not designed to be used as a currency but are instead used to represent ownership of digital content.
NFTs are typically characterized by their uniqueness, scarcity, tradeability, and newly introduced embedded logic.
NFTs were in fact the original intention of the digital currency Bitcoin in its early conception in 2008.
The main effect of NFTs is to make it easy to own and sell digital goods.
Non-fungible tokens, or “NFTs” as they are often called, have been steadily growing in popularity since their inception. With a single token, users can now own and sell digital goods without the hassle of setting up an account and going through the verification process on each individual site. Users can buy and sell items with NFTs on decentralized exchanges like OpenSea and Rarebits.
Nevertheless, the hope is that, by providing an ability to sell their art, digital artists will be able to profit from the work they do, and the art will reach a broader audience.
NFTs are units of data stored on a blockchain digital ledger. Each non-fungible token acts as a kind of certificate of authenticity, showing that a digital asset is unique and not interchangeable. An NFT can never be altered, never be adjusted, and never be stolen, thanks to the principles of cryptography that make the blockchain unique.
How does NFT work?
Since they are stored on blockchains, it’s easy to prove ownership. Each block in the blockchain contains information like a cryptographic hash of the previous block, a timestamp, and transaction data.
Blockchains are also resistant to change because of the chains that the blocks form. Altering one block cannot be done without changing the subsequent ones in the chain. Hence, your NFTs are relatively safe from stealing.
Generally, creators (or, if you desire, artists) will mint their work on an NFT marketplace, on platforms like OpenSea, SuperRare, Nifty Gateway, Foundation, and many others. Minting is the act of creating/developing an NFT, which means creating a smart contract that will be stored on the blockchain.
The smart contract has a lot of important information: it details the creator of the work and confirms that the creator, or other parties, receives royalties each time the NFT is sold.
The ability for artists to collect returns on resale value automatically is part of NFTs’ draw for artists (all platforms make their money by receiving a small percentage of royalties through the smart contract). But the process isn’t perfect: technological glitches can make it so that parties don’t always receive royalties. And a smart contract does not have the legal weight of copyright — it will take a relevant court case to see how the law regards smart contracts.
Smart contracts are stored on the blockchain, but the artwork itself is most often not stored on-chain because keeping that much data is too laborious and expensive; therefore, most smart contracts contain a link to the work they represent.
This means that many NFTs comprises two parts, the smart contract and the asset itself. This can generate some haze about where the value actually resides. However, there are works that are not only stored on-chain but are also created using blockchain tech.
While artists are constantly encouraged by their peers to make big dollars making NFTs of their work, there are impediments. Possibly the most prohibitive is that minting an NFT is not free, and its cost grows the more clogged the Ethereum network becomes, and the more computational measure is needed to do the job.
The financial cost of that required computational measure is the “gas fee,” which is regularly fluctuating. Presently, it costs about $70 to mint an NFT on Ethereum. The NFT creator doesn’t continually do the minting; certain platforms will offload that method and the ensuing cost to the consumer.
What is an example of NFT?
It’s not just NFT art that sells well. There have been several significant sales of NFTs in recent months, although this has given rise to the assumption that there is a market projection at the moment.
Some examples of NFT sales include:
- The first Tweet. Jack Dorsey, the founder of Twitter, sold the NFT for his first Tweet for $2.9 million
- The ‘Nyan Cat’ GIF. The NFT for the colorful GIF sold for 300 Ether (a cryptocurrency), worth around $561,000 at the time.
- The ‘Charlie Bit Me’ Video. The popular video of a baby biting his brother’s finger was viewed over 800 million times on YouTube. The NFT for the video sold for approximately £500,000.
What are the Benefits of Using NFT?
NFTs are a new form of digital token that can be used to represent virtual goods.
NFTs are an example of non-fungible tokens, meaning that they are not interchangeable or exchangeable with other items.
This means that NFTs cannot be duplicated, which helps to prevent fraud.
NFTs can also be used as a form of digital ownership for unique assets, such as collectibles and art pieces.
Many people believe this is the future of ownership because it will make buying and selling more secure and transparent.
Is NFT a Good Investment?
Interestingly, NFTs are good investments if you think this is the future because they democratize access to art ownership. Crypto art or NFT art supplies a better alternative for those with less capital to invest in digital pieces. Digital art ownership has proven to be a revolution since the advent of the internet.
How do you make money from NFT?
NFT Minting and The Process
Knowing that anything can be an NFT, how does your digital art or other items truthfully come to be an NFT? Do you just create your item and tell people that it’s now an NFT? Of course not!
Anything becomes an NFT through the process of minting. To convert an item into an NFT, it has to become part of the blockchain ledger.
Blockchain is a publically distributed, decentralized ledger managed by a peer-to-peer network. There’s no centralized authority responsible for maintaining it. Instead, miners are responsible for adding new blocks to the blockchain.
Each block in the blockchain contains a cryptographic hash of the previous block, a timestamp, and the transaction data. Since the blocks are connected to previous blocks, modifying them is impossible without modifying all subsequent blocks in the chain. This property keeps the blockchain secure and safe from manipulation.
When you mint an NFT, the digital asset becomes a part of the blockchain. So, if you’re using the Ethereum blockchain to mint your NFT, it will become a part of the public ledger. And once that happens, you cannot adjust it.
One uses a lot of energy to mint an NFT, i.e. to add it to the blockchain. Miners spend this energy in form of huge electricity bills that rack up when they solve complicated puzzles to be able to add a block to the ledger. This huge energy spending is the reason blockchain is so heavily criticized.
Now, NFT creators pay for this energy spent in form of gas fees on the Ethereum blockchain. To mint an NFT, creators must pay a network fee which is ironically called gas fees. The gas fee fluctuates depending on the demand and usage of the network. As NFTs are trending right now and Ethereum is quite in demand, gas fees on the blockchain can be around $100-140.
Once you pay the gas fees, the NFT is minted.