NFTs are Non-Fungible Tokens. The term ‘non-fungible’ means that each NFT is unique; there are no two NFTs of the same kind and hence cannot be exchanged or traded.
For instance, Bitcoin is a virtual currency that is fungible. It is like your usual money but it’s digital and does not have paper notes or coins to represent it. If you exchange 1 Bitcoin with a friend, you’ll still have 1 Bitcoin with the same value. However, something like the Mona Lisa painting or one-of-a-kind trading card are non-fungible since there’s only one piece of them.
Even if you exchange that trading card with someone, you will not have the same trading card but a different one.
What Is The Use Of NFTs?
NFTs can be used to tokenize real-world objects such as art, books, trading cards, etc. By tokenize, I mean creating a digital version of real-world objects. For example, you have written a book on your computer that is in the form of a document. Now you can use a digital token called NFT to represent it. This digital token is stored on a computer and is exactly like your real-world object.
They can be sold to different people, and though each of them would have the same digital painting or a trading card, they’d all be unique.
One token represents one physical book. Now, if you want to sell 500 books in the real world, you’ll have to print 500 of them. Therefore, with NFTs, if you sell 500 of the same books, you’ll be creating 500 unique NFTs.
How Does It Work?
NFTs are built on the Ethereum Blockchain. The Ethereum blockchain is like a network on which different NFT marketplaces are built where people can create, buy, and sell tokens. The creation of tokens is known as ‘minting.’ This is a process where your digital art or book can be made a part of the network. Once it is a part of the network, in the form of a token, it becomes secure because of the way these tokens are coded.
You’ll need to buy the Ethereum cryptocurrency in the marketplace since most marketplaces deal in Ethereum. It is used to pay the fees to mint the NFT. You can then select what real-world asset you want to tokenize, along with how many tokens you wish to mint.
Based on this, a fee will be calculated, and you can pay the fee in Ethereum.
Once this is done, you can publicize your NFTs and let people buy them from you.
Advantages Of NFTs
- NFTs assign the creation of an asset to a creator. Hence, copyright issues will no longer be a challenge.
- Since they are on a blockchain that anyone can access, more people can buy your work, thus enabling you to reach a wider audience and make more money.
- NFTs are also an excellent way to identify counterfeits since the ownership of the token/asset has been attached to the creator.
- NFTs also open opportunities for selling collectibles, in-game skins, and other assets, and even memorabilia.
Besides these, NFTs provide the creators a chance to resell their work. For instance, when a book goes on the stands of different shops, authors only receive the initial commission for each book. After that, if the books are sold second-hand or are given off to libraries, the authors don’t get any cut from that.
With NFTs, every time a book or any asset is sold a second or a third time between other parties, blockchain will keep track of these transactions and enable the creators to get a commission from those transactions. Hence, people can highly benefit from NFTs.
Moreover, when there is social proof of the amount of NFTs you’ve sold, it creates credibility amongst other people inducing the need to buy your NFTs as well.
As someone who has read quite a bit about NFTs, I believe they are being leveraged across industries other than just art and music. Real estate is one example where you or I can tokenize houses or lands and sell or lease them directly to the other party.
Although the NFT revolution has just begun, it is a promising way for you to start understanding the space, have an additional source of income, and even learn to establish yourself as a developer in the industry.