NFTs: All you need to know
An NFT is a digital asset that represents real-world objects like art, music, in-game items and videos. They are bought and sold online, frequently with cryptocurrency, and they are generally encoded with the same underlying software as many cryptos. NFTs are also generally one of a kind, or at least one of a very limited run, and have unique identifying codes.
Although they’ve been around since 2014, NFTs are gaining notoriety now because they are becoming an increasingly popular way to buy and sell digital artwork. The market for NFTs was worth a staggering $41 billion in 2021 alone, an amount that is approaching the total value of the entire global fine art market.
How NFTs Work
Like physical money, cryptocurrencies are fungible, meaning that they can be traded or exchanged, one for another. For example, one bitcoin is always equal in value to another bitcoin. Similarly, a single unit of ether is always equal to another unit. This fungibility characteristic makes cryptocurrencies suitable as a secure medium of transaction in the digital economy.
NFTs shift the crypto paradigm by making each token unique and irreplaceable, thereby making it impossible for one non-fungible token to be equal to another. They are digital representations of assets and have been likened to digital passports because each token contains a unique, non-transferable identity to distinguish it from other tokens. They are also extensible, meaning you can combine one NFT with another to “breed” a third, unique NFT.
Ethereum and NFTs
Ethereum blockchain makes it possible for NFTs to work for several reasons:
- Trading NFTs, without needing peer-to-peer platforms, can take significant cuts as compensation.
- All Ethereum products share the same “backend”, making NFTs portable to buy on one product and sell it on another effortlessly.
- Once a transaction is confirmed, it’s impossible to manipulate the data to forge the ownership.
- Ethereum never goes down, which means your tokens will always be available to sell.
