What Are NFTs And How Do They Work?
Whether you are an artist, digital content creator, or collector, you must have heard about non-fungible tokens (NFTs). Of late, NFTs have been trending on the internet, with hundreds, if not thousands of NFTs being created every day. The internet is also awash with numerous reports of people who have made millions of dollars from creating, selling, and trading NFTs.
But the question that everyone is asking is: What are NFTs and how do they work? In this article, we answer this and other related questions.
What is an NFT?
An NFT is a non-interchangeable digital asset representing real-life objects like videos, audio files, artwork, music, games, GIFs, tweets, and other forms of digital content. You can also create your own NFTs using an NFT creator or generator like our VQGAN+CLIP application, which allows you to develop unique NFTs from a text prompt. So, if you have some ideas that you wish to turn into and sell as an NFT, you can use an NFT generator to speed up the process.
These assets are normally bought and sold online using cryptocurrencies like Bitcoin, and Ethereum. NFTs are hosted on a blockchain, which is a digital ledger that allows various cryptocurrencies to work without a central authority. While they’ve only become popular a few years ago, NFTs have been around for almost a decade. Today, these digital assets have turned out to be a popular way of buying and selling digital artwork.
The current value of the NFT market is estimated to be over $40 billion. Since 2017, a whopping $174 million has been spent on NFTs. Market experts are very optimistic about the future of NFTs.
As an artist or digital content creator, you have an opportunity to make a decent income from your work when you turn it into an NFT. With the current buzz about NFTs and the huge number of collectors looking for ideas on where to buy NFTs, you are assured of making good money from your NFTs, provided they are valuable.
Although NFTs are supposed to be unique and irreplaceable, some of the NFTs on the market today are digital creations that exist in other forms elsewhere. For instance, you’ll find NFTs of iconic videos from the National Basketball Association (NBA) or securitized forms of digital artwork that already exist on other digital platforms like Instagram. One of the most popular NFTs today is ‘EVERYDAYS: The First 5000 Days’ by Mike Winklemann, also known as Beeple. This NFT is a composite of Beeple’s 5,000 daily drawings.
How Do NFTs Work?
Generally, NFTs are irreplaceable assets of a very limited run. They have unique identification codes designed to make sure that no one else can claim ownership of your NFTs. The whole idea of making NFTs is to create digital scarcity. Business experts believe that this scarcity has increased the demand for valuable digital assets. This concept is based on the belief that when you cut off the supply of a given item, the value rises automatically, especially if it’s in demand.
But some people can’t understand why someone would want to spend millions on an image that is visible to everyone and readily available online. Why should you spend your hard-earned money to buy something that you can simply screenshot? The logic behind this kind of investment is the fact that NFTs allow you to own the original item. Furthermore, NFTs contain built-in authentication to help you prove ownership. Every collector values such bragging rights.
Although NFTs and cryptocurrencies are created using similar programming, they don’t work the same way. For example, while cryptocurrencies and hard cash are fungible, meaning that they are interchangeable and easily traded for each other, NFTs have digital signatures that make them impossible to be exchanged for one another. That’s the meaning of being non-fungible.
These signatures also mean that one NFT can’t be the same as another. For instance, a valuable NBA video clip isn’t equal to a different NBA clip. A It’s important to note that NFTs are the same as tangible collector’s items, but instead of getting an actual painting that you can hang on your wall, you get a digital file. Remember that an NFT can only have a single owner at a time, thanks to its exclusive ownership rights.
Lastly, the technology behind NFTs helps to leverage the unchallengeable nature of blockchain to allow artists and digital creators to store their NFTs transparently for anyone to check their authenticity.