What is a Non Fungible Token (NFT)? We give you the most simply explanation. Basically, an NFT is a digital asset somebody can own, which cannot be modified. It is important to know that there is a code of program behind any NFT, which sets rules for how that digital asset is to be traded. It also describes that digital asset, and how many different versions was created for a particular collection. It is the code behind NFTs which make the digital asset valuable, as it means a piece of art, music or any other digital asset can be traded with confidence. Every time an NFT is traded with someone else, it is recorded on something called a blockchain. This is simply a computer database that stores all transactional data for all NFTs. Did you know that an NFT can also represent a real-life object to such as a plane ticket!
A Non-Fungible Token is opposite to a Fungible Token. Something that is Fungible can be exchanged as their value defines them, rather than its unique properties. For example, £10 can be exchanged for two £5. However, a unique piece of art is not the same as a different piece of art. So art is classed as Non-Fungible. Read more to learn what is a non-fungible token (NFT) in more detail.
Key Points about NFTs
- NFT stands for Non-Fungible Token. It is controlled by computer code.
- They can represent any kind of digital file, such as PNG, JPEG, MOV.
- NFT can only have one official owner at a time.
- Blockchain technology is the computer system that allow NFTs to work. It is a digital ledger which stores NFT code (called smart contract), and records any NFT transaction.
- An NFT can also represent a real-world object, such as a plane ticket. Secure blockchain technology means real world objects can be traded securely.
- The world of NFTs is giving creators more power and control over their hard work.
- People see NFTs as a collectible which may go up in value. This is why people who buy NFTs are also called investors.
- NFTs are purchased via digital currency, such as Ethereum. Anyone can exchange their local currency into digital, and vice versa.
Q. Where can I buy an NFT?
An NFT can be purchased at an NFT marketplace, which is basically an online store similar to eBay. A common marketplace for NFTs is called Opensea. Such platforms allows creators to sell NFTs for a fixed price, or put them up for auction. You can read more about buying and investing in NFTs here.
Q. How is an NFT Created?
- A smart contract is created using a computer coding language called solidity. This digital contract has strict rules written in computer code which says how the piece of art or digital asset will be traded. For example, the smart contract can have a price for the artwork, and the maximum that can be created for a certain collection. Any type of rule can be programmed, and it is specific to the creator’s project. For example, the contract could be coded to be part of a game, so NFTs has be traded on a gaming platform. The most common use of NFT smart contracts is to create rules for a collection of art. Obviously not everyone knows how to code, so artists usually hire a programmer for this part.
- This piece of smart contract code is uploaded to the blockchian. Once on the blockchain, it cannot be removed. The creator and the public can then interact with this smart contract via NFT marketplace platforms, or via special website application called DApps (Decentralized Applications).
- Investors can interact with the smart contract by purchasing NFTs. Most smart contracts on NFT marketplaces consist of collections of art. For example, the contract might say that only 1000 images in that collection can be created. Once such a rule is set, it means the creator of that contract cannot add more than 1000 to that collection. Rules like this is what makes NFTs collectible and valuable. The public or investor can check details like this using something called a blockchain explorer (such as Etherscan).
Q. Why Buy an NFT?
An NFT is worth as much as something willing to pay for it. Someone may buy an NFT if they believe it will be worth more in the future. There are a lot of factors which determine the potential future value of an NFT. We discuss these factors is our Tokenomics article.
Q. Where is NFT Technology Used?
Blockchain is the technology behind NFTs. It is a relatively new technology which will become more popular in the future. There are potentially many different types of applications where blockchain technology will be used. For example, it is not just limited to transactional applications, like purchasing items. It could potentially be useful as a voting system for elections, because this technology almost guarantees no error can be made. And every vote can be accurately recorded and analysed.
The Bottom Line
Hopefully we have clearly explained what is a non-fungible token (NFT). If you have more questions about NFTs, then you are more than welcome to ask us.