What Is An NFT And How Does It Work? Understand The Technology Behind NFTs

Confused about why NFTs have become so popular? Read on to know what are NFTs and how they work.

<div class="paragraphs"><p>Source: Andrey Metelev on Unsplash</p></div>
Source: Andrey Metelev on Unsplash

What Is An NFT?

In recent years, non-fungible tokens or NFTs have gained immense popularity with the mainstream adoption of cryptocurrencies and blockchain technology worldwide. Although the peak of the NFT craze has dwindled, they still remain ever popular among the crypto enthusiasts and NFT collectors community. So what exactly are NFTs that have taken the internet by storm? Let’s try and understand.

Non-fungible tokens or NFTs are a type of digital token or asset that can be used to represent real-world items such as images, music, video, in-game funds, certificates of ownership, etc. These non-fungible tokens can be bought and sold online through NFT marketplaces using digital cryptocurrencies.

Moreover, NFTs are created to be artificially scarce, which inflates the demand among the buyers, eventually raising the prices of these digital assets to absurdly high prices. Hundreds of NFTs have been reportedly sold for millions of dollars over online NFT marketplaces. Their popularity is so immense that even affluent auction houses have started selling them. Essentially, NFTs are limited edition collector items, only they are digital instead of physical.

How Do NFTs Work?

NFTs are built using blockchain technology and each NFT is coded with its own unique signature which makes it unique from all other NFTs. This is one of the main reasons why NFTs hold so much value among the crypto and enthusiast community, as they have a unique identity and their proof of ownership can be linked to an individual through the blockchain. The owners of the NFTs can also transfer their NFTs to others through the blockchain.  Some of the most popular sets of NFTs are held on blockchains like Ethereum or Binance Smart Chain. An NFT can be used to represent digital or real-world objects such as artworks, GIFS, videos, virtual avatars, in-game currencies and items, music, ownership certificates, legal contracts and more. 

What Are the Use Cases of NFTs?

NFTs have provided a unique opportunity for digital artists and creators to monetise their work. Unlike in older times, artists and creators don’t have to physically visit stores and galleries to sell their designs or artwork. NFTs have enabled even amateur artists and designers to develop their own designs, mint them as NFTs and sell them on popular NFT marketplaces. As the popularity of cryptocurrencies rose, investors also started looking at NFTs as investment opportunities since they are unique and identifiable in principle. However, anyone on the internet is still free to copy these NFT images, designs, music, etc and store them on their computers, but the rights of ownership of the original NFT would still reside with the owner, as stored immutably on the blockchain.

Many organisations and brands have also used NFTs to raise funds for charity by selling off unique NFTs artworks and content pieces in auctions and NFT marketplaces. Following the NFT trend, many celebrities have also released their own NFT art pieces for their followers. Moreover, NFTs have found popular use as digital in-game assets in online games. These online games have complex built-in economies where players can buy various avatars, skins, collectables, upgrades, etc. Many popular games released in recent years have in-game markets where digital game assets are stored in the form of NFTs.

In Conclusion

If you wish to purchase an NFT, you will need to have access to your own cryptocurrency wallet where you can store cryptocurrencies as well as NFTs. You can buy cryptocurrencies at any reliable NFT marketplace like OpenSea, Binance NFT marketplace, WazirX NFT marketplace, etc. However, NFTs are speculative assets and hold no real-world value except for the price that collectors are willing to pay. As a result, the prices of NFTs fluctuate wildly in the open market. It is recommended that investors do their own research about the risks of buying cryptocurrencies and NFTs.