What are Non-Fungible Tokens (NFTs)?
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As we all know, the world of cryptocurrency moves at an alarming rate, with new coins and asset classes constantly going in and out of fashion. One of the hottest crypto trends to have taken the market by storm in early 2021 is Non-Fungible Tokens, or NFTs for short.
But what are NFTs all about? Why are they considered so important? And why has this new asset class taken off?
From super-rare CryptoKitties (don’t worry – we’ll explain) to famous tweets selling for millions of dollars, this guide will take a detailed look into NFTs and bring you up to speed as quickly as possible.
What is a NFT?
A Non-Fungible Token is a unique digital asset which cannot be subdivided in smaller parts, which makes it different from cryptocurrencies. Although NFTs can be stored on a secure database, they are most commonly developed to leverage the Ethereum blockchain because of its benefits, so this guide is focused on that case.
The main point of NFTs is that they cannot be exchanged with one another because each item is a unique, one-of-a-kind digital asset – hence the term ‘non-fungible’. To explain this property, imagine NFTs as airline tickets: each ticket has specific information like passenger details, flight’s date and destination. These unique sets of data make it impossible for flight tickets to be used as if they were currency.
|Fungible||Money, gold, casino chips||Loyalty points, Bitcoin, Ethereum|
|Non-Fungible||Artworks, tickets to an event, houses||Trademarks, videogame skins, CryptoKitties|
Applications of NFTs can vary greatly, from sporting collectables to “virtual real estate”. However, what has recently put NFTs under the spotlight globally is digital art, as it fits particularly well to NFT’s intrinsic features. Just like an original piece of physical art, all NFTs are unique by design. Contrary to regular pieces of artwork, which can be copied or forged to be passed off as original, NFTs are practically fraud-proof as they can be instantly verified via the blockchain. The ownership the token can be verified, tracked and transferred like other blockchain transactions, opening the possibility for trading.
What are some important NFT characteristics?
After an introduction to NFTs and how they work, let’s look a little closer at some of their key characteristics.
- Unique – each token has a unique set of properties stored in its meta data.
- Verifiable – their rarity can be verified on the blockchain, making them fraud proof.
- Indivisible – they cannot be split into smaller denominations so it’s impossible to transfer or buy a fraction of a NFT.
- Guaranteed ownership of the asset – when purchased, the buyer holds the right to claim ownership of that unique token but not the rights to its distribution.
- Easily transferable – NFTs have been standardised on public blockchains, making transfers across different digital ecosystems quick and simple.
- Indestructible – as data is stored on the blockchain via smart contracts, NFTs cannot be removed or destroyed.
What are some different types of NFTs?
Sales for the booming crypto ‘niche’ are estimated to be well over a billion dollars, with over $250 million of NFT traded last year alone, but what are some examples of digital tokens that are hot at the moment?
Here is where CryptoKitties come into play as mentioned earlier. These cute, collectible digi-kittens were the first token to really put NFTs on the map back in 2017. Since then over $42 million have been spent acquiring different CryptoKitties according to Non Fungible, with one digital cat being purchased for $170,000.
Despite CryptoKitties being the trailblazers of the NFT world, it is argued that the first NFT was developed in around 2013 with Colored Coins. To emphasise how far things have come since then, earlier this month, international auction house Christie’s sold a JPG file by famous digital artist Mike Winkelmann, also known as Beeple, named “Everydays: The First 5000 Days” for US$69.3m.
The concept of art is somewhat subjective and digital art is no exception, as it seems that there are no real boundaries restraining where this industry will go next. For instance, Twitter CEO Jack Dorsey is currently selling his first ever tweet that read: “just setting up my twittr” for an estimated US$2.5m.
Musicians are also getting in on the act too, with the band Kings of Leon releasing their new album, When You See Yourself, as a NFT. Exclusive artwork, limited edition vinyl access and also the potential to win lifetime front-row tickets was included in the $50 NFT album package which was on sale for just two weeks.
Where can I buy NFTs?
Having understood what NFTs are and what they are used for, when it comes to buying them there are a few options to consider.
There are many NFT marketplaces such as Crypto.com NFT Marketplace, often dedicated to specific categories of tokens. For example, if you were interested in buying the Kings of Leon NFT album mentioned previously, most music-related tokens can be found on YellowHeart. OpenSea is a very popular marketplace that can be used for purchasing all sorts of collectibles and gaming items. Sought-after NBA highlight reels are available at NBA Top Shot, where US$230m has already been spent for “Top NBA moments”. Other digital goods marketplaces include Decentraland, Nifty Gateway, Rarible and SuperRare.
Purchasing NFTs, for example a piece of digital art, is quite straightforward in general. You only need a digital wallet that is compatible with the marketplace you are purchasing from. Fund your wallet with the supported currency options and you are pretty much ready to go ahead. Remember to check for specific instructions as they may differ from marketplace to marketplace.