What are NFTs and how do they work?

NFTs, or non-fungible tokens, were first proposed by Greg McMullen and Matt Hall in 2014, but it wasn’t until 2017 and 2018 that the technology began to gain mainstream attention and usage. The first NFT ever minted is widely considered to be CryptoPunks, a collection of 10,000 unique 8-bit characters created by the pseudonymous artist “Larva Labs” in June 2017.

What are NFTs?

NFT stands for non-fungible token. An NFT is essentially is a type of digital asset that represents ownership of a unique item or piece of content, such as a digital artwork, music file, or video game item. Unlike fungible tokens, such as Bitcoin and Monero (XMR), which are interchangeable and have the same value, NFTs are unique and can’t be replicated or replaced.

The reason why NFT’s can’t be replicated is because they have a unique digital signature that gets recorded on the blockchain. They’re one-of-a-kind items, and that’s why they’re so appealing to people. Think of an NFT as a digital certificate of ownership which can’t be faked.

The invention of NFT’s has made it a lot easier for creators to monetize their creations.  Recording ownership of digital artwork has been the most popular use for NFT’s so far, but they have a variety of other use-cases..

What can NFTs be used for?

1. Recording ownership of digital collectibles such as digital art, trading cards, and in-game items.
2. Recording ownership of virtual real estate, such as land in virtual worlds and virtual reality environments.
3. Recording ownership of music and video streaming rights. This allows artists to monetize their work in new ways.
4. Authenticating and verifying ownership of physical assets such as luxury goods, artwork, and collectibles.
5. Tokenizing event tickets and passes.
6. Creating loyalty and reward programs.
7. Creating and managing crowdfunding and investment campaigns, allowing for fractional ownership and easy transfer of assets.
8. Creating and managing online gaming assets and in-game items

How do NFTs work?

NFTs have been made possible via smart contracts and blockchain technology. Here’s how they work..

1. Creation: The first step in creating an NFT is to create the unique digital asset that the NFT will represent. This can be anything from a digital painting to a 3D model to a short video. The asset is then “tokenized” by creating a unique digital signature that represents it on the blockchain.
2. Minting: The next step is to “mint” the NFT, which means creating a unique digital token that represents the digital asset. This is done by uploading the digital asset and its corresponding digital signature to the blockchain, along with other metadata such as the asset’s title, description, and creator. This creates a unique digital token that is recorded on the blockchain and can be transferred and traded like any other cryptocurrency.
3. Ownership: Once the NFT is minted, it can be bought and sold like any other digital asset. When someone buys an NFT, they become the owner of the digital asset represented by the NFT, and the ownership information is recorded on the blockchain. Because the blockchain is decentralized and transparent, the ownership information is tamper-proof and can be easily verified.
4. Trading: NFTs can be bought and sold on various marketplaces, similar to how Crypto currencies are traded on crypto exchanges. The price of an NFT is determined by supply and demand and can fluctuate accordingly. Some NFTs have been sold for millions of dollars, while others are relatively inexpensive.
5. Interoperability: NFTs can be used across different platforms, games and virtual worlds. The unique digital signature of the NFT ensures that it can be easily transferred and used in different contexts.

NFTs are created using smart contract technology. For an in-depth explanation on how smart contracts work, read this article. These smart contracts allow for the creation, transfer, and management of NFTs in a transparent and secure way. They also enable the creation of complex features like royalties, scarcity, and even programmable ownership.

How do you create an NFT? What’s the process?

1. First, you will need to have a digital file that you wish to mint as an NFT. This could be an image, video, audio file etc.
2. Choose an NFT marketplace or platform to mint your NFT on. OpenSea is the most popular, but there are several others.
3. Once you have chosen a marketplace, you will need to create an account and connect it to your wallet. Ethereum and Polygon are the most used platforms for NFT’s, however, they can be created and managed using other blockchains as well. Connecting your account to your wallet will allow you to pay for the transaction fees required to mint your NFT.
4. After your account is set up and connected to your wallet, you can then upload your digital file to the marketplace. This will typically involve providing some basic information about the NFT, such as a title, description, and tags.
5. Once your NFT is uploaded, the next step will be to set your asking price.
6. After setting the price, you can then mint the NFT by submitting the transaction to the blockchain. This will create a unique digital token that represents your NFT, which can be bought, sold, and traded on the marketplace.
7. Once the transaction is confirmed, your NFT is minted and it will be visible on the marketplace.
8. You can then promote your NFT by sharing the link with potential buyers.

Summary

NFTs are essentially a revolutionary new way for creators to monetize their digital creations, and for collectors to own and trade one-of-a-kind digital items. They are created using blockchain technology, smart contract technology and a unique digital signature that verifies the authenticity and ownership of the asset, making it a unique item that can be traded and collected.