What is an NFT?
NFT stands for “non-fungible token.” At a basic level, an NFT is a digital asset that links ownership to unique physical or digital items, such as works of art, real estate, music, or videos.
NFTs can be considered modern-day collectibles. They’re bought and sold online, and represent a digital proof of ownership of any given item. NFTs are securely recorded on a blockchain — the same technology behind cryptocurrencies — which ensures the asset is one-of-a-kind. The technology can also make it difficult to alter or counterfeit NFTs.
To really get a handle on NFTs, it’s helpful to get familiar with the economic concept of fungibility.
Fungible items can be exchanged with one another with ease because their value isn’t tied to their uniqueness. For example, you can exchange a $1 bill for another $1 bill, and you’ll still have $1 even though your new bill has a different serial number.
Non-fungible items aren’t interchangeable. With NFTs, each token has unique properties and isn’t worth the same amount as other similar tokens.
So why are people shelling out so much money for NFTs? “By creating an NFT, creators are able to verify scarcity and authenticity to just about anything digital,” says Solo Ceesay, co-founder and COO of Calaxy. “To compare it to traditional art collecting, there are endless copies of the Mona Lisa in circulation, but there is only one original. NFT technology helps assign the ownership of the original piece.
Other people may be able to make copies of the image, video, or digital item that you own when you buy an NFT. But, similar to buying a unique piece of art or limited-series print, the original could be more valuable.
How NFTs work
Many NFTs are created and stored on the Ethereum network, although other blockchains (such as Flow and Tezos) also support NFTs. Because anyone can review the blockchain, the NFT ownership can be easily verified and traced, while the person or entity that owns the token can remain pseudonymous.
Different types of digital goods can be “tokenized,” such as artwork, items in a game, and stills or video from a live broadcast — NBA Top Shots is one of the largest NFT marketplaces. While the NFT that conveys ownership is added to the blockchain, the file size of the digital item doesn’t matter because it remains separate from the blockchain.
Depending on the NFT, the copyright or licensing rights might not come with the purchase, but that’s not necessarily the case. Similar to how buying a limited-edition print doesn’t necessarily grant you exclusive rights to the image.
As the underlying technology and concept advances, NFTs could have many potential applications that go beyond the art world.
What’s the difference between NFTs and cryptocurrency?
NFTs and cryptocurrencies rely on the same underlying blockchain technology. NFT marketplaces may also require people to purchase NFTs with a cryptocurrency. However, cryptocurrencies and NFTs are created and used for different purposes.
Cryptocurrencies aim to act as currencies by either storing value or letting you buy or sell goods. Cryptocurrency tokens are fungible tokens, similar to fiat currencies, like a dollar. NFTs create one-of-a-kind tokens that can show ownership and convey rights over digital goods.
How to buy an NFT
You can buy, sell, trade, and create NFTs from online exchanges or marketplaces. The creator or current owner may choose a specific price. Or, there may be an auction, and you’ll have to bid on the NFT.
Foundation: A community-curated marketplace that requires creators to be invited by other creators who are already part of the platform.
Nifty Gateway: An art-focused marketplace that works with big-name brands, athletes, and creators.
OpenSea: One of the first and largest marketplaces where you can find NFTs for a wide-range of collectibles.
Rarible: Offers a range of NFTs with an emphasis on art. Uses its own RARI token to reward members.
SuperRare: A marketplace that focuses on curating and offering digital art.
The sign-up process can vary depending on the marketplace. Generally, you’ll buy NFTs using a cryptocurrency, such as ether (Ethereum’s native cryptocurrency), although the price may also be listed in dollars. Depending on the marketplace, there may be different fees associated with each transaction.