What Are NFTs? Non-fungible tokens Explained - Ethereum Blockchain
Chances are that, whether you’re interested in cryptocurrency or not, you’ve heard about NFTs. Non-fungible tokens, aka NFTs, are a relatively new token standard that is growing in popularity every day. Take CryptoKitties, for example. This viral Ethereum-based game about buying, selling, and breeding rare cats became highly publicized after its 2017 release. Every new CryptoKitty is a unique NFT that can be purchased, and its “genes” used to breed more new kitties.
NFTs are digital assets with unique identifiers. They are distinguishable and non-interchangeable, which is what makes them valuable. Each NFT is stored on the Ethereum blockchain and can be tracked by the public to verify ownership. As cryptocurrency becomes increasingly popular, more and more people are finding NFTs appealing as a new form of digital ownership.
What makes NFTs special?
Since NFTs are stored on the blockchain, they can only have one official owner at a time. Nobody can alter the record of ownership or claim it as their own. This is what gives NFTs their name: non-fungible token.
The term “non-fungible” is used to describe goods and assets that have unique properties and are, therefore, not interchangeable. Fungible items, on the other hand, are interchangeable because they are not defined by their unique properties, but rather their value. Cryptocurrency coins, such as ETH, are fungible since 1 ETH can be exchanged for $2690 USD (at the time of writing).
Basically, NFTs present the public with a new way to support independent creators. By purchasing an artist’s NFT, the creator is paid for their work, and you possess a one-of-a-kind, verifiable asset that can be traded on the blockchain.
How do NFTs work?
Most Ethereum-based tokens are made using the ERC-20 standard, which allows people to create fungible tokens. Non-fungible tokens are made using the ERC-721 or ERC-1155 standards, which gives creators the ability to issue unique digital assets through a smart contract. Since each NFT is stored on a blockchain, there is a record showing when the token was created and every sale thereafter.
What can you do with NFTs?
That depends on your goals! Some people choose to display their digital artwork on monitors or in a virtual gallery. Others display their art in virtual worlds, like Decentraland. For many people, though, the main appeal of NFTs is simply buying and selling their assets.
Just last year, a video by an artist named Beeple was sold as an NFT for $6.6 million, but the collector who sold it paid less than $70 thousand for it the year before. NFTs are primarily sold on specialized digital marketplaces but can also be sold in digital auctions or in one-on-one sales.
How do you get started with NFTs?
NFTs come in many forms of digital collectibles, including:
- Digital artworks
- In-game items
- NBA virtual trading cards
- Music files
- Domain names
- Event tickets
- Virtual real estate
The most common way to buy an NFT is through specialized digital marketplaces such as Binance, Rarible, and OpenSea. Niche marketplaces are popping up all over the internet for more specific types of NFTs too, like NBA Top Shot which sells NBA highlight videos, or Axie Infinity which allows you to trade Pokémon-like digital pets.
Many marketplaces charge a “gas” fee, which is the term used for the energy required to complete the blockchain transaction. Since Ethereum nodes are required to maintain every transaction on the blockchain, a small fee of ETH, or gas, is required. Other marketplaces may charge a fee for converting USD into ETH as well as closing expenses, so be sure to check the fees before making a purchase.
How do you make an NFT?
Making an NFT is easy. All you need is a digital asset that you own the intellectual property rights to, a digital wallet, a small purchase of ETH, and an account on an NFT marketplace. Once you choose the NFT marketplace you want to sell on, you’ll need to connect it to your digital wallet.
You’ll be required to pay a fee to mint your NFT, which ranges from 2.5% of the final sale price on OpenSea to 15% of the final sale price on Foundation. Once you’ve agreed to the marketplace’s terms, they’ll turn your digital asset into an NFT that you determine the price for. Then you’ll have the option to sell it at a fixed price or in an auction, as well as collect royalties if the NFT is resold on the secondary market.
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