NFTs are a buzzword you might have come across several times in the cryptocurrency world. But if you’re still unsure what it is, this guide is for you.
Exploring NFTs and Its Benefits to the Internet
What Is A Non-Fungible Token?
A non-fungible token, otherwise known as NFT, are tokens that can be used to represent ownership of one-of-a-kind items. This means that NFTs allow us to “tokenize” items like art, collectibles, and even real estate.
The term “non-fungible” is an economic term that can be applied to items like your furniture, a song file, or even your computer. Because of their distinct properties, these items cannot be substituted for others. This is very different from fungible items that can be exchanged because their value, rather than their unique properties, defines them. For example, ETH or USD are fungible because one ETH / $1 USD can be exchanged for another ETH / $1 USD.
The good thing about NFTs is that they can only have one official owner at a time and are protected by the Ethereum blockchain. In short, this means that no one can change the record of ownership or create a new NFT once it has been locked in.
How Do These Tokens Work?
NFTs differ from ERC-20 tokens such as DAI or LINK. One example that sets them apart is that each token is completely unique and cannot be divided. With that system in place, it would allow NFTs to enable the assignment or claim of ownership of any unique piece of digital data.
This data can be tracked using Ethereum’s blockchain as a public ledger. An NFT is a digital object that is minted as a representation of digital or non-digital assets. This includes GIFs, videos, collectibles, and music. For items in the real world, this includes signatures, a legal deed to a car, legal documents, tokenized invoices, and even tickets to real world events.
The uniqueID and metadata that no other token can replicate are used to manage ownership. Smart contracts that assign ownership and manage the transferability of NFTs are used to create them. When someone creates or mints an NFT, they run code stored in smart contracts that adhere to various standards, such as ERC-721. This data is added to the blockchain, which is where the NFT is managed.
Each token is assigned a unique identifier that is linked to a single Ethereum address. They are not interchangeable with other tokens on a 1:1 basis, hence the security involved. This means that one ETH is the same as another ETH. However, this is not true of NFTs. Each token has a unique owner, which is easily verifiable. They are Ethereum-based and can be purchased and sold on any Ethereum-based NFT market.
If you own an NFT, you can easily demonstrate ownership. Proving that you are the owner of an NFT is very similar to proving ownership of ETH in your account. Assume you buy an NFT, and ownership of the one-of-a-kind token is transferred to your wallet via your public address. The token verifies that your copy of the digital file is the original. Your private key serves as proof of ownership of the original.
The public key of the content creator serves as a certificate of authenticity for that particular digital artifact. The creator’s public key is essentially a permanent part of the token’s history. The creator’s public key can prove that the token you own was created by a specific individual, adding to its market value. This will easily set it apart from a counterfeit.
Are NFTs Helpful?
In some ways, yes they are. There is no denying that NFTs and Ethereum address some of the issues that plague the internet today. The world is becoming a lot more digital, and there is a greater need to replicate physical properties such as scarcity, uniqueness, and proof of ownership.
On top of that, digital items frequently only function within the context of their product. For example, you cannot resell an iTunes mp3 that you have purchased, nor can you exchange one company’s loyalty points for credit on another platform, even if there is a market for it.
The Many Benefits of Using NFTs
NFTs seem to be growing in popularity and if you look at the benefits they offer, it is easy to understand why. NFTs are digitally distinct, which means that no two NFTs are alike. Every NFT must have an owner, and this information is public and easily verifiable.
NFTs are compatible with any Ethereum-based product. An NFT ticket for an event can be exchanged for a completely different NFT on any Ethereum marketplace. You could exchange a work of art for a ticket, for example. Content creators have access to a global market and can sell their work anywhere, a definite benefit if you are a content creator.
Creators can retain ownership rights to their own work and directly claim the resale royalties. Items can be used in unexpected ways. You can, for instance, use your digital artwork as collateral in what some people call a decentralised loan.
The creator of an NFT has the authority to determine the scarcity of their asset. Imagine for a moment that you purchased a ticket to a sporting event. The creator of an NFT can choose how many replicas exist, just as an event organiser can choose how many tickets to sell. These are sometimes exact replicas, such as 5000 General Admission tickets. Occasionally, several tickets that are very similar but slightly different are minted, such as a ticket with an assigned seat. In another case, the designer may wish to create an NFT of which only one is minted as a special rare collectible.
When some NFTs are sold, they will automatically pay royalties to their creators. This is a new concept, but it is one of the most powerful. Here is one example we can look at. Every time an EulerBeats Original is sold, the original owner earns an 8% royalty. Furthermore, some platforms, such as Foundation and Zora, support royalties for their artists.
NFTs are giving rise to a powerful new creator economy. This is an economy in which creators do not give up ownership of their content to the platforms that promote it. Ownership is cemented directly into the content. When they sell their content, the proceeds go directly to them.
If the new owner later sells the NFT, the original creator may be entitled to royalties. This is guaranteed every time it is sold because the creator’s address is part of the token’s metadata. The metadata cannot be changed.
Something to think about if you’re thinking of venturing into the cryptocurrency world.