NFTs, explained. What is a non-fungible token (NFT)?

What is an NFT?

“NFT” stands for Non-Fungible Token. An NFT is a unit of data stored on a digital ledger, called a blockchain, that certifies that a concrete digital asset is unique and therefore not interchangeable. NFTs can be used to represent almost anything, for example photos, videos, audio and all other types of digital files.

dragon cryptokitty

Meet Dragon, a very cute CryptoKittythat you can buy for 600 ETH (about $2 279 154), yes, two-point three million dollars (as of September 2021).

What is fungibility? What exactly does “non-fungible” mean?

Fungibility refers to an object whose individual units are essentially interchangeable and each of whose parts is indistinguishable from another part.

For example, a tennis ball is fungible, since you can replace it with any other tennis ball (assuming both are brand new, and the same brand) and you will essentially have the same thing – a tennis ball.

A tennis ball, autographed by Roger Federer, is non-fungible. It is now unique because it has his signature on it and you can no longer replace it with any other tennis ball.

Another example would be currency and art. A 1$ bill is fungible, since you can exchange it for any other 1$ bill, and you will have the same value. A Bitcoin is also fungible, since you can exchange 1 Bitcoin for any other 1 Bitcoin, and you will have the same value – 1 Bitcoin. However, the Mona Lisa is non-fungible, since there is only one ever made.

Think of NFTs as digital certificates of ownership and uniqueness.

Why are NFTs important?

NFTs allow people to trade digital art, music, and even digital sports cards like never before. Blockchain technology allows anybody to participate in the marketplace, not just accredited investors or high-net-worth individuals. Also, the blockchain, for the first time in history, provides a 100% trustworthy way of verifying the authenticity of a digital asset.

Some key questions about NFTs

What are NFTs, in short?

A non-fungible token, or NFT, is a unique piece of digital information. It could be a picture, a song, a video clip – anything that’s unique.

How do you create an NFT?

Anyone with internet access can create an NFT. All it takes is a crypto wallet, some Ether, and access to OpenSea, or Rarible, where you’ll be able to upload your content and turn it into an NFT.

How do you store NFTs?

NFTs are usually created as tokens on the Ethereum network, accordingly you can store them in any Ethereum wallet.

We recommend using a hardware wallet such as Ledger or Trezor.

How can you make money from NFTs?

NFTs offer artists a whole new way to sell their work. But art isn’t the only thing that can be turned into an NFT, and while not everything sells for thousands or millions of dollars, there are many ways to make money with NFTs. Websites like Open Sea and Rarible allow almost any artist to display and monetize their work in the form of NFTs, while also giving every day people access to the collectibles market.

How do you buy and sell NFTs?

NFTs can be traded on specific platforms, the most popular being OpenSea and Rarible, and the exact process of buying, or selling, varies by platform. Almost all NFTs are bought and sold with Ether.

  • When trading NFTs, beware of transaction fees on the Ethereum network, which can run into several hundred dollars. You can check the approximate tx fees on Etherscan.

What are some of the risks, associated with non-fungible tokens?

As with any investment, there are some risks associated with participating in the NFT market, the main ones include:

  • The value of your investment going down if demand for NFTs decreases. (market risk)
  • Knowing whether the person you’re buying an NFT from truly has the rights to the item. (authenticity risk)
  • The platform, you’re trading NFTs on being dishonest. (counterparty risk)

We recommend that you always do extensive research, before investing in any market.

Are you ready for the NFT storm?

Get some Ether and start trading NFTs at any time!

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