What are NFTs and How Do They Work?
NFT is short for Non Fungible Token. It represents a unique item like a deed or title, albeit, digitally. You can make copies of them but there is only one original and that makes it valuable. An original Mona Lisa painting can fetch close to $1 billion today which is more than the net worth of few islands!! It may seem illogical but that’s down to free market forces like supply and demand.
NFTs can represent any type of physical or digital ownership. Each NFT has a unique ID and metadata. All relevant information of an item is stored on a distributed public ledger like blockchain for instance. The process of creating an NFT is called minting or tokenization for authenticity. Minting process over time has become very easy that you and I can do so in a few minutes today. Once ‘minted’, NFTs can be traded through cryptocurrency marketplaces or exchanges. Often such marketplaces exist within online metaverses which is a digital version of our real world that includes games, lands, shopping complexes etc.
No Curator or Art Facilitator Fee
You do not need an intermediary to curate and monetize your creation. You can simply upload a digital version of your creation and mint it on these marketplaces where people throng. Also the creator can earn lifetime royalty every time their creation changes hands. Such features make NFTs more liquid than, say, a traditional collectible or art.
What makes this more interesting is that a digital version once created can be duplicated. Yes! But as mentioned in the above paragraph, once you mint your creation, it will have a unique ID/address and metadata on the blockchain that is immutable. And information in typical blockchain is open and transparent to anyone. So if someone is looking to duplicate an original content with a fresh minting (which will become technically harder over time), a ‘new’ record will be created on blockchain with a new address and metadata. In a nutshell, it will remain a duplicate on top of litigation troubles.
Various features of NFTs like non-fungibility, tokenization, interoperability, transfer of ownership are made possible by NFT standards. The most common NFT standard is ERC 721. Each ERC 721 token has a 256 string key/ID and metadata which makes it a unique pair that there is almost no possibility to register the same pair again. It is even more complex than a unique private/public key pair created when you buy and own a cryptocurrency. Read our guide to know more about the top NFT use cases 2022