NFTs is an acronym for Non Fungible Tokens. It describes digital asset representations of actual physical objects such as artworks, videos, music, etc.
When anything is described as fungible, it means that it can be exchanged with another item of the same worth. A dollar note is fungible because its value does not change when exchanged with any other dollar note. NFTs cannot be exchanged because their values are not the same. An NFT carries unique encoding, making it entirely different from the next NFT. NFTs are non-fungible because their values cannot be equal due to the unique encoding that each of them carries.
How are NFTs different from cryptocurrencies?
NFTs are digitally encoded versions of tangible and intangible assets traded with cryptocurrency. The encoding used for NFTs is similar to the Blockchain encoding used for most cryptocurrencies. The most common cryptocurrency used to trade NFTs is Ethereum (ETH) because NFTs are mostly encoded on the Ethereum Blockchain. They are traded on public markets such as Opensea, Rarible, etc. Cryptocurrencies are fungible tokens, but because they share the same digital encoding with NFTs, they remain the best way to perform NFT transactions.
NFTs are not cryptocurrencies, but trading NFTs is one of the biggest uses of cryptocurrency today, even though NFTs have existed for nearly a decade.
The appeal and craze for NFTs are increasing significantly because of the incredible advantages that it offers creators of digital arts. For instance, Jack Dorsey’s first tweet sold as an NFT for $2.9 million. Still, if you think about it, Jack’s tweet has existed for a while, but how did it gain such value when it was turned into an NFT? Let’s look at how NFTs work.
How NFTs work
Most digital objects can be minted to form NFTs. Minting is the process of turning these digital objects into NFTs. Unlike physical art collections, NFTs usually have to exist as digital objects before they can then be minted, i.e., encoded with Blockchain technology to make them unique. The process is similar to putting an originality seal on your physical artwork, but this time for a digital file that one person can only own.
Yes, NFTs are non-fungible, so the question is, how are they usually exchanged? The Blockchain encoding generates a unique token for each NFT, usually stored in the NFTs metadata. When you buy an NFT, the seller will transfer their unique token to you, and when you also resell, you will transfer the same unique token to the next buyer.
With NFTs, digital creators live the dream, with the NFT market cap growing at about 138.7% annually. They have an incredible opportunity to get real monetary value for their creations. They no longer have to subject themselves to the strict conditions of art markets. They also have the opportunity to advertise their digital arts on global markets, where they can consistently earn commissions on each resale of their NFTs.
Currently, the estimated value of the global NFT market is almost at par with the global artwork market, which has been in existence for a much longer period. This shows the great potential of NFTs following a short period of increased adoption. If you are a digital creator, you should invest heavily in NFTs as they can positively turn around your fortunes.