Last Updated on 2 weeks by Web3 Studio
Unless you have been living under a rock for the past few years, you will at some point have overheard someone talking about NFTs, and it’s gotten to the point now that you can no longer just nod and smile politely whenever they get brought up in conversation, as you pretend to know what the other person is talking about. To start with, NFT stands for non fungible token, and it was awarded ‘word of the year’ by Collins Dictionary in 2021. Non fungible tokens have become increasingly popular ever since they first came to be in 2014, and a whopping £123 million has been spent on this new phenomenon since November 2017, but what is an NFT exactly? And why is selling and owning NFTs the current hottest trend? This article promises to provide you with the answers to all of your NFT related questions, whether you are looking to buy NFTs, find out how NFTs work, or are just wanting to understand the hype surrounding the NFT space and the impact of buying and selling a mere digital file is having on the world today.
What are fungible tokens?
So, now you know what NFT stands for, you’re still none the wiser about what a non fungible token is, and maybe you’re even asking yourself “what on earth are fungible tokens?”, or what does the word fungible even mean?
Well, if something is fungible then it means that it can be replaced by another item that is identical to it. If something is non-fungible, then it means it cannot be replaced and therefore it makes it totally unique – it’s a one of a kind. To put it simply, physical assets such as a loaf of bread would be a prime example of a fungible item in the real world – it’s fungible because you can easily find another identical loaf of bread in your local supermarket as it is not exactly special as far as physical assets go. Any other loaf of bread would suffice as there is nothing about it that is unique or individual, or anything about it that distinguishes it from any of the other loaves of bread in the supermarket. Another instance would be money, a pound coin can be traded for another pound coin, and it will still be worth the same. An example of a fungible item/token in the virtual world is a Bitcoin, which is a type of cryptocurrency. If you trade one Bitcoin for another Bitcoin, then what you receive will be the same as what you gave away through the exchange. Each Bitcoin is worth the same as any other Bitcoin – it’s fungible.
Non fungible tokens, digital content and NFT artwork
In contrast to this, a Starry Night by van Gogh would be an example of a non-fungible item. There may be copies of the physical art printed and distributed (these would be examples of fungible items) but there is only one true original that is irreplaceable and that is the first Starry Night painted and touched by van Gogh himself, and it is this uniqueness that gives the item its value – with an estimated value of over £100 million, if you’re interested. To put this into context, the viral Charlie Bit My Finger video of 2007 sold for £500,000 back in May as an NFT. Think of it like this – the Starry Night painting is a real-world object, and a physical artwork, whereas the NFT (in this instance, the Charlie Bit Me clip) is a digital asset that represents this. It’s the physical reality and the virtual reality. The Charlie Bit My Finger video is but one example of many.
Adding value to objects is not a new concept and has existed for a long time prior to NFTs – (again just look at the art world), but with the rapid advancement of technology and the internet, it makes sense that people would look to do the same thing in a non-physical way, including digital art. Buying and selling digital art as NFTs through the NFT market is undoubtedly the most popular of NFT exchanges as it reduces an artists need to sell their artwork through galleries and art fairs, yet enables artists to get their work out to the public as well as enabling monetisation. However, their art is created digitally as an NFT and instead of making the NFT purchase with physical money or through the bank, the artwork is purchased using a digital wallet which holds cryptocurrency (such as Bitcoin or Ethereum) via something that is known as blockchain technology.
The difference between cryptocurrency and Non Fungible Tokens NFT
Cryptocurrencies are possible because of the blockchain, and they are built using the same programming as NFTs, but their similarities end there. The fungibility of cryptocurrency means that each Bitcoin and Ethereum holds the same amount of value, therefore making it a reliable means for NFT transactions and those looking to buy NFTs.
As we now know, if something is a non fungible token, then it does not share the same amount of value as another non fungible token due to each one being unique. For instance, the Charlie Bit My Finger video is not equal to the Earth and Mars videos by Grimes, due to the mere fact that they both are NFTs. This is what makes crypto and NFTs different.
What is blockchain technology
A blockchain network (such as the Ethereum network) is a public and unchanging digital ledger that ensures transactions are being recorded and assets are being tracked within a business network. This gives us the T in NFT, which as we know stands for token, and it is through the blockchain that NFTs exist. The blockchain stores a list of entries which cannot be altered once they are created.
NFTs are typically held on Ethereum, but there are other blockchains that support them as well, such as Solana.
The Ethereum blockchain and the Bored Ape Yacht Club
The Bored Ape Yacht Club is a collection of 10,000 Bored Ape NFTs living on the Ethereum blockchain. Created by Yuga Labs, the BAYC is an NFT project that has a library of NFT art consisting of characters with unique traits, and considered to be some of the most sought after digital collectibles from an NFT provider, even being bought by celebrities including Justin Bieber and Snoop Dogg.
Ether is the native cryptocurrency of the Ethereum blockchain, and one of the main NFT projects living on their blockchain happens to be BAYC. The blockchain has computing power which secures the ownership of the NFT, providing a greater peace of mind for those buying NFTs – meaning that Justin Bieber and Snoop Dogg, for example, have the certified authentication that they are the only owners of their particular BAYC digital art.
How are NFTs made?
The process of creating a non fungible token is called “minting”. It is done by turning a digital nonfungible item into a digital asset on the blockchain. Making an NFT, or “minting” will cost next to nothing, but to sell NFTs it can cost up to a thousand dollars – and there is no guarantee that it will even sell!
Why sell digital artwork?
Digital assets such as drawings, music, a video clip, gifs and even tweets are being bought and sold for millions {the first ever tweet was recently sold for a staggering $2, 915, 835.47}, however, as we’ve already learnt, much of the current hype around NFTs is using this computing power to sell digital art, and a lot of this digital art is being sold for hundreds of thousands of dollars.
This poses the question as to why people are willing to spend this much money on digital assets, which is something that can ultimately be screenshotted and viewed online free of charge. The answer is that the person buying the NFT will have the sole ownership of the unique digital token as it comes with its very own digital signature (whether it’s the first ever tweet sold, a video clip of an NBA top shot, or a cat gif selling for over half a million dollars’ worth of cryptocurrency) thus granting them some serious bragging rights, and for many digital collectors, this certified ownership holds more value to the NFT owner than the item itself. Like Bieber and Snoop!
If it has been screenshotted then it’s not the original, therefore it has very little value, but a one of a kind means high prices and in the NFT world, digital scarcity is what matters the most.
NFTs have a unique digital token
NFTs unique data makes purchasing these digital collectibles all the more appealing. The identifying information of the NFT (the digital signature attached) is recorded in a smart contract. These smart contracts are programmes that are stored on a blockchain, such as the Ethereum blockchain mentioned above, and they run when all predetermined conditions between the buyer and the person selling NFTs are met. It is this information that makes every NFT unique – no two NFTs are the same. Each token has a non-transferable, unique identity that distinguishes it from other digital tokens.
NFT marketplaces
OpenSea is one of the largest NFT marketplaces, professing to be the premier destination to browse, buy and sell NFTs including music, digital collectables, digital artwork and gaming items. Digital artists are selling their NFT art which now ultimately has the same value as real world items and actual physical art. It continues to grow in popularity as a choice made by NFT creators to sell their digital artwork through NFT markets, such as OpenSea. Some people have now even begun trading NFTs of the same value through the NFT marketplace, trading digital content with equally high prices. Not only can users browse digital collectables, but they can even browse NFT collections for digital real estate (more on that later).
Another popular NFT marketplace is LooksRare, which is a site that rewards users for their participation.
Marketing and making NFTs mainstream
Through NFT trading, people are learning to make a lot of money and NFT collections may even one day surpass ownership of the physical asset as NFT sales soar and the digital economy rises. However, it is not just artists that are profiting from this. Many brands have jumped onto the NFT bandwagon as a way to market their product. Food brands like McDonalds and Taco Bell, and fashion brands such as Nike and Gucci are using NFTs for marketing purposes, creating one of a kind digital collectibles and selling them as a limited edition. These brands are using NFTs in innovative ways not only to gain traction and revenue for their brand, but to boost their social media following, support a campaign or a charity for a good cause or a movement.
Using NFTs to raise funds for charities
With the popularity of NFTs on the rise, another obvious direction for NFT tokens is fundraising. NFTs can be a fantastic way to make money through auctioning, which allows such organisations to raise money for their cause. It also promotes awareness for the charity and the cause, as well as appealing to a new and wider audience.
NFT real estate
Use of NFTs in virtual real estate is still a relatively new concept, but it’s still a thing nonetheless. As with any other NFT, purchases are made using the cryptocurrency that the NFT provider accepts.
Digital land and buildings exists in the virtual world, which is often referred to as “the metaverse”. A place where users can construct anything they want using popular platforms such as Minecraft or Roblox. Surprisingly though, NFTs and buying property doesn’t just begin and end in the metaverse. NFT real estate can also represent property in the physical world! Physical establishments and even land can be tokenised and represented as an NFT, and the first official NFT house was sold in Florida in 2022. There really is no stopping the NFT!
So now you know…
Now, more than ever – humans are spending more and more time online, and with the emergence of social media, interaction and communication with people all over the world in various time zones has never been easier. Whether it’s selling artwork, or buying plots of land – the subject of NFTs remains to be the topic on everybody’s lips, and now that you are a fountain of knowledge on the matter, who knows? Maybe you can look toward selling your own digital art, acquire the ownership of a viral video, sell your own viral video, or even buy your next home. The possibilities really are endless.
