What are NFTs?

The cryptocurrency market has seen everything from Bitcoin hitting ATH, sending Dogecoin to the moon, or the volatility of the market after Elon Musk’s tweets. Now the trend is way past these topics as we are slowly moving towards the metaverse. 

‍

The concept of the metaverse and the corresponding virtual world brought NFTs into the limelight. The NFTs are exploding and everyone wants to own one now. However, there is still a huge amount of people who are unfamiliar with the concept of NFTs. 

‍

Thus, in this article, we will cover everything from understanding what an NFT is to how you can buy one. We will also go through a quick comparison between NFTs and cryptocurrencies. But first, let’s see what exactly an NFT is.  

What Is NFT?

NFTs stands for Non-Fungible Tokens, in this term we will have to understand about the word "Fungible". We can agree that the Crypto Space has many concepts directly taken from fiat currency and we can trust those concepts because studies had been done over them for years and now under crypto they back decentralization and provide more transparency. 

‍

Coming to the point, Fungible is nothing but something that, at core, you can interchange or exchange it with a product or any type of entity which holds the same value compared to what you'll get after exchange or interchange. 

‍

Bitcoin is the perfect example for a Fungible token, currently bitcoin holds some value. Now if we sell a couple of bitcoins and again buy a couple of bitcoins, we'll get it at the same value. Now you will have a rough idea about Non-fungible tokens, it is the concept of Non-interchangeable items or currency which are one of a kind. 

‍

Basically, if someone has anything which holds a value in millions and on the other hand we have a Non-fungible item, maybe the NFT will not hold such a high valuation but because it is only one of its kind, it will make the product worth more in future. It’s the scarcity of NFT’s which make them worth a buy, just like we have collectibles, they are also non-fungible items. 

‍

For example, imagine that your boss has asked you to take care of their pet dog and you agree to it but while you are on a walk with the dog, it manages to escape and runs away. Now you are just trying to find the dog everywhere and can’t seem to catch it. 

‍

You go back home dejected but then you suddenly come up with an idea to replace the Boss’ dog with another one that looks similar. If you follow through with that plan, your Boss would immediately notice that the dog isn’t their dog but a different one because it is almost impossible to replicate a living thing like that. In this case, your boss’ dog is a Non-fungible living thing.

‍

The concept of NFT is simple, NFT’s runs on the Ethereum blockchain, you can say they are a part of the blockchain. This concept completely stands out, because of that you can only buy NFT through Ethereum. 

‍

NFT’s works completely different from any other tokens or Coins, you can buy any NFT through ETH coins. Many other blockchains have started to create their own NFT platforms. 

NFT vs Cryptocurrency

Cryptocurrency is a very broad term and someone new to this world of cryptocurrencies may get confused between an NFT and Cryptocurrency. Although both of these assets share a lot of similarities, there are some fundamental differences between them. 

‍

As now you have a basic understanding of what an NFT is, we will look into the 2 key factors which separate an NFT from cryptocurrency. Later on, we will see how NFTs work and how you can own one. 

1. Trading 

One major difference between NFTs and cryptocurrency is that NFTs cannot be traded. The reason simply lies in the fundamentals of NFT. As you know, NFT is a way of owning a digital asset. 

‍

Instead of buying a physical painting, you can buy an NFT which is an original file of that digital art. It is similar to owning a physical painting, except it is managed and recorded on a digital ledger. Each NFT is unique having its different value and hence it cannot be traded with another NFT. 

‍

Whereas, cryptocurrencies can be traded with one another without loss of their value. Therefore, you can buy and own an NFT but you cannot trade an NFT with others. 

2. Objective

Another difference between NFT and cryptocurrency is their objective. Both of these have been created to serve a specific purpose. Cryptocurrency as you already know is a means of exchange. 

‍

Cryptocurrency is designed to serve purposes like decentralizing finance, exchanging digital information, and further, it can be used to solve many real-world problems like supply chain issues. 

‍

On the other hand, NFT is a digital proof or certificate which states that particular digital art is owned by a particular owner and cannot be duplicated or altered. The blockchain system and encryption technique i.e. cryptography, ensure the legitimacy of the NFT. 

How Does NFT Work? 

As you must already know by now, NFTs are sold and bought on blockchains, the Ethereum blockchain to be more specific. Although, a number of other platforms support them as well; Ethereum is the most popular one. NFTs basically have a unique set of data points stored in them that make them different from any other tokens and hence, make them non-fungible.

‍

An NFT can be created or minted based on a digital object that can be the representation of both tangible or intangible objects like somebody's artwork, GIFs, collectible items, photos or videos, music, etc. People can mint an NFT out of an infinite number of things and that is what makes them so exciting, their uniqueness.

‍

You can say that NFTs are collectible items only in a digital format. Instead of having a physical item, you will just have its digital copy if you own its NFT. Any person who owns an NFT has the sole rights of that NFT and the unique data of the NFT helps in verification of the ownership and transferring of the NFT between owners.

‍

Any person who owns an NFT can store data in the NFT, like signing an Art NFT by adding a digital signature to the metadata of the NFT. The blockchains ledger verifies the ownership of it and it is that ownership of the NFT which is bought or sold. 

‍

Note: You should know that having the sole ownership of the NFT does not mean that you have the copyrights to that particular artwork or whatever the NFT was minted from.

‍

How To Buy An NFT?

The NFT transactions that take place are often in a dedicated marketplace. Let us find out how one can buy an NFT in a detailed manner. 

‍

• To start with, most NFTs are tokens based on Ethereum as these marketplaces mostly use the Ethereum network to carry out their transactions. One will need to have Ether to buy NFTs. 

‍

• If you already have an account for crypto exchange, then you can simply procure the Ethereum tokens and add them to your wallet. 

‍

• On the other hand, if you do not have an account already then you can open one and procure your Ethereum tokens from there. 

‍

• Once you have purchased your ethereum tokens you need to set up a crypto wallet that is compatible with Ethereum tokens. In the said wallet you can store your cryptocurrencies and use it for transactions. 

‍

• There are various platforms where you can set up your wallet, all you need to do is go to their respective websites and open a wallet. Once that is done you can transfer your purchased Ethereum tokens to the wallet. 

‍

• As stated earlier, NFT transactions are said to take place on dedicated marketplaces. So, there are a number of such marketplaces for NFTs which you can choose from. You can choose the market place from where you wish to purchase your NFT. 

‍

• Once you have chosen the market place to buy your NFT, you will have to register an account on the respective market place. There is a registration process which is different for different market places. 

‍

• As you register your account, now you can connect your crypto wallet to the said marketplace. The process to do the same is very simple as it usually takes just one click. 

‍

• After connecting your wallet, you can now look for an NFT you’d like to purchase from a number of options available. 

‍

• The cost of NFTs start with zero and can be upto hundreds of thousands of dollars. The price can be even more if it is a rare item for sale. 

‍

• Now, most of the NFTs are purchased via an auction where buyers need to bid for the NFT they desire where the highest bidder gets the NFT. Once you bid successfully you can carry out the transaction by transferring the required amount from your wallet. 

‍

• Apart from that, there are also some NFTs that are available for direct purchase which you can procure just by clicking at the ‘buy now’ option. 

‍

• Sometimes, there is also some transaction fee that is debited from your wallet, this transaction fee varies from marketplace to marketplace. 

‍

• So, now that you have bought an NFT, you can store it in your wallet and access it whenever required or as and when you wish to sell it. 

‍

Conclusion 

That was all about Non- fungible tokens, to understand this topic in more detail, you will have to do your own research on it. The market hype for NFT is on peak but never follow the flock, do your own research, check whether you are actually interested or not. Advice from people will always guide you, rest is all up to you.

‍

Hope you understood everything from this article, if you get stuck at any point you can contact us, or simply comment down your queries below. If you liked this article, please checkout our website for more. To get more articles related to NFT, stay tuned with us!

‍