You’re probably seeing the word ‘NFT’ everywhere these days. It seems NFTs or ‘Non-Fungible Tokens’ popularity grew overnight. From art and music to tacos and toilet paper, these digital assets are selling for more than you could imagine, with price tags of up to a million dollars and more.
What are NFTs exactly?
Over the past few months, new technology has come to the forefront of the digital world in the form of digital assets – non-fungible tokens. These digital assets, also known as cryptocurrencies, are becoming more and more common in our everyday lives. You may have used a cryptocurrency like Bitcoin to buy a cup of coffee on the go. Or you may have heard of Ethereum, the second largest Cryptocurrency by market cap, used to build applications that run smart contracts and decentralized applications. These cryptocurrencies are built on blockchains, distributed databases shared by a large number of computers worldwide.
Non-fungible tokens are digital tokens that are unique and can’t be altered or copied. From fashion and music to science and politics, the world is starting to realize the value of NFTs. But what makes them different from traditional cryptocurrencies? Although they are similar to cryptocurrencies, they are not controlled by a single organization or person.
So, in theory, non-Fungible tokens and cryptocurrencies are not exactly the same thing. How do NFTs differ from traditional cryptocurrencies?
How is an NFT different from Cryptocurrency?
First and foremost, NFTs aren’t designed to be spent, but instead to be traded and collected. Non-fungible tokens are a subcategory of cryptocurrency. Unlike cryptocurrency, designed to be a medium of exchange, NFTs are created to be unique representations of digital assets. While cryptocurrencies can be sent from person to person without involving a third party such as a bank, NFTs can only be transferred between parties if they have a unique relationship. For example, in a collectable game, a unique token can be given to a player when they complete a task or level.
Physical money and cryptocurrencies are ‘fungible’, meaning that they can be traded or exchanged for one another. Both are also able to retain their value. For example, one dollar will always be equal to one dollar. Similarly, one Bitcoin will always be equal to the value of another Bitcoin.
However, NFTs are different. Due to unique individual signatures on each NFT, exchanging or equating one NFT to another is impossible.
How does an NFT work?
The majority of NFTs exist primarily on the Ethereum cryptocurrency’s blockchain, a distributed public ledger that records transactions. NFTs can be in the forms of digital collectables, domain names, games, essays and even sneakers in fashion lines.
You create a token by combining the token data with some additional details that make it different. Creating a token is as simple as firing up the blockchain and scanning the QR code.
Non-Fungible Tokens can be created using the crypto-token protocol. This protocol is decentralized, meaning there is no central control that distributes NFTs to the world, meaning that NFTs are immune to the effects of a fork. NFTs can also be easily exchanged on the Ethereum blockchain, allowing users to move their tokens from one NFT marketplace to another. An NFT is a unique digital topper that represents something unique. Unlike a digital coin, an NFT is only really valuable because it represents something exclusive. For example, if I purchase an NFT that represents a rare Pokémon egg, it would only be valuable because it represents the only egg of that Pokémon in existence.
Recently, world-famous model Isabella Khair Hadid announced her first-ever NFT collection, “CY-B3LLA”. Her inspiration behind the project is building a meta community that fosters and sustains peace, love, compassion and meaningful connections. She plans to release exclusive and unique NFTs to the digital world, each piece being a 3D scan of the model herself.
What are NFTs used for?
Crypto-trading individuals, art collectors and individuals invested in the crypto world often use NFTs. However, non-fungible tokens have more mainstream uses nowadays.
1. Digital content: Similar to the Bella Hadid example mentioned above, the most significant use of NFTs today is digital content. Content creators and social media celebrities have noticed a massive enhancement in profits through NFTs. These digital assets offer content creators the opportunity to create unique work and have ownership over the content that platforms use to publicize it.
2. Gaming items: NFTs have also gained considerable attention from game developers and players alike. The use of NFTs in games places more power in players’ hands and allows them to sell items after they’re finished and earn money from future resales. For example, both FIFA and Fortnite offer in-game ‘skins’ for their characters. Some of these skins are exclusive and only last for a while. After the duration for the skin is up, players are not able to purchase the skins anymore. But with NFTs, players can control the sale and resale of the item. And if you’ve missed some of FIFA’s seasonal kits, you’ll be able to purchase them from other players. And the same goes for Fortnite.