What is an nft? How do I buy one? Why would I want to buy a digital file that I can just copy in a second? Is it just another bubble?
NFT in plain English stands for a non-fungible token, but what exactly is ‘fungible’?
You can think of something that is fungible as interchangeable.
For example, if I have a $1 bill and ask you to trade it with me for a different $1 bill, You probably won't have any issue with that since they're basically two of the same thing. Meaning both dollar bills are fungible.
However, if by chance you happen to have a rare dollar bill with a unique serial number like say 12345678, You probably won't be so eager to trade it.
These $1 bills are extremely rare and could be traded for up to $5,000 or more. In other words, these bills are non-fungible. They are unique and have specific attributes that distinguish them from the rest of the bills.
So an NFT or a Non-fungible token is like a unique dollar bill. It's a digital coin that has unique attributes attached to it.
They are basically unique coins.
OK, so NFTs are tokens that live on a blockchain and represent ownership of unique items. But, for which field is that helpful? In today's world, tracking the owner of a digital file is tricky, because it can be copied and distributed effortlessly. So how can you prove who is the original owner when everyone has an identical copy of the file? NFTs solve this problem.
But what are they used for?
Well, they're used to prove ownership of a certain digital file or a digital certificate of authenticity.
When we look at a piece of art, a painting, for example, the original painting is always much more valuable than its copies.
And there are specific methods you can use to validate the authenticity of that painting. For example, receiving a certificate of authenticity. But when it comes to a digital file, how do you know what is the original in what is a copy and doesn't even matter? Well, apparently it does.
In the same way that people collect physical art, digital goods are becoming very popular these days.
When is an NFT actually created?
A creator creates a digital good, this could be an image, a video, a tweet, a website or anything else that lives in the online world. The Creator then creates a coin or more accurately a Token. On a blockchain that supports smart contracts like Ethereum Cardano or Solana.
Once the token is created the Creator can sell it to someone else and that someone will be the new owner of that digital good.
Still, shocking as it may sound, when you buy an NFT that represents artwork, it doesn’t necessarily mean that you don't get a physical copy of it. Not only that, while the token owner owns the original artwork the creator of the NFT retains the copyright and the reproduction rights. So that means that an artist can sell his original artwork as an NFT, and he can still sell prints.
Aside from digital art, NFTs can also be used to sell concert tickets, domain names, rare in-game items, real estate and basically anything that is unique and needs proof of ownership.
You have probably heard that the founder of Twitter, Jack Dorsey, sold his first tweet as NFT. Although anyone can see that tweet, on Jack Dorsey's profile, only one person can own it. And that person has paid 2.9 Million dollars for it.
How come so many NFTs are worth millions? Well, their worth is determined by what people are willing to pay for it. If I'm willing to pay $100 for a particular NFT then it's worth $100. As always, prices are driven by demand. That means that an NFT becomes worthless if nobody wants to buy it. Indeed, when a particular NFT ceases to be popular, its value decreases, and its owner gets stuck with a worthless asset.
How do NFTs work technically?
In conclusion, let's understand how the NFTs actually work technically. It's simpler than it sounds.
NFTs are essentially smart contracts that live on a BlockChain. In this case, the contract stores the unique properties of the item and keeps track of current and previous owners. An NFT can even be programmed to give royalties to the Creator every time it exchanges hands.
So the next time you crave to buy an NFT, you should carefully check who created it, how many people are interested in it, what its history is, and why you should even consider paying the required price for it.
And maybe, you would even like to create an NFT yourself? That can be nice, wouldn't it?