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What Are NFTs and How Do They Work: A Complete Guide

by Anne Carton Tweet - in Digital Art


Last updated on January 19th, 2023

Blockchain technology brought about a sea change in the way of selling art and other valuable items. The conventional ways have changed radically. It resulted in the eruption of NFTs (Non-Fungible Tokens). Since then, these tokens and NFT art have been the new normal.

Millennials are particularly fond of NFTs transactions, and they are the most significant group activities in this market. But while most people from older generations still keep away, corporates and artists are entering this field aggressively. They see NFTs as a new investment opportunity.

NFTs started the journey on a humble note as simple jpeg art stored on the blockchain. But they have now entered almost all art forms, such as music, films, animations, video games, wearables, and even tweets.

What Is an NFT?

An NFT is a Non-Fungible Token that digitally protects and represents objects such as videos, game items, art, and music. The sales of these NFT items take place online using cryptocurrency. The digital computer file can be an image, GIF, or audio clip. The popularity of NFTs is that it becomes a guarantee of ownership.

One of the critical features of NFT is that each copy of the digital image will be unique from its many other copies. This is because the metadata of each copy has the mention of a different owner and additional information.

That implies that while dozens of investors bought and sold that digital image previously, the current owner is the actual owner who can say that they own the copy number # of the image. This creates the rarity of the NFT digital image, making it a valuable asset. So, the whole point of NFTs is to create digital scarcity to sell them at higher prices later.

Today, NFTs are precious properties, and investors’ interest in putting their money on these tokens is increasing daily. NFTs are collectors’ new crazy field of interest. According to an estimate, approximately 1.8 billion dollars worth of NFTs are sold monthly. “EVERYDAYS: the First 5000 Days”, a collection of artworks done each day for 5000 days by the artist, was sold at Christie’s for $69.3 million.

Difference Between NFT and Cryptocurrency

The programming of NFTs is more or less like that of cryptocurrencies such as Ethereum or Bitcoin. That is the only similarity between them.

The main difference is that cryptocurrencies like currency notes and coins are ‘fungible,’ implying that you can exchange them for one another with equal value. So, just as one dollar is always similar to another, one Bitcoin equals another. That is why you can make transactions in cryptocurrencies on the blockchain. You can identify a cryptocurrency with its crypto logo.

On the other hand, NFTs are non-fungible, meaning each token is unique and irreplaceable. Therefore, you cannot exchange one token for another as they do not hold the same value. This is where NFTs become unique and special, as these tokens create the rarity of a product, which is the chief reason for investment in them.

What is the use of NFTs?

Non-fungible-token [NFT] has revolutionized the transaction of gaming and collectible items. NFTs are an opportunity for gamers and collectors of arts etc. items to be sole owners of the digital asset. They can sell artworks as digital assets to sellers from across the globe without going to a gallery or auction house.

Blockchain technology has made it possible for content creators and artists to monetize their creative works. There is no need for artists to rely on expensive art galleries or auction houses and wait their turn for the exhibition of their artworks and sell. Thanks to blockchain, artists can sell their works as NFTs. Each time their NFTs get sold to a new owner, they get a percentage of the sales.

Besides artists, big brands also have used NFTs. For example, brands such as Taco Bell and Charmin auctioned off their themed NFT art to raise funds for charity.

But should you buy NFTs? Experts say that NFTs are risky investments and have uncertain futures because this market is still new. Investors do not have a history and background in NFT markets regarding success and failures. So, there are still risks for investors. Investors would be wise to put only a tiny portion of their money into buying NFTs.

Investors should carefully evaluate the risks and research the market before buying an expensive NFT.

How Does an NFT Work?

NFTs are on a blockchain that records all transactions in that particular non-fungible token. That is a way to know the current owner of the NFT. So, blockchain functions as a distributed public ledger to track all transactions.

Typically, the Ethereum blockchain holds most NFTs, though other blockchains are also in use.

You can use art videos, GIFs, collectibles, designer sneakers, music, tweets, and collectibles as digital objects to mint them as NFTs. For instance, the co-founder of Twitter, Jack Dorsey, sold his first tweet for more than $ 2.9 million as an NFT.

So, NFTs are the modern avatar of physical collector’s items. Previously, collectors used to buy paintings to hang them on the wall. Now, a digital file of the artwork is available in digital form. Whoever buys that NFT becomes the owner of that painting.

Just like in the case of physical painting, there is just one owner of the NFT at a time. But because of blockchain technology, anyone can verify the owner of that piece.

Here Are The Steps To Explore NFT Marketplaces

01. Sign Up

You must first sign up to an NFT marketplace to create your account, connect a supporting digital wallet, or both.

02. Buying An NFT

Then, you can buy an NFT of your choice at a fixed price. Alternatively, you can also buy through an auction. Then, if you find the prices of your choice of NFT too high and still want to buy, you can directly negotiate the prices with the seller.

03. Selling An NFT

But selling an NFT is a bit complicated, mainly when the seller is also the work’s creator, such as a painting, music, soundtrack, etc. You can also choose to sell NFT through an auction.

To sell, first, upload your digital asset to the marketplace and set its fixed price,

The marketplace will then verify the asset and, after approval, will get listed for sale.

When you are happy with the bid price as a seller, the marketplace will transfer the digital asset from seller to buyer.

04. Minting An NFT

You also need to choose a wallet. Opt preferably for Ethereum as it is the largest and the most popular system for NFTs. An Ethereum wallet supports ERC-721, its token standard for NFTs, and supports wallets such as MetaMask, Trust Wallet, or Coinbase. Make sure you put $50-$100 worth of Ether additionally for transaction fees that the marketplace will charge for the digital assets you buy or sell.

These are the steps you complete to do transactions in NFTs on platforms such as Rarible and Open sea. Most marketplaces guide you in creating your account with them step by step, making the minting of NFTs fairly easy.

How To Buy NFTs?

If you plan to buy NFTs, you must go through a process.

First, open a digital wallet where you will store your NFTs and cryptocurrencies. To buy NFTs, you will need cryptocurrency such as Ether. But check with the NFT provider about the cryptocurrency they accept.

Visit platforms like Kraken, Coinbase, eToro, and even PayPal to buy cryptocurrency. You can then transfer the currency from the exchange to your digital wallet. Know that most exchanges charge a fee on every transaction when buying crypto.

Major NFT Marketplaces

While there are plenty of NFT marketplaces, some of them are popular and frequently used. But make sure that you have a digital logo as your identity before you subscribe to these marketplaces. People will identify you by keeping your logo visually in mind.

Here Is A List Of Most Popular NFT Marketplaces

  • OpenSea
  • Rarible
  • SuperRare
  • Binance
  • Foundation
  • Nifty Gateway
  • NBA Top Shot
  • Mintable
  • Axie Marketplace
  • Larva Labs/CryptoPunks

These may be the most popular marketplaces, but you should also research others to find the one that suits you best.

So, these are the significant aspects of NFTs. If you are also interested in creating your own NFTs or buying/selling, then get all the minute details and evaluate the risks yourself.

For graphic designers, who wish to find work or create unique designs, Designhill is the marketplace to explore. This marketplace is also ideal for business owners to launch their logo design and other design contests and get unique design ideas from experienced graphic designers worldwide. So, get started with the platform and explore it for your design requirements and design contests.

Wrapping Up

Non Fungible Token is a unique way to ensure ownership of a product of art, music, and anything and helps create the product’s rarity. That results in escalating prices of an NFT, which drives investors into these blockchain-based tokens. It is the most modern way to secure ownership over art and other products and attract investment.

Sell Your Art Online

Anne Carton is a small business consultant, designer and an enthusiast blogger working with Designhill, one of the fastest-growing custom design marketplace. She has authored several blogs, articles and editorials on various topics related to interactive content, concerning design, social media strategies, growth hack strategies, digital marketing and e-commerce. Facebook | Twitter

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