The concept of blockchain has exploded over the years. We have come to know what it is, how it works and how it can be used to provide your organization with transparency and decentralized transactional processing in your business. A buzzword that has been used extensively when it comes to blockchain is the concept of NFTs. So what exactly are NFTs and how do they work?
Well NFTs, also known as non-fungible tokens, are in essence digital assets that can be bought using cryptocurrencies or traded for themselves. Non Fungible Tokens are built using the same software as cryptocurrencies. Digital assets can be anything ranging from artwork, music, videos to tweets and sports highlights. While most of the digital assets that we know of today are widely available and ownership can be shared with many people, a key feature of Non Fungible Tokens is that they are unique or very limited and can only be owned by a selected number of people at any time.
So what exactly are Non Fungible Tokens used for? NFTs make it possible for artists, content creators, auctioneers to monetise their assets or creations without having to use a gallery or auction house. In that way owners are able to sell directly to their customers using NFTs resulting in greater profitability. With NFTs you can also have loyalties, so that every time the NFT is transferred in ownership the original owner receives a certain percentage of the sale. For artists this can be an attractive feature since they do not receive proceeds once their artwork is sold.
So what you may be asking yourself is how are NFTs different from cryptocurrencies? Firstly the only similarity between both NFTs and cryptocurrencies is that they both are programmed in a similar way. Cryptocurrencies are known as fungible meaning that they can only be exchanged for another cryptocurrency of equal value. Fungible tokens allow for transparent and trustworthy transactions between entities. NFTs, on the other hand, are non-fungible. This means that when trading NFTs you could end up with something completely different to what you started with, of less or more value.
Let’s take a look at how NFTs work. Firstly we know that NFTs exist on a blockchain. Ethereum is a popular blockchain that supports the use of NFTs. The only difference between cryptocurrency and NFTs from the same blockchain, is that NFTs store extra information that make it work differently to a cryptocurrency. NFTs are digital assets so instead of receiving the physical item that you purchased, you just acquire the digital file of the item that transfers ownership to you. Since NFTs are unique, it is easy to identify owners at any point in time even during transfers. Owners of NFTs can store certain information inside NFTs, for example, an artist may store their signature in the metadata of the NFT for their artwork. Buyers of NFTs require a digital wallet to store their NFTs and cryptocurrencies after purchasing them.
Since NFTs are a fairly new concept it is difficult to predict its performance and know whether it is a good buy or not, however because it is fairly new there is a lot of potential growth that can occur in the NFT market. The demand-driven nature of NFT prices make it potentially profitable depending on the kind of NFTs you own. Nevertheless, through understanding the concept and use of NFTs, you can find value in it for your digital business opportunities.