What are NFTs and how they work? Explainer
Non-Fungible Tokens (NFTs) continues to make headlines in 2022. Last year, we reported that global search interest for the “NFT” rose during 2021 and surpassed “Crypto”, the rather popular one. NFTs have been sold for astronomical sums ever since they flooded the marketing, starting with Cryptokitties.
OpenSea one of the largest marketplace for NFT buyers and sellers has just recorded their best month by volume ever. The NFT craze is not slowing down as more and more companies are joining the bandwagon. Which makes many wonder what seems to be this hype all about? After all, most NFTs are just images with no productive value whatsoever. Let’s take a deep dive into the world of NFTs to explore what they are and what makes them so appealing to users.
What are NFTs?
NFTs are different kinds of assets as compared to their crypto counterparts. NFT means Non Fungible Tokens meaning that they are not interchangeable with one another. As it stores unique data on a digital ledger that uses blockchain technology.
NFTs are digital collectibles and can be bought and sold. Once sold the proof of ownership is transferred and established by blockchain. They are just like Bitcoin and Ethereum given that they are operating on blockchain but different in a sense that they can not be exchanged with one another. For example, 1 BTC holds the same value as another 1 BTC and therefore they can be exchanged with each other but one NFT doesn’t hold the same value as another NFT unless they are alike.
Any kind of digital file can be stored as NFT on the blockchain which would identify as original copy. For example, photography, music, videos, memes, characters and even tweets can be stored and classified as NFTs. You can almost make NFTs from anything that can be represented digitally. Although, NFTs are not traded physically but the underlying contract can be modified and customized to physical holding as well.
How does NFTs work?
When NFTs are created the ownership is verified on the blockchain. Anyone can created an NFT all that is needed is an ethereum wallet, small purchase of ethereum to cover the fee’s and a connection to the NFT marketplace. NFT can be bought and sold on these marketplaces. Most of the NFTs are created on the Ethereum Blockchain. Although, there are other blockchains as well that supports the same.
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