Non-Fungible Tokens (NFTs) Explained: Understanding the Blockchain Ledger Better
Over the past few years, the terms blockchain, cryptocurrency, and so on have found a way in all of our day-to-day vocabularies. The technology and many other different applications of it have slowly found a way in our lives and are a prime example of our fast-approaching dominantly digital future.
As cryptocurrency has risen swiftly among the ranks, this is another application of the technology that has taken over the market like a storm. A multi-million-dollar concept that has caught the eye of many globally, we will be decoding NFTs today and discussing what exactly has made them so popular.
What are Non-Fungible Tokens (NFTs)?
Essentially a digital asset that is considered the digital equivalent of a physical ledger, an NFT is, therefore, a blockchain ledger. NFTs represent real-world objects such as art, music, videos, and so on.
They let people trade ownership of digital entities in the form of a ‘token’. Since these are supported by blockchain technology, the records regarding these transactions are permanent and cannot be easily changed or modified.
Every token has its own unique identification and because of this concept, no two tokens are the same and therefore, no two digital entities have the same token. It can be looked at as a digital certification or even a digital signature that accompanies a particular digital asset.
This is exactly what all those headlines that keep repeating the millions that are being paid, usually being done in cryptocurrencies, are referring to – this certificate. When you buy an NFT, it doesn’t necessarily mean that you are the owner of the music, video, or something else in question.
An NFT doesn’t provide the person with the copyrights or usage rights until and unless it is clearly written in the license. By this, we mean that only if you are in possession of an explicit license stating that you have the rights does an NFT confer you with the digital bragging right.
What is the difference between an NFT and Cryptocurrency?
Source: Medium
Built using the same technology responsible for cryptocurrencies such as Bitcoin and Ethereum, a non-fungible token has only that in common with them.
Fungible means something that can be traded for another thing, much like physical money as well as for cryptocurrencies. Further, the value never changes, which means that one dollar is always one dollar, and in a similar way, one Bitcoin is equal to another Bitcoin. This fungibility is what makes it so easy to trust and carry out transactions securely.
But NFTs are different. Every digital signature, as we mentioned, is unique, and thus, it is not possible for there to be an equal exchange. Therefore, it is non-fungible. So a token that represents a meme is not equal to another token that represents another meme.
How do NFTs function?
These tokens exist on a blockchain. It is a distributed public ledger that keeps an account of all transactions, and most of us are familiar with its workings since it is the underlying technology that has made all cryptocurrencies possible.
To be more precise, NFTs are usually present on the Ethereum blockchain even though there are other blockhains that are capable of supporting them as well. When an NFT is made using digital objects, it stands for tangible and intangible items both. Some of these include:
– Art
– GIFs
– Videos and sport highlights
– Collectibles
– Designer sneakers
… and so on.
Do you know that even tweets count? In fact, Jack Dorsey was able to sell his first-ever tweet in the form of an NFT for more than £2 million. So NFTs can be looked at as collector’s items as well, only in the digital form.
Just like in the real world people get the actual oil painting, in the virtual world, they get the digital file containing it. Further, the person also gets exclusive ownership rights and what’s interesting here is that only a single person can own one at a time.
Each token has its own unique data and this makes it very easy to ascertain the owner and verify them. Even the transfer of tokens among owners is a simple process.
Owners or the creator can also store whatever specific data they want to store within them. For example, artists who like to sign their artwork can easily do so by including their signature in the metadata of the NFT.
What are NFTs used for?
Source: Euro News
With the help of these tokens, and the support of blockchain technology, artists and content creators now have a unique opportunity through which they can monetize their work and get what they deserve for it.
Now artists don’t have to be dependent on art galleries or auction houses to showcase their art. They can just sell it directly to prospective buyers as an NFT and be even more profitable than they would have been if they’d used the traditional method.
Also, artists can program in royalties and receive a certain portion of the sales whenever the art finds a buyer and is sold to them. This has proven to be the most attractive feature among all the others since artists aren’t usually paid future proceeds once their art is sold.
Final Thoughts
While NFTS have caused quite a stir in the digital world this year with the rising number of NFT owners, it is a highly personal decision. There are risks involved, and since this is a pretty new practice, it isn’t exactly easy to judge its stability. Do your research thoroughly before making a choice.
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