What is an NFT?

6 min read

What exactly is NFT? Read everything about NFT, from what is NFT to how to create your NFT!

Written by Lisa G.
Illustration by Leo Mendez

If you have been keeping a tab on the crypto news, you must be awestruck with the price of NFTs.

CryptoKitties, a game on Ethereum, is selling digital kittens as NFTs worth millions. A Logan Paul YouTube video NFT sold for $6.6 million. News websites like NYT and Quartz are selling articles as NFTs. Your favorite fast food brand McDonald has also joined the NFT club. Even one of the oldest auction houses - Christie's - is selling NFT, an artwork by Beeple that sold for around $69 million.

Wait! What is this NFT hype? What exactly is NFT?

Keep reading; this post will answer just that! By the end of this article, you would know everything about NFT, from what is NFT to how to create your NFT.

Let’s get started!

Non-Fungible Token (NFT)?

In economics, non-fungibility means the asset is irreplaceable. Dollars are fungible; you can replace a $100 bill with another $100. Cryptocurrencies are fungible; you can transfer one bitcoin for another. 

However, as the name suggests, NFTs are non-fungible. Meaning they are unique and cannot be replaced. 

Now that we have our basics right, let’s discuss what NFTs are. 

Put simply, non-fungible tokens or NFTs are lines of code on a blockchain ledger that reflect ownership of an asset, both physical and digital. For those of you who don’t know, blockchain is a ledger that records and stores data in the most secure and decentralized manner.

Let’s take a step back to understand what ‘ownership’ is. When you own something, the record of your ownership is registered with the concerned authorities, say the government. Now in case of disputes, that record will determine the owner. Nevertheless, ownership is not easily verifiable by everyone; it’s a legal procedure you see. 

In the case of collectibles, the possession of a valuable article makes you a proud owner. But in digital art, the ownership is often hard to determine. A .jpeg image you upload can be copied innumerable times. 

NFTs solve all these issues!

Anything, be it an audio file, a jpeg image, a video, in-game items, or even real estate, can be minted as an NFT. When you mint an NFT, your ownership record is immutably stored on a blockchain. Unlike government records, blockchain is public. Everyone can know you are the owner of that asset. As blockchain is immutable, your record is stored permanently. Plus, blockchain uses cryptography (advanced encryption technique), keeping your record safe.

Essentially, NFTs are cryptographic tokens that can be used to tokenize any asset and record your ownership in an easily verifiable and secure fashion. 

Why Do NFTs Have Value? 

The major cry of naysayers is why to spend millions owning an NFT when I can download the artwork for free. Yes, you can download the image, video, or audio file, but that won’t make you an owner of that artwork. The same is true of physical artwork. You can click a thousand photos of physical artwork, say a Mona Lisa painting, but that doesn’t make the painting less worthy. 

NFTs have value as they represent a unique asset that can’t be counterfeited. It is possible to make fake physical artworks, but in the case of NFTs, it is impossible to fake the record. Creators can generate copies of their NFTs; however, there still exist some differences. Just like there are original copies of physical artwork.

If you are a collector who resells artworks, NFTs can be a cash cow, considering their current popularity. 

For artists, an NFT is slowly becoming their favorite vessel to sell their creations. Why? Because it removes the middlemen and allows artists to take 100% profit. Plus, NFTs allow creators to add the royalty feature through which they will earn a percentage of the selling price every time their NFTs are resold. Also, if you wish to support the artist you admire, NFTs can be a great way to show your support. By owning their NFT, you not only support that artist but also push a vote towards a fair profit distribution model. 

Further, NFTs are also popular in the gaming space. If you buy an in-game NFT, you can recover your money by selling it once you are done with the game. As discussed, NFTs live on a blockchain. This implies that even if your developer no longer supports the game, your in-game items will still be visible on the blockchain. 

Most importantly, NFTs are stepping beyond digital artwork and collectibles. The decentralized finance (DeFi), financial applications built on blockchain, is building solutions that will allow NFT owners to borrow money against NFT. Also, projects that allow fair royalty distribution using NFTs are under development.

How Do NFTs Work? 

Technically, NFTs contain a cryptographic signature that points out the address for which it was minted. Say you minted an image as an NFT. Now when you scan your ownership certificate, it will take you to the internet address where it is stored.

Yes, NFT doesn’t store the artwork. Instead, it stores metadata such as when it was minted and the address for which it was minted. There might exist thousands of copies of digital artwork. But the NFT will point to the address for which it was minted. 

Unfortunately, this poses a threat too. If the artwork is taken down from the internet or other digital address, your NFT will be no more than a 404 error. 

As for blockchain platforms, most of the NFTs are minted on Ethereum blockchain, the world’s second-largest cryptocurrency network. Ethereum NFT token standards are ERC-721 and ERC-1155. Seeing the popularity of NFTs, other blockchain networks like EOS, Neo, Cosmos, WAX, Polkadot, Flow, and Tron have also published their native NFT token standards. 

How Can I Enter The NFT Marketplace?

1. Buying NFTs

To buy an NFT, you can purchase or place your bid on NFT auction marketplaces such as OpenSea, Rarible, Nifty gateway, NFT showRoom, and Mintable, to name a few. Before you select an NFT market, see that you have the supported cryptocurrency and whether or not the NFT you want to buy is listed on that marketplace.

2. Create And Sell NFTs

Creating an NFT is a no-nonsense process, and yes, you don’t need to be a crypto expert.

Here’s how you can create an NFT on Rarible: 

Go to Rarible.com and select ‘Create’ on the top right corner. 

• Go to Rarible.com and select ‘Create’ on the top right corner.

• Select whether you wish to sell a single unit or an NFT collection (Multiple).

• Upload your file (PNG, GIF, MP3, or other). The maximum file size is 30MB.

• Enter price details. Quote the price keeping the 2.5% service fee in mind.

• Provide a name and description for your NFT.

• Enter the royalty percentage you wish to receive upon resell.

• Connect your cryptocurrency wallet. Select ‘Connect Wallet and create’.

• Pay the Ethereum gas fee (fee charged for processing transactions).

• Select ‘Start’ and sign your order digitally.

• Sign in to your crypto wallet.

Congratulations! You have created your NFT. People can find your NFT listing by entering the name you gave to your NFT. Once your NFT finds a buyer, you will automatically receive the funds in your crypto wallet.

Is It A Bubble? Will the NFT Mania Survive?

Considering the use cases of NFT, it would be wise to say that NFTs are here to stay. 

NFTs aren’t new; they have been there since 2017, thanks to CryptoKitties, an Ethereum-based game that allows you to buy and breed digital kittens. It is just that the world is seeing more use cases of NFTs – from collectibles, artworks, recording ownership, and fair royalty distribution. 

To conclude, the future of NFTs will only be as good as its use cases.