NFT: What does it mean and other details

Non-fungible tokens (NFTs), digital collectables had a terrific year in 2021 as the industry achieved a record sales volume of more than $12 billion.

What is an NFT?

NFT stands for a non-fungible token, which basically means that it's a one-of-a-kind digital asset that belongs to you and only you. They have unique identifying codes. They are not mutually interchangeable, hence not fungible.

It is a unique unit of data employing technology that allows digital content to become logged and authenticated on blockchains. However, these digital items can be bought and sold using this blockchain technology, but they are not fungible, which makes them a different type of asset.

Types of NFT data units may be associated with digital files such as photos, videos, and audio. Because each token is uniquely identifiable, NFTs differ from blockchain cryptocurrencies, such as Bitcoin. They are bought and sold online, frequently with cryptocurrency, and they are generally encoded with the same underlying software as many cryptos.

How are NFTs traded?

Similar to cryptocurrencies, these NFTs are bought and sold on specialised platforms. They can be traded and sold on a digital market and a few of the best-known NFT marketplaces are OpenSea and Rarible. However, the sale does not necessarily involve the transfer of the object depicted by the token. For instance, NFTs of famous oil paintings have been sold but the buyer does not receive an actual oil painting that can be hung on the wall, he gets a digital file instead. They also get exclusive ownership rights.

In fact, the ownership of an NFT does not inherently grant copyright or intellectual property rights to the digital asset a token represents. NFTs can have only one owner at a time. However, someone may sell an NFT representing their work, but the buyer will not necessarily receive copyright privileges when ownership of the NFT is changed and so the original owner is allowed to create more NFTs of the same work.

Although NFTs don't offer any royalty, interest or dividend on the digital item traded, bought and sold, NFTs give the investor a chance to benefit from crypto price momentum, as they are denominated in cryptocurrencies.

How Is an NFT Different from Cryptocurrency?

NFT (non-fungible token) is generally built using the same kind of programming as cryptocurrency, like Bitcoin or Ethereum, but they are not similar.

Physical money and cryptocurrencies are "fungible". This means they can be traded or exchanged for one another. They're also equal in value—one dollar is always worth another dollar; one Bitcoin is always equal to another Bitcoin. Crypto's fungibility makes it a trusted means of conducting transactions on the blockchain.

But NFTs are different as they are non-fungible and each NFT has a digital signature that makes it impossible for NFTs to be exchanged for or equal to one another.

How Does an NFT Work?

NFTs exist on a blockchain, which is a distributed public ledger that records transactions. Specifically, NFTs are typically held on the Ethereum blockchain, although other blockchains support them as well. An NFT is created, or "minted" from digital objects that represent both tangible and intangible items, including arts, videos and sports highlights, collectables, GIFs, video, virtual avatars, tweets and music among others. Twitter co-founder Jack Dorsey sold his first-ever tweet as an NFT for more than $2.9 million.

How to Buy NFTs

A person who is keen to start his own NFT collection then he/she will have to acquire some key items including a need to get a digital wallet that allows him to store NFTs and cryptocurrencies. For this purpose, the person will have to buy some cryptocurrency like Ether depending on what currencies his NFT provider accepts. Crypto's can be bought on platforms like PayPal, Kraken, Coinbase and a few others using a credit card. The person will then be able to move it from the exchange to your wallet of choice.

Most of the exchanges charge at least a percentage of your transaction when you buy crypto, which means, you will have to remember that a fee will be charged for the purpose.