NFTs are a form of cryptocurrency that has often been in the news. In most cases, this was because a new NFT artwork had been sold for hundreds of thousands, if not millions of euros. An NFT can become extremely valuable for several reasons. We explain below what an NFT is, how these non-fungible tokens work and what you can do with them.

What are NFTs?

NFT stands for non-fungible token, and is a specific type of token that runs on the blockchain. An important feature of NFTs is that they are unique and non-exchangeable. Each NFT has a unique characteristic that distinguishes them from each other. This offers countless possibilities. That is why NFTs are also used for situations where normal cryptocurrencies and tokens could not be used. Normal cryptocurrencies are not unique and interchangeable. We also call this fungible tokens.

What is fungible and non-fungible?

Something is fungible when you can swap it out for another without noticing a difference. For example, the euro is fungible. When you pay 10 euros to the seller of a store, it does not matter whether you do this with two 5 euros notes or 10 1 euro coins. Bitcoin is also fungible. It does not matter which Bitcoin you own. Every Bitcoin has the same value.

The moment something is provided with a unique property and can therefore be distinguished from comparable items, it is called non-fungible. A painting is a perfect example of a non-fungible object. Even though there are millions of paintings, you can distinguish each painting from each other because they contain enough unique properties.

How do non-fungible tokens work?

An NFT can run on a blockchain that offers special support for NFTs. The Ethereum blockchain is the most widely used blockchain for NFTs. Here, an NFT uses a special token protocol: ERC721 and ERC1155. Such a protocol describes the way in which tokens must be programmed to be seen as that type of token.

In addition to Ethereum, there are several other blockchains that NFTs can run on. The Binance Smart Chain (BSC) is also a popular blockchain, and we see more and more NFTs running on Solana and Cardano. The advantage of these blockchains is that they can process transactions faster and cheaper than Ethereum. Users therefore pay less high costs when they buy an NFT on Cardano or Solana. The high transaction costs on Ethereum also have an advantage. Because users have to pay a fee to buy an NFT, the NFT basically becomes a lot more valuable.

Tokenise

It is possible to store physical objects as a token on the blockchain. This is called tokenizing. It means that ownership of an object is stored on the blockchain. An NFT is therefore also a certificate of ownership. Once an NFT is placed on the blockchain, it is always linked to one owner. It is not possible for an NFT to have multiple owners. This makes the NFT a perfect means of storing ownership.

For example, it is possible to place a house as NFT on the blockchain. The property contract is then kept in the NFT, along with all the necessary properties with which the house can be identified. The owner of the NFT also owns the house. It is important that local laws and regulations are in place to see NFTs as actual proof of ownership. More and more countries are looking at the possibilities of this.

Cannot be copied

When you keep an NFT in your wallet, you are the sole rightful owner of the NFT. Yet, it is possible for everyone to save, for example, an NFT artwork as an image on their computer. That's true, but in that case, someone didn't copy the entire NFT. An NFT consists for the most part of a code. This code is made for the blockchain and can therefore not just run on a normal computer.

It is not possible to copy and paste an NFT in its entirety on the same blockchain. Blockchains will see that the code is identical to another NFT, after which the NFT will not be accepted. So on the blockchain, there is only one person who can own the NFT. A complete duplication is not possible.

Many use cases for NFTs

NFTs can be used for many purposes. The properties of an NFT (unique, certificate of ownership and non-exchangeable) are very useful in different sectors and industries.

Art

Many artists make so-called NFT art. This is art in the form of a JPG, PNG, JPEG, MP4 or MP3 file, which is stored as NFT on the blockchain. Artists then sell their work on special NFT marketplaces, where the art sometimes sold for millions of euros (although this is of course very rare).

In fact, you can save anything as NFT. For example, Twitter founder Jack Dorsey's first Tweet ever sold as NFT. The code of this tweet was stored as NFT on the blockchain and then auctioned. So, a lot is possible with NFT art.

Gaming

Developers can develop a game and run it on the blockchain. In these games, players can collect in-game items stored as NFT. The advantage is that these in-game items are actually owned by the player, and they can resell these items to other players. For example, it is possible to earn money by playing a game. This industry is called GameFi (Game Finance), and these types of games are called Play-to-Earn (P2E).

Collector's Items

Everything could be stored on the blockchain as NFT, such as collectors' items. In 2022, the notes Paul McCartney (The Beatles) wrote for “Hey Jude” were sold as NFT by Julian Lennon, son of John Lennon. This NFT raised more than 65,000 euros (the amount raised was donated to a good cause).

Where can you buy and sell NFTs?

NFTs are bought and sold on special NFT marketplaces. These are websites where creators and owners of NFTs can place their tokens. They can sell their NFT in different ways. They have the option to ask for a fixed price, but can also start an auction. Buyers can then bid on the NFT, after which it will be sold to the highest bidder once the time has elapsed.

Depending on the blockchain, you can choose from different types of NFT marketplaces. OpenSea is the most famous marketplace on the Ethereum blockchain. If you want to buy an NFT on Solana, you can use Solsea. Binance has its own page within their exchange for NFTs that run on the Binance Smart Chain.

To buy an NFT, you need to link an external wallet to the marketplace. The wallet you link must provide support for the blockchain on which the NFTs and marketplace run. Are you buying an NFT on OpenSea? Then you need, for example, a Metamask wallet. In this wallet, you also need crypto coins, with which you can settle the NFT. After purchase, the NFT is moved to your wallet. An NFT is a token, and you store it in a crypto wallet.

Conclusion

NFT stands for non-fungible token and is what the name says it is: a non-exchangeable token. People can store literally anything as NFT on the blockchain. The NFT is regarded as a certificate of ownership, and the owner of the NFT is the sole and rightful owner of the certificate. Because each NFT is provided with a unique property, all NFTs can be distinguished from each other.

The properties of an NFT are extremely useful for a multitude of purposes. For example, NFTs are often used for NFT art. This is an art form where artworks are stored as NFT on the blockchain. There are also many games that allow users to collect and resell in-game NFT items. This can make playing P2E games a lucrative business.

When you want to buy or sell an NFT, you will have to go to a special NFT marketplace. This is a platform where buyers and sellers of NFTs come together. The most famous NFT marketplace is OpenSea, and it runs on the Ethereum blockchain. Every blockchain has its own NFT marketplace(s). Although you often hear in the news that NFTs are sold for a lot of money, you can also lose a lot of money with NFT trading. Therefore, always do good research into NFTs and do not invest money that you cannot afford to lose.

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