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What Are NFTs And How do They Work? - Guide For Dummies
What is an NFT (Non-Fungible-Token)?
The NFT market has grown exponentially since 2017 due to the increasing popularity of blockchain technology and cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH).
If you haven't heard of NFTs, then you're either living under a rock or only concerned with the latest pump and dump schemes.
NFTs are a new type of digital asset. They can represent anything from a physical object to a piece of art to a song.
NFTs are a type of digital asset that can be used to represent assets such as real estate, fine art, and even cryptocurrency.
These digital assets have some unique features that make them different from the other types of digital assets, like cryptocurrencies and securities.
Non-fungibility means that each token is unique and there is no other token like it in the world.
The term “non-fungible” comes from the world of collectibles where each object is unique and cannot be exchanged for another similar object — like a baseball card or piece of art — because there is no equivalence between items of similar type.
A common example of non-fungible tokens are CryptoKitties, which started as an Ethereum-based game but has since evolved into an application with a wide range of use cases outside of gaming, including education and art.
NFTs can also be used as an alternative to traditional assets like stocks or bonds.
NFTs are created by generating a token on the blockchain that represents an asset with its own set of metadata.
The metadata is stored in the form of colored strings, which allow for more advanced features such as image thumbnails and embedded text descriptions.
The key difference between NFTs and other types of blockchain tokens is that they can’t be divided or split up into smaller units like regular cryptocurrencies can (e.g., Bitcoin).
NFTs break down into two categories:
1) Cryptocollectibles — These are physical objects like CryptoKitties that have been given unique attributes on a blockchain. CryptoKitties were the first mainstream game to use NFTs and they’ve become an online phenomenon with millions of users worldwide. The most valuable CryptoKitty ever sold for over $170k!
2) Non-fungible tokens — These are virtual items or digital assets such as tickets, licenses or contracts that you can transfer between users. Non-fungible tokens were created by ERC-721 which is an open source standard for designing non-fungible tokens on Ethereum.
What are the characteristics and benefits of NFTs?
The characteristics of NFTs include:
- They are unique, meaning there is only one copy of each NFT on the blockchain.
- They are transferable, meaning you can send them from one party to another.
- They have scarcity, meaning there is a limited supply of each NFT.
Digital - They can be easily tracked and stored in a digital wallet on your phone or computer. This means that you don't have to worry about losing your tokens when you move them around or use them for transactions.
Fungible - Each token has the same value as every other token of the same type, so it's easy to buy and sell them without worrying about which one is in question. (Fungibility refers to an asset's ability to be exchanged for another asset of the same type.)
Divisible - You can trade fractions of an NFT just like fiat currency. For example, if you want to buy something for $10 and only have $5 worth of tokens, you can sell one token and then use the proceeds from that sale to buy what you're looking for.
Why are NFTs valuable?
The value of NFTs comes from their scarcity and uniqueness.
You cannot copy or clone an NFT because it is only available once (like a real-life collectible).
This means that no two people will ever have the same item, which makes them valuable to their owners as well as collectors who want to own one of everything!
NFTs are also more stable than other cryptocurrencies because they are not subject to inflation like Bitcoin or Ethereum.
If you own 1% of all CryptoKitties in existence then it will always be worth at least 1% of its total value forever since it cannot be copied or cloned.
NFTs are often used as a way of monetizing virtual goods or assets.
They are similar in concept to real-world collectibles such as baseball cards, where the value of the card is determined by its rarity and desirability among collectors.
The key difference between traditional collectibles and NFTs is that NFTs are digital and can be traded without having to physically transfer them from one person to another.
How do NFTs work?
NFTs are different from cryptocurrencies because they don’t need to be mined or traded on exchanges.
Instead, they’re created by developers and sold directly to consumers through marketplaces like OpenSea or Rarebits.
Each NFT is controlled by a smart contract that governs its ownership and transferability.
For example, if you buy a limited-edition sneaker, you may be able to sell it on an online auction house like eBay in the future… but only if the seller accepts NFTs as payment for their product.
The creator of the NFT creates an ERC721 token on the Ethereum blockchain which represents their digital asset.
The creator then sells these tokens to buyers as a way of generating revenue.
When someone purchases an NFT, they receive an ERC721 token which is unique and can't be duplicated.
This means that if you buy two different NFTs from two different creators, you will own two separate tokens with different traits and attributes.
The use of blockchain also allows for transparency and accuracy of data so that every transaction is recorded properly.
The blockchain also records ownership of all NFTs, meaning they cannot be sold without your permission.
How to Buy NFTs?
So, how do you buy NFTs?
It's pretty easy. You can use a number of different wallets to store your non-fungible tokens, each with its own pros and cons.
There are some great options out there, but if you're not sure where to start, we recommend using either Trust Wallet or Metamask.
Trust Wallet allows you to store hundreds of cryptocurrencies in one place and is super easy to set up. You can download it here: https://trustwalletapp.com/
Metamask makes it easy to connect directly with the blockchain and send and receive Ether (ETH) and Ethereum-based tokens through its simple user interface.
The first thing you need to do is decide what kind of blockchain you want to use. The most popular option is Ethereum, but there are others out there.
Once you’ve chosen your blockchain, it’s time to find an NFT marketplace. There are dozens of websites that list digital assets for sale, but the two biggest ones are OpenSea and Rarebits.
You can also buy NFTs directly from developers via their own websites (or apps).
Many of these sites also allow users to sell their own digital assets — usually at a higher price than they would get on an online market.
You create an NFT by paying transaction fees to an Ethereum contract (called an “ERC-721”).
You can then transfer the ownership of your NFT to another person who pays their own transaction fee to the same contract.
The transaction fees go to the creators of the smart contract who will continue to operate it until some future date when they decide to stop accepting transactions for that particular contract.
This is known as “burning” the token and causes its price to increase because fewer tokens are available for sale or trade.
NFTs are an example of how blockchain technology is changing the way we think about digital assets.
They’re not just a way to buy, sell and trade physical goods — they represent a new way of thinking about digital ownership.
With NFTs transforming the digital assets, there are a lot more other things transforming the online world.
Just as we at Glorify started doing it.
We’re launching a new project along with Glorify 3.0 that will help you create NFTs easily, so you can create your own digital assets and sell them online.
So if you’re interested in doing it, we can inform you right after it gets launched.
Join our waitlist, and be the first one to create your own NFT and sell it.