Unless you've been living under a rock, you've probably heard of the word NFT. Incredibly huge in the tech-savvy crowds, NFTs have been taking the digital world by storm. Everyone from NBA players to celebrities has been about NFTs and making huge money online.

If you don't understand what the hype is about, this article will explain how NFTs work for you to appreciate their relevance today.

What are NFTs?

The word NFT stands for non-fungible token. Basically, an NFT is a digital asset that represents objects that can be found in the real world. NFTs can range from art to music and videos to in-game items. These assets are bought and sold on the web, frequently via cryptocurrency.

In general, NFTs are coded with the same underlying software as cryptocurrency. The unique and non-interchangeable unit of data stored in an NFT guarantees that it's one of a kind.

NFT has boomed recently, but it has been around since 2014. This is primarily because people perceive NFT as an art. NFTs have become a trendy way to purchase and sell digital art. In fact, the NFT art market was worth an impressive USD 41 billion in 2021. This staggering total value nearly rivals the entire global fine art market.

What makes NFT art so valuable is that, in general, NFTs are unique or available for a limited time only. In addition, NFTs have special identifying codes. The exclusivity of NFT art starkly contrasts with other digital art, which usually has an unlimited supply. The uniqueness of NFTs cannot be forged, which gives buyers assurance their money will be put to good use.

NFTs are usually digital artworks of items that exist in other forms elsewhere. For example, you can already find iconic video clips from NBA games or digital art on Instagram.

Anyone with internet access can view individual images or even various images of NFTs for free. However, the value of NFT art lies in the ownership of these digital artworks. When you purchase an NFT, you'll be the sole owner of an original art piece.

Like other people may have copies of Monet paintings, you have exclusive ownership of a particular Monet painting when you own an NFT. Ownership of non-fungible tokens has more value than having replicas online.

Every NFT has built-in authentication, which serves as one's proof of ownership. NFT collectors are often more proud of the fact they own NFTs as opposed to the NFT art itself.

What's interesting about NFTs is that even if you create a thousand replicas of the same image or video, each copy can be uniquely identifiable. The metadata in each asset makes it possible to authenticate its uniqueness.

This is the exact value of having one of the thousand trading cards in existence. Assuming that the value drives up over time, the owner will have the opportunity to make more money in the long run.

At the same time, NFTs are indestructible. Because all NFT data are stored on the blockchain, each token cannot be destroyed, removed or replicated easily. The NFT world allows you to have sole ownership of digital items instead of borrowing them from the companies that make them.

What makes NFT art different from cryptocurrency?

Because NFT art is built using the same programming as cryptocurrency, some people might be confused between the two. However, their programming is where the similarity of both concepts stops.

How is this so? You have to understand that physical money and cryptocurrency are both 'fungible.' This means they can be traded for one another. They also have the same value, which means that one dollar is equal to one dollar.

At the same time, one Bitcoin has the value of one Bitcoin. The fact that cryptocurrency is fungible makes it a reliable means of conducting transactions on blockchain technology.

On the other hand, NFTs have unique digital signatures that make it virtually impossible to be exchanged with other digital artwork. Value in the art world or the NFT market varies tremendously. This follows the principle that every piece in art galleries has its unique price.

While some NFTs may look similar to one another, NFTs are created in a way that each one is guaranteed to be unique. The technology behind each asset is highly sophisticated, making it nearly impossible to forge or falsify online.

How does an NFT work, exactly?

You can find NFT art on blockchain technology. As you know, a blockchain is a shared database that records transactions within the system. Blockchain is what makes cryptocurrency possible.

You can usually find NFTs on the Ethereum blockchain. However, other blockchains can support NFTs as well. Ethereum's blockchain keeps tabs on who's holding and selling NFTs.

As mentioned, an NFT is derived from digital objects representing intangible and tangible items. NFTs can come in the form of the following:

  • Collectible items

  • Designer sneakers

  • GIFs or graphics interchange format

  • Graphic art

  • Music

  • Videos and sports games highlights

  • Virtual avatars and video game skins

There are even instances wherein tweets have been sold as NFTs. Twitter CEO Jack Dorsey sold the first tweet for over USD 29 million. To sum it all up, NFTs are like collector's items in the digital space. Instead of getting a priceless oil painting or other traditional art forms, people pay massive amounts for a digital file.

When someone purchases in the NFT space, that person has exclusive rights to that particular item. Two people are not allowed to own a single NFT at the same time. The blockchain technology behind NFTs makes it easy for anyone to verify the ownership of NFTs and transfer files among each other. It is also possible for NFT owners to store information within the NFT. They're essentially sophisticated digital trading cards.

The transparent, irrefutable ledger has allowed anyone to verify people's ownership. One can even trace the NFT back to its original maker if needed. Blockchain technology has paved the way for anyone online to authenticate NFTs anytime.

Every time an NFT is created or transferred, blockchain technology permanently records the action. This action is also timestamped, making it easy for anyone to trace the origins of an NFT.

The value of an NFT relies on its demand, much like how the value of physical art works. Buying NFTs can be an expensive endeavor when you choose to buy NFTs that are popular. Likewise, NFTs can also be viewed as an investment, significantly when the value of the NFT increases over time.

What are the uses of NFTs?

Blockchain technology and NFTs allow digital artists the unique opportunity to monetize their works. Through the NFT marketplace, digital artists no longer rely on galleries to sell NFTs. Instead, they call their NFT artworks directly to people via NFT marketplaces.

The opportunity for artists to sell their works as digital files also allows them to charge a premium price for digital ownership. They no longer have to pay a percentage to auction houses or art galleries, so they get to keep more earnings.

Art isn't the only way to make money from the NFT space. Brands like Mattel and Taco Bell have used NFTs to raise funds for charity. The NFT craze has become so massive that celebrities like Lindsay Lohan and Snoop Dogg have sold artwork online as securitized tokens.

NFTs can also be used for investments. Both NFT and DeFi (Decentralized Finance) have the same infrastructure. NFTs can be used as collateral for investments online.

How do digital artists buy NFT or digital art?

NFTs are sold and traded just like other cryptocurrencies based on Ethereum. However, instead of buying several tokens, you only get one.

To sell a non-fungible token on the internet, you'll have to do a few things first. First of all, you need a digital wallet. Digital wallets allow you to store the NFT as well as for cryptocurrencies. You'll have to purchase cryptocurrency to verify your account.

Cryptocurrency can be bought through different methods. You can use your credit card on platforms like eToro or Kraken. Where you open an account, you can buy some via PayPal or Robinhood.

Blockchain companies charge a specific fee for every transaction. You'll have to bear this in mind because a percentage will be deducted from you every time you buy crypto. The costs for NFTs can be astronomical, and there's also a fee for buying and selling.

At the same time, you'll have to bear in mind conversion rates and price fluctuations. Price changes throughout the day. NFT projects can be expensive, and you need computing power to determine whether you actually make a profit from an NFT sale.

Once you've successfully set up your digital wallet and have funds, you can choose which digital art market you want to sell NFTs at. You must stay vigilant when selling works in the digital art market. Some people have been scammed by those who post listings and sell art without the owner's permission.

When you buy digital creations online, these usually come with a license. However, this doesn't always equate to copyright ownership. The copyright owner may choose to create replicas of NFTs, and the NFT owner isn't entitled to any royalties.

Technically, anyone can make a piece of art and turn it into an NFT on the blockchain. This process is called minting. They can then sell the NFT in the marketplace of choice. You can even opt to add a commission to a file, which means you get money every time an NFT gets resold.

While some NFTs can cost millions of dollars, the truth is you can buy NFTs at a low price. If you're not vying for an exclusive item, you can purchase NFTs without necessarily breaking the bank.

Because of the high demand for NFTs, NFT drops have become popular nowadays. NFT drops are like events wherein you get a first look at the new NFTs in the market. When buying an NFT during NFT drops, you must have cryptocurrency in your wallet. The buy and sell process can be quick.

More than NFT as an art

While NFTs are popular in the art world, NFTs have also become important in the realm of online games. Online gamers can purchase cards or characters at an NFT game like Axie Infinity to develop their heroes. The financial value of their hero goes up when it's armed with unique features.

The play-to-earn model is relatively new in gaming, and NFTs are at the forefront of this movement. Some games have even devised ways to incorporate both play-to-earn and free-to-play models.

NFTs have also become popular in in-game purchases in video games. Like art, you can buy and sell these items. Some assets, such as unique swords and skins, can be used in the game.

Who uses NFTs?

Recently, NFTs have become massive among artists, gamers, and brands from various industries. The NFT marketplaces make millions of dollars regularly, and you can say that there are new NFTs released each day.

Stepping into the NFT space allows artists like street art experts to sell their art, while their fans get to support them by purchasing their works. Young artists have used NFTs to provide for themselves and make themselves known. NFTs can range from cute cat GIFs to more complicated pieces of art. Like in the traditional art market, you can expect massive money from big names.

The art market isn't the only one that has been making money from non-fungible tokens. NFTs have allowed gamers to have actual ownership of in-game purchases. This means that the value of these NFTs can increase based on who has used them.

At the same time, NFTs have become a profitable avenue for brands, and different companies from various industries have joined in on the hype. Even the NBA has become invested in NFTs. NBA Top Shot is a platform to sell digital collectibles in the form of trading cards with iconic game moments. The NBA plans to expand its offerings to take advantage of people's interests in NFTs.

Why are NFTs popular?

As mentioned, NFTs have been around for years but have only gained traction recently. This popularity is bolstered by the normalization and excitement surrounding cryptocurrencies.

Aside from the technology's sophistication, the NFT world's popularity is boosted by fandoms, the opportunity for royalties, and laws of scarcity. Huge artists and celebrities have jumped on the NFT bandwagon, prompting their fans to support them online.

NFT owners can include the commissions in the NFT itself to make money after the initial purchase. NFTs are unique and have tangible proof of their uniqueness. The exclusivity makes NFTs desirable like traditional collectors would be proud of having famous works of art.

When someone buys an NFT on an NFT platform, he owns that specific content. However, the artwork can still be posted online. Once an NFT has become viral, its value drives up. When that asset is sold, the NFT owner gets a percentage. Hence, there is potential for more revenue from popular digital assets when resold online.

Should you sell digital art too?

The truth is not every NFT creator gets to make the same amount of money the Bored Ape Yacht Club makes. The money-making opportunity in NFTs would depend on the demand for a particular asset.

In addition, getting into the NFT market has some cost implications. There is no guarantee that your assets will be sold online, so you'll have to factor that in before opening an account.

Given the increasing popularity of cryptocurrency and blockchain technology, it can be argued that NFTs will only continue to boom. Thus, you have the opportunity to monetize from this movement.

As with anything, getting into NFTs can be costly, but if you play your cards right, you have the chance to make huge profits. At the same time, you may also lose a lot of money, so it depends entirely on you if you're willing to take a leap of faith and join in on the hype.

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