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11 May, 2022  •  10 min read

What Are NFTs? Non-Fungible Tokens Explained

Nowadays, you can see news about non-fungible tokens (NFTs) absolutely everywhere. However, even though most of us have heard about them, not everyone knows precisely what they actually are. Don’t worry if you’re one of those newbies – today’s article will tell you everything you need to know about NFT: what is an NFT, its brief history, the difference between NFT and cryptocurrency, ways to buy and sell NFTs, and much more. So read carefully, and let’s get to the point!
Table of Content

What is an NFT?

Let’s start with the basics – what are NFTs in general?

An NFT (non-fungible token) is a unique token that cannot be replaced with something else. In other words, you can’t change your own NFT to another one like, for example, Bitcoin – if you trade your coin, you’ll get absolutely the same BTC. In this case, it doesn’t work like that – an NFT is non-fungible, so if you try to exchange it, you’ll receive something completely different.

Here’s a great example to help you understand better: say you trade your Squirtle and get a 1909 T206 Honus Wagner in return. As we noted above, you’re making an exchange with two quite different pieces of art.

How does an NFT work?

Now that we’ve understood what NFTs are, let’s move on.

First of all, we should mention that NFT technology is a part of the blockchain. Blockchain is a system that stores information about all the previous operations inside the chain in blocks, and each entry in such a chain is called a token.

Thanks to those tokens, anyone can easily secure the rights to any unique digital art – a picture, video, or object in a game. In other words, an NFT allows you to buy not the product itself, but the ownership of it, by attaching a token with the data about the owner to the file.

Brief history of NFTs

The first experience with NFT began with the appearance of so-called “colored coins” based on the Ethereum blockchain, and the first project was CryptoPunk, at the heart of which were 10,000 non-fungible tokens called “punks”. In essence, the project was a blockchain marketplace.

If we look from today’s perspective, CryptoPunk can be considered a kind of digital “antiquity,” and not a common one, but the best representative of this category.

In the same year, 2017, another project was launched – the CryptoKitties – which promoted non-fungible tokens, putting them into the mainstream. At the end of the year, it was just a primitive online cat breeding game. However, the project proved successful for at least two reasons: the speculative mechanics with clear and user-friendly rules, and the viral story – the cats were colorful and funny.

The second wave came in early 2018 when investors showed interest in using a new way to own digital assets.

Around the same time, cryptocurrency funds and venture capitalists became curious about non-fungible tokens as well. Thus, for example, the organization Immutable managed to attract about $15 million, and Mythical Games pulled in $19 million.

What is an NFT used for?

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Now, let’s take a closer look at the main fields where NFTs can be used:

Digital content

Firstly, NFTs are often used in digital content. The reason for that is the following: since content creators control the creator economy, their income increases thanks to NFTs.

Gaming

The second popular field is the gaming industry. If you’re a fan of gaming, you’ll be happy to get some advantages from NFTs. For example, in most cases, you need to buy something for your character. Thanks to non-fungible tokens, it can become profitable – once you’ve finished with the necessary items, you can sell them and recoup your money.

Investment and collaterals

You might not have heard about this, but DeFi (Decentralized Finance) apps allow people to borrow money with the help of collateral. Since DeFi and NFTs use a common infrastructure, they’re working on the possibility to do the same thing with non-fungible tokens.

Domain names

Here, everything is straightforward: NFTs just help users to make their domain names more catchy and valuable.

What is the difference between an NFT and cryptocurrency?

Actually, there is considerable confusion between cryptocurrency and NFTs. However, the key difference is that cryptocurrency is a digital asset that can be used to buy goods and services, while an NFT is a digital asset that represents a unique physical item/virtual item. Also, as we’ve already noted, cryptocurrency is fungible, while an NFT cannot be replaced with something else – it’s unique.

Examples of NFT

Below you’ll find examples of the most well-known NFTs. Let’s take a closer look at the features of each one:

NBA Top Shot

One of the most well-known NFTs is NBA Top Shot – a partnership between Dapper Labs (makers of the CryptoKitties game) and the National Basketball Association (NBA). But what’s special about this NFT?

NBA makes various movies for Dapper Labs, and they, in turn, digitize the material, making it available for sale to people. The key thing is that they use different angles and digital artwork to make it absolutely unique. So if somebody tries to make a perfect copy and sell it later, they’ll fail – the work will be recognized as a counterfeit.

By the way, the venture has already earned $230 million in sales.

CryptoPunks

As you remember, CryptoPunks marked the beginning of the NFT era. The project’s impact helped to inspire the NFT ERC-721 standard and launch the current crypto art movement. Even though there was a large number of tokens (10,000), they were sold pretty fast.

Doodles

Another popular NFT is the Doodles collection – an NFT market project run by its community, which consists of 10,000 images by e-artist Burnt Toast. Each “doodle” token is generated from 100 possible features, which include face shape, hair, hats, body, and background.

The Doodles project is a DAO that requires the purchase of NFTs for membership. Their owners receive not only digital art but also voting rights to manage the project. All DAO members can collectively decide how funds from the community treasury are spent.

VeeFriends

VeeFriends is an NFT project initiated by entrepreneur Gary Vaynerchuk, one of the biggest supporters of non-fungible tokens. He’s also chairman of VaynerX and CEO of VaynerMedia.

The key feature of this project is the following: each of the VeeFriends tokens acts as a ticket to Gary’s multi-day conference. Such an innovation makes VeeCon the world’s first conference with NFT tickets.

How to buy NFTs?

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If you’re planning to buy NFTs in the near future, we recommend you use our small step-by-step guide that will help you avoid any mistakes and get things right on the first try:

  1. First of all, you’ll need to create your own digital wallet to be sure all of your NFTs are in a safe place.
  2. Once you’ve created a wallet, you’ll have to buy a cryptocurrency – it depends on what currencies your NFT provider accepts. The best example is Ethereum. As for the platforms you can use, the most reliable ones are OpenSea, Coinbase, Kraken, etc.
  3. Finally, you’ll be totally ready to move your purchases from the exchange to your wallet. That’s it!

By the way, don’t forget about the following critical thing: some exchanges may charge fees while completing a transaction.

Where can i buy NFTs?

As we’ve already mentioned, it’s better to choose the most reliable platforms to buy NFTs. Below, you’ll find a list of the most popular ones:

  • Rarible. Rarible has attracted the attention of a large audience thanks to a vast set of tools and a simple and user-friendly design. New tokens here aren’t moderated. Initially, there wasn’t even a commission, but in 2020 it was added, and only then the monetization of the service began.
  • OpenSea. The second well-known NFT marketplace is OpenSea. There, you’ll be able to buy and sell NFTs, including the ERC721 and ERC1155 standards, as well as discover various digital commodities.
  • Foundation. The Foundation platform is kind of exclusive: you can only get in through an invite – a personal invitation from a participant who is already inside the platform and, in addition, has successful sales, i.e. is a sought-after artist.

How to sell NFTs

Here’s another small step-by-step guide that will help you sell NFTs without any problems:

  1. To sell an NFT, first of all, you need to connect your Ethereum wallet to the platform of your choice.
  2. If you have already created an NFT, you will be able to click on the token and see the “Sell” option – to complete the transaction, you need to press the required button.
  3. If you’re storing an NFT created by another person and want to sell it, the process is also straightforward – just click on the asset and select the same “Sell” option. That’s it!

Why are NFTs controversial?

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Even though it’s possible to earn big money with the help of NFTs, there is some debate that the tokens have a considerable impact on the climate. Actually, it’s true. The thing is that when blockchain assets, including NFTs, are created, it takes a lot of computing power, and thus energy. Unfortunately, this can easily lead to unpleasant consequences for the environment.

The bottom line

Now, we think you know precisely what NFTs are, as well as the way they work, why they’re popular and controversial at the same time, and so on. Just keep in mind one golden rule: it’s better to learn everything in advance before you dive into the NFT world and start buying or selling non-fungible tokens. We hope our guide will help you in this aspect. Thank you for reading!

FAQs

Still have some questions about NFTs? If so, we recommend you take a look at our FAQs list – there, you’ll find the answers you seek.

What does NFT mean?

An NFT is a non-fungible token. In other words, it’s unique digital content that cannot be replaced with something else.

What is the use of an NFT?

With the help of NFTs, you’re able to easily secure the rights to any unique piece of art.

What are some examples of non-fungible tokens?

The most well-known NFTs are CryptoPunks, CryptoKitties, Doodles, and many others – there are actually hundreds of unique and attractive tokens nowadays.

Can anyone make an NFT?

Yes! Actually, any Internet user can make an NFT if they wish. Since non-fungible tokens are becoming more and more popular every day, many new products and tools have been recently launched to help people in this aspect.