NFT (Non Fungible Token) What is it and how does it work?
Nft Development Company - Blockchainx
What are NFTs? Its meaning
NFT corresponds to the acronym “non fungible token”, which we can translate as “non fungible token” or “non fungible asset”, or, what is the same, the meaning of NFT meansthat because it is a unique asset, it cannot be altered or replaced with a similar item of equal value because there wouldn't be a comparable asset. And these assets are also digital, that is, they have no correlation in the physical world (although sometimes they may).
To understand it better, an NFT would be like a unique work of art, for example, Michelangelo's David, there is only one and it is in the Accademia Gallery in Florence; if anyone desired to possess that specific David, they should obtain a duplicate of it or purchase it (assuming it were available for purchase), in which case we would no longer betalking about the original, which is what gives value to the sculpture.
The same happens with the development of NFTs, it is a unique digital asset, which although it can be copied, whoever owns the NFT owns the original, functioning as a kind of certificate of authenticity and having the rights that its acquisition entails.
How do NFTs work?
In order to better understand what an NFT is, we need to look at how they work and what makes them possible.
Any digital content can be tokenized, or given a set of metadata that ensures its authenticity, identifies its author, etc., thanks to blockchain technology and smart contracts. its starting and acquisition value and all transactions that it has lived since its creation (since who has created it, who has tokenized it and who, where and for how much it has been sold).
As we said, when tokenizing digital content (it can be a JPEG file, a meme, an ebook or even a tweet), a digital certificate of ownership and authenticity is created, which indicates that this content is unique and that the property rights are has the person who has acquired it (it is important not to confuse it with copyright, which will remain in the possession of the author of the work).
In this sense, the development of NFT smart contracts can serve different purposes, for example, to ensure for the original artist a part of the benefits that may be produced by a future sale of the token.
These digital assets are bought and sold on NFT markets, where their creators or sellers (not always the same) put them up for sale at fixed prices or through auctions.
Main characteristics of NFTs
NFTs' primary distinguishing feature is that they are digital assets rather than physical objects that can be kept in our homes. Instead, they are bits of digital content that will be kept on a server.
Although what has made them fashionable is that they are unique digital content, works or objects, there are also non-unique NFTs, as in the case of digital card games or collectibles based on this technology, such as Top Shot from the NBA or Worlds Apart from Doctor Who, where there are different ranges of value for each NFT based on its rarity and exclusivity (for example, there may only be one NFT of a specific card and therefore its value is higher and may even increase with time).
NFTs are based, as we said, on blockchain technology, which allows their traceability and means that they cannot be (in theory) falsified or hacked, since the block chain is decentralized and maintained by hundreds of computers (users) throughout the world. world. hat same technology is what allows its creation, purchase and sale.
They are based on two standards, the original ERC-721 of Ethereum, where NFTs began to move, and the more current ERC-1155 (also within Ethereum), which allows working with several tokens compared to the original, which necessitates a smart contract for every token, multiple tokens can be used at once through a single smart contract.
Why are they trending in 2021?
Although now is when we are hearing about them the most, NFTs have been around since 2017, when the first NFT, CryptoPunks (by Larva Labs), was launched, followed a little later by CryptoKitties, which went on to go viral and raise over 12 million dollars.
However, they have regained popularity in 2021 because in March of this year, Christie's gallery auctioned the digital work Everydays – The First 5000 Days, by the artist Beeple, for 69 million dollars. Or because the first tweet in history sold for $2.5 million.
NFTs are now a hot topic of conversation, with people debating their utility, the rumours swirling about them, and the effects they have on the environment. (a lot of energy resources are needed for their creation and their transaction) and to what extent they are a legitimate way for artists to sell their digital works and have control over the price they charge.
Just as it happened with Bitcoin at the time, it is happening now with NFTs, they are the hot topic, they are not without controversy and in the world of NFT art or art based on NFT art or art based on NFTs is getting a lot of attention.
They are also a trend because their usefulness is beginning to be discussed beyond collecting, art and economic speculation around them; Can they be a way to certify the origin of physical products? Can they be applied to passports or other identity documents to manage identities from anywhere in the world?
Are we facing a new bubble?
However, since what has made them trend has been the millionaire sales of NFTs, there are not a few who think that we are facing a new bubble, where there are people acquiring NFTs with the idea of selling them at a higher price in the future, based on on that unique and original feature of the NFT.
But the reality is that we are still facing a relatively small and very young market, where there are not many players, which is not regulated and in which there is a lot of uncertainty, starting with the fact that as it is digital and intangible content, what remains stored on a server, if it disappears, what happens to the NFTs contained there and the money invested in them?
What value do they have?
The value of the NFT is marked by its creator or the person who has tokenized digital content and put it up for sale.
We cannot say that there is a fixed value to sell NFTs and, as we have already said, speculation seems to be hovering over them at the moment.
In collectibles such as the NBA or Doctor Who that we mentioned before, they have fixed prices based on the rarity of each game clip or each card and the number of equal "copies" that exist. But once purchased, the person who owns them can put them up for sale himself for a higher value; for example, if he has acquired a very rare or unique card, he could sell it (or at least try to) for a much higher price than he bought it for. The NFT is yours (remember that it gives property rights) and therefore you can do with it what you want, including selling it.
So we can find NFTs for cheap prices and others for much higher prices. We can use pages like Coinranking or Binance and their sections on NFT to find out the value of these tokens.
Where are NFTs “stored”?
We have been mentioning it already; NFTs are "stored" on the NFT market server where they were purchased. The NFT is, in the end, a file hosted on the marketplace servers.