With the rapid progression of the blockchain technology, the concept of ownership was fundamentally refined. Now, along with coins and tokens, you can hold items that are not fungible but represent value. Ideas limit the possibilities, regardless of whether the token is a digital form of art or has real-world applications.

There’s absolutely no way you haven’t heard about the NFT boom of 2021 when various JPEGs were selling for millions of dollars. Sounds unreasonable? Welcome to the world of cryptocurrencies.

Understanding NFTs

An NFT at its core is a simple concept. It stands for non-fungible token. What is it? A unique digital token, which represents ownership or proof of authenticity and additionally is stored on a blockchain.

Fungible vs non-fungible

Fungible assets are assets that can be easily exchanged; their value is known and can be used for transactions. This category includes cryptocurrencies like Bitcoin or fiat currencies like the US dollar.

Non-fungible assets, on the other hand, are unique with distinct value, making them irreplaceable. For instance, various forms of art, collectibles, or real estate fall into this bracket.

There are many differences between fungible and non-fungible assets.

How NFTs work

NFTs work with blockchain technology, which records transactions in a transparent and decentralized manner. NFTs also utilize smart contracts, which are built-in as a feature on top of many blockchain platforms like Ethereum or Solana. Smart contracts allow for the transfer of ownership, enforce royalties, and allow creators and users to manage their NFTs. IPFS is a crucial part that makes it all work. It is a decentralized storage system, complementary to blockchain technology, which in simple terms hosts images of NFT assets. This way the visual data is not dependent on any centralized servers for improved accessibility.

Key features of an NFT

NFT is a unique token, which contains either distinct information or attributes that make it different from any other. Contrary to fungible assets, it is not divisible into smaller units and exists as an entire token. The ERC-404 standard on Ethereum has made it possible to wrap and trade NFTs as fungible assets, which is an intriguing observation. NFTs also prove the ownership recorded on the blockchain along with a detailed history of the asset’s ownership and transactions.

History of NFTs

The potential for NFTs emerged with Ethereum’s ERC-721 standard designed just for non-fungible tokens. One of the first NFT projects was CryptoPunks, featuring over 10,000 unique characters. Many of which have been sold for millions of dollars.

A major milestone for the NFT market was when Beeple’s artwork was sold for $69 million, which highlighted both a massive potential and demand as well as a bubble in the market. As the technology progressed and platforms like OpenSea or Rarible were created, web3 users could finally mint, buy, and sell different types of NFTs.

Use cases of NFTs

NFTs are not just speculative assets, but with their creation, many innovative use cases have appeared. It’s time to explore them together.

Digital art

The way we perceive and what we classify as art has changed over the years. With the NFT revolution, art has been redefined and enabled both small and renowned artists to create and sell their creations digitally, on the blockchain. Royalties can be earned on secondary sales, ensuring passive revenue streams. Also, in a world where it’s very difficult to break through and reach your target audience, NFTs do just that.

Music and entertainment

The whole idea of NFTs isn’t just art—it empowers creators of all sorts, musicians included. By utilizing NFTs, musicians can create unique experiences for their fans, like access to exclusive content.

Gaming

In the gaming industry, NFTs may transform digital items. Imagine switching from one game to another, completely different one, and having all your inventory items transferred automatically. Sounds unreal? Soon it won’t be.

Virtual real estate

Land and properties in the digital world are the next big thing. Think about all the opportunities of creating events and social spaces in the virtual world. Who wouldn’t like to buy property in the next Manhattan? The real challenge lies in spotting it.

Tickets and access passes

Showing a digital, immutable ticket? NFTs may actually serve as access passes for exclusive events, taking advantage of the blockchain technology and assisting with authenticity and transparency.

Identity and certification

Connecting NFTs and zero knowledge may result in a completely different way to verify identity. Your identification document or passport could be tokenized into an NFT, which would reveal confidential information only when authorized. With zero knowledge, it would also be possible to prove something without revealing the data and blockchain acting as a trusted third party. An example would be if you qualify for a loan based on your credit score.

How to create, buy, or sell NFTs

Although each process is not complicated, it’s worth describing them in detail for you to grasp the topic.

Minting an NFT

Talking about creating an NFT can’t start without the minting process. In the beginning, you need to choose a blockchain that is a smart contract platform like Ethereum or Solana. The NFT can only be minted after setting up a digital wallet like Metamask or Phantom. Once you’re done, find an NFT marketplace like OpenSea to mint and list your NFT. Have your content, whether it’s an image or a video, prepared. Then you need to upload it and provide essential metadata like descriptions or properties. Once you settle the gas fees, you will receive your NFT. This way you can create an entire collection yourself.

Finding the right NFT marketplace

There are many NFT marketplaces, but they are not just competitors. The main reasons to go for one over another are the fees and supported networks. Ask yourself what network you should use and explore unique features each platform offers. Only after trying them out will you be able to tell the difference and choose correctly.

NFTs are just digital galleries with the option to buy and sell art.

Buying and selling NFTs

Buying and selling is a very straightforward process. Browse for an NFT you like or believe will go up in value in the NFT marketplace and click it. If you have a cryptocurrency wallet set up correctly, you should be able to just hit the buy or sell button and pay the transaction fee. And there it is—your transaction should process in seconds or minutes at most.

Tips for NFT creators and flippers

For buyers

During a hunt for the next NFT gem, it’s worthwhile to examine the creator’s reputation and previous work. Verifying the authenticity is most likely the next step since many NFTs may look alike but not be the original. Also, only use reputable NFT marketplaces and avoid shady platforms, as this may result in a loss of funds. After all, the point of buying an NFT isn’t to lose money, right?

For creators

As a creator that desires to be known one day, utilizing social media is crucial. Creating a community around the project is also what differentiates between success and failure. Another way to market yourself and your project is by collaborating with influencers and other creators; your passion for the space boosts your visibility, and this may get you somewhere one day. Also ensure your project has filed for proper licenses and rights to protect your intellectual property if you wish to do so. Forgetting this step may result in a project being duplicated without your permission, thus making it less unique and valuable.

Where are we heading?

NFTs are without a doubt a game-changing technology. Although they are primarily used for speculation, just like the dot-com bubble, it may result in a selection of useful solutions ready for mass adoption by retail and companies. Nevertheless, you should remain vigilant and spot the euphoria phases so you do not end up “bagholding” your favorite and now-worthless collection.

So is it the future ahead of us, or are NFTs just a passing fad? Although many projects will undoubtedly fail, the technology is here to stay.