The world of blockchain is rapidly expanding. Every day, new solutions are being developed to tackle real-world problems. These solutions involve digital tokens, which can be exchanged for goods and services or other digital tokens like Ethereum.
There has been an increasing interest in non-fungible tokens (NFTs) in the last couple of years. In this article, we’ll explore what NFTs are, their benefits and downsides, examples of where they can be used, how to buy and sell NFTs, and what the future of NFTs will look like.
What is a Non-Fungible Token?
They are also known as ‘tokenized assets’ or ‘unique tokens’ because of their special properties. NFTs are not fungible, meaning that each one is different and can’t be exchanged for a different token of the same type.
A non-fungible token (NFT) is a kind of digital token that has unique properties. This means that each individual token is different from every other token of the same type.
For example, suppose you own a token that represents one share in a company. In that case, other tokens likely represent the same company. These tokens are fungible because they can be exchanged between owners or divided into smaller units.
In contrast, a token representing ownership of a unique asset, such as a painting, is non-fungible. If you own a token that represents a specific painting, there will never be another token that represents the same painting.
This makes NFTs an exciting new addition to the world of digital assets.
A non-fungible token (NFT) is a token whose single unit is not interchangeable with another unit of the same type. In simpler terms, non-fungible tokens are unique tokens that can’t be broken down into smaller units.
In the real world, non-fungible assets are items that have unique characteristics. One example is rare or collectible items. Another example might be shoes that are all unique in size, color, and condition.
How do Non-Fungible Tokens Work?
Tokens are the most basic element of blockchain technology. They are the ‘currency’ that powers decentralized networks and allows us to exchange data and value between two parties.
The token’s unique attributes and metadata are stored on a decentralized blockchain network. The information stored in each token can’t be altered or forged, which makes these tokens a great tool for verifying the authenticity of an item.
NFTs work by registering individual tokens on a distributed ledger that acts as a public database. The log records information about each token, such as the owner and details of the asset it represents.
In this sense, tokens are a lot like real-world assets registered on paper. If you own a painting, for example, its ownership would be recorded in the form of a certificate. Likewise, each non-fungible token represents an asset on a blockchain, a digital certificate that anyone can verify online.
Non-fungible tokens are different from other tokens because they are more like individual assets. This means that each token is essentially a unique item that can’t be broken down into smaller units.
Unlike other tokens that can be broken down into smaller denominations (like Bitcoin), non-fungible tokens are designed to represent unique pieces of digital property.
A common example of a NFT is a rare artwork or a collectible trading card. Each artwork or card is unique, making it a non-fungible token. Traditional cryptocurrencies like Bitcoin or Ethereum are fungible tokens, as each token is interchangeable with another token of the same type.
One interesting use case for NFTs is digital collectibles. Imagine playing a game where you can collect one-of-a-kind digital items stored on a decentralized blockchain.
Or, imagine a blockchain-based trading card game that lets you collect and trade digital cards that are one of a kind. The blockchain technology behind NFTs makes these scenarios possible.
It tracks each collectible’s metadata, such as its owner and current value, and lets players easily buy, sell, and trade their digital collectibles.
What are the benefits of using NFTs?
NFTs are designed to represent Real World Assets like artwork, collectibles, land deeds, rare coins, domains, and more. There are several key benefits to using non-fungible tokens to represent real-world assets. These benefits include:
- – Each token is unique and can’t be duplicated
- – Unlike fungible tokens, each non-fungible token is unique and cannot be broken down into smaller units. This means that each token represents a special piece of digital property.
- – Easier to Track Ownership: Because each token represents a unique asset, it’s easier to track ownership. This can be helpful in instances where you need to know who owns what.
- – Another benefit of using NFTs is creating a more trustworthy marketplace where users can buy and sell their rare collectibles and other real-world assets.
- – Easier to Understand Ownership- Because NFTs represent a single, unique asset, it’s easier for people to understand when they see ownership information.
- – The decentralized nature of NFTs means that they can’t be shut down by a single central authority, like a government or online marketplace
- – Artists can be supported and get a new income source.
What are the downsides of using NFTs
While it seems NFTs have many benefits at first, there are also many reasons you should avoid NFTs.
- –It is an All Speculative Market. As a recent event showed, prices of the most famous Bored Ape Yacht Club NFT collection dropped drastically. The reason one of the biggest crypto platforms, FTX, filed bankruptcy. FTX Venture invested money in Yuga Labs, which developed most of the NFT Bored Ape Yacht Club collection.
- –Crypto market can change drastically. Because NFTs are backed up by cryptocurrencies like Ethereum, the prices change daily. So when the Ethereum price goes down, your NFT holdings automatically lose one value.
- – NFTs can be stolen. NFT have been experienced a few security breaches. The reason is many exchanges have outdated or inefficient security protocols.
- –Sustainability and Environment: Creating and selling NFTs has a lot of power usage as well as cryptocurrency transactions. So scientists warn that it could harm the environment.
Ownership only means you hold the authentic “original.” But you can´t control the distribution or duplication across platforms. So a print or copy can´t be stopped being made or NFT.
What makes NFTs more trustworthy?
Greater Utility – NFTs make digital items more usable by adding a layer of additional data. This makes them more trustworthy, verifiable, and reliable. In many ways, NFTs provide a solution to the ‘Nothingness problem.’
This is the idea that items and data online lack intrinsic value as they have no physical form. By tokenizing and representing each asset as a non-fungible token, we can assign a unique identity and inherent value to items that were previously considered ‘nothing.’
This gives each token extra utility by enabling users to track and trade items like stocks or commodities. Trustworthy Ownership – As each token is unique and can’t be divided into smaller units, it’s nearly impossible to hack or counterfeit.
It makes NFTs an excellent way to track and verify ownership. When an owner transfers a token, they also transfer the asset it represents. In other words, non-fungible tokens are digital assets that are natively built for the blockchain. This means they are automatically verified and trustworthy.
But as Trustworthy as it may seem, NFTs can still be stolen through phishing links, hacks, and other scams.
Why are NFTs so valuable?
The decentralization, security, and uniqueness of NFTs make them valuable and desirable items.
NFTs are valuable because they are unique tokens representing a real-world asset. When you purchase a NFT, you’re purchasing a unique token that isn’t interchangeable with other tokens of the same type.
If you own a non-fungible token representing an asset, you also own the asset. This means that each token is valuable in its own right and doesn’t rely on an external platform to remain useful or valuable.
This makes NFTs an exciting new form of digital asset natively built for the blockchain.
Unlike other forms of digital ownership, such as tokens, securities, and virtual items, NFTs have inherent value. This is because they represent physical assets that exist within the real world. As long as the asset exists, the token will exist too.
The value of a NFT comes from its real-world asset. For example, let’s say you purchase a rare artwork token. The value of that token will depend on the value of the artwork. The more valuable the artwork, the more valuable your token will be.
The more valuable a NFT is, the more demand there will be for that token. This means that the token will likely hold its value or even increase in value as time goes on.
Another reason NFTs are so valuable is that anyone can use them. Real-world assets like artwork can only be accessed by a limited number of people who can afford them.
But because a NFT represents an artwork, it can be used by anyone worldwide.
NFTs that are valuable are easier to track ownership. This means that you know who owns what and how much each token is worth.
Where to Find the Most Promising NFTs?
We’ve already discussed how NFTs are great for representing real-world assets like rare artworks and collectibles, and now we’ll show you where to find the most promising NFTs.
The best non-fungible tokens are those that represent unique and rare physical assets. This includes items like unique artwork, collectibles, real estate, or even rare event tickets. The rarer the asset, the better.
If you want to find the most promising NFTs, look for digital items that represent real-world assets that are scarce and highly desirable. This will give the tokens inherent value in a way that virtual items never will.
There are many different types of NFTs, so you’ll want to select a niche you’re interested in and choose tokens that represent real-world assets.
Here are some of the most popular NFT niches:
- Artwork is probably the most common use case for NFTs. There is a wide variety of artwork available in the NFT community, and you can purchase any type of artwork you want.
- Music: You can also purchase NFTs that represent music. There are some music-backed NFTs that hold the music rights to songs from popular artists.
- Sports Cards: There are also NFTs that represent sports cards. Sports cards are great because they are collectibles people will probably never unload.
- Ingame Item: For some games, you can get special items like clothing, swords, characters, etc., that you can use in a specific game.
- Coding Languages: If you want to invest in something more obscure, you can also find NFTs representing coding languages.
- Property: Finally, you can purchase NFTs representing the real-world or digital property. There are also NFTs that represent real estate properties.
Some of the most interesting NFTs have been launched on the decentralized exchange, Ethereum. Here, you’ll find a plethora of different types of tokens. The most known include CryptoKitties, Bored Ape Yacht Club, CryptoPunks, and Etheremon.
To find promising NFTs, you can use websites such as Token Market, which lists all upcoming and existing blockchain-based assets.
You can also use websites such as CoinGecko to track the price, volume, and market cap of NFTs.
These NFTs are interesting for a number of reasons, not least because they have proven there is a genuine market for non-fungible tokens. They have also shown that NFTs can be used in innovative and lucrative ways.
But no matter if you decide to invest in a NFT collection, you should always keep in mind that you can lose your money or, if you are not careful, the NFT could be stolen.
How to buy and sell NFTs?
If you want to buy and sell NFTs, you’ll need to use an exchange that allows you to trade NFTs. You can find out which exchanges are supported by your favorite NFTs by checking their websites.
Such platforms are:
Opensea is the first and largest NFT platform.
- Blockchain: Ethereum
- Payment: $ETH, $WETH, $DAI
- Platform fees (excluding gas): 2.5%
- Best for: Beginners and creators who can promote their work and those looking to avoid gas fees.
- Auction style: Buy It Now, Timed Auctions
- Royalties: Creators choose how much they want to get paid in royalties for secondary sales.
Rarible, another popular NFT website
- Blockchain: Ethereum
- Fees (excluding gas): 2.5% of every sale
- Payment: $ETH, $WETH, $DAI, $RARI, $ATRI
- Best for: Anyone
- Auction style: Buy It Now, Open-ended offers
- Royalties: Creators choose the percentage they want to receive from secondary sales.
Superrare is amazing for buying and selling unique CryptoArt and music NFTs. To sell artwork, you need to apply and get accepted.
- Blockchain: Ethereum
- Payment: $ETH
- Fees (excluding gas): 15% to the gallery + 3% to the marketplace
- Best for: Artists with a large following and are well-known.
- Auction style: Scheduled Auctions, Reserve Auctions, Open-Ended Offers, Buy It Now. Find out more here.
- Royalties: 10% on every secondary sale
KnownOrigin, similar to Superrare, also only accept artist with exceptional portfolios.
- Blockchain: Ethereum
- Payment: $ETH
- Fees (excluding gas): 15% on every primary sale and 2.5% for secondary sales
- Best for: All artists can apply, but established artists and artists with a strong portfolio/unique artwork will likelier be accepted.
- Auction style: Buy It Now, Timed auctions
- Royalties: 12.5% of secondary sales
Most exchanges that allow you to trade NFTs will also have a trading section where you can find other users to trade with. This can be a great way to earn money by buying NFTs low and then reselling them high.
To buy and sell NFT on such marketplaces, you need to create a crypto account on a crypto exchange platform such as Coinbase or Kraken. When you create an account and successfully are verified, buy the cryptocurrency you will use. So an NFT on the Ethereum blockchain, you need to purchase ETH.
The second step is to download a crypto wallet extension for your browser, like MetaMask. Then you transfer the crypto to the wallet extension and connect your wallet with the NFT platform. Now you are able to sell and buy NFTs.
How to Trade and Track NFTs?
Just like any other form of digital asset, NFTs can be traded on decentralized exchanges or through smart contracts. This means they can be bought, sold, or traded on an open marketplace.
When trading NFTs, you must ensure the exchange supports the token. Once it has been verified, you can start trading and tracking your assets on the blockchain.
Ethereum-based NFTs can also be tracked using a decentralized system such as Open Token or NFT Stats. These websites provide a public record of all the tokens that are currently in circulation or have been sold in the past.
You can also track your tokens using a dedicated crypto-tracking app. These apps allow you to verify and track your token’s ownership. They also allow you to store your token’s private key securely. This long, coded password is required to sell and withdraw your assets.
You can also use NFT-tracking platforms to monitor the value of your NFTs over time. These platforms will allow you to see the value of all your NFTs in one place.
Should you invest in NFTs?
Only if you want to take the risk of losing a part or all money you invest in NFTs. If you want to invest in NFTs, there should be another reason than only making money with it.
One reason could be that you want to support an artist because you like their unique artwork and project. For collections, it is more about joining an exclusive community. While Card Trading NFTs might interest you if you like to collect and play the card game.
But for other people, it might only be a showoff that they have money similar to an expensive car.
Even if you think a NFT project has potential, it can still be a scam.
So keep the risk in mind if you want to invest in NFTs.
The Future of NFTs
The future of NFTs can be bright. As more and more people get involved with blockchain technology, the demand for NFTs will likely increase. NFTs are an exciting advancement in blockchain technology because they represent real-world assets in a digital space.
This means that people can trade artwork, sports cards, and other collectibles in a decentralized blockchain environment. As more people become aware of how valuable NFTs are, more organizations will create NFTs of their own and invest in improving the technology behind them.
In the future, we could see NFTs become an accepted asset class used to represent real-world assets such as stocks, real estate, and more.
It’s also likely that centralized exchanges will no longer be necessary when trading digital assets.
Instead, we could see the rise of decentralized exchanges that let users trade NFTs and other blockchain-based assets without needing to deposit their funds into a third party’s hands.
We may even see governments issue NFTs representing state-backed assets, such as a digital token representing shares in a government-owned solar farm.
But the problem will always be the high risk of losing money when investing in NFTs. Because NFTs can lose value drastically with a cryptocurrency crash and market fluctuations.
There are definitely better investment methods that might not make as much money; however, you don´t have such a high risk.