What Are NFTs And How Do They Work?

The buzz about NFTs has become really disturbing. My friends have had to ask me what this NFT thing is, and why are people taking about it often. These questions brought about this article on “what are NFTs and how do they work?”

What Is an NFT?

An NFT (non-fungible token) is a digital asset that depicts real-world objects such as art, music, in-game items, as well as videos. They’re traded online, often using cryptocurrency, and they’re usually encoded with the same software as many other cryptos.

Despite the fact that they’ve been there since 2014, NFTs are gaining popularity currently as a popular means to buy and sell digital artwork.

Now, how do I explain it without mentioning terms like Metaverse, Web3 and the rest of these jargons. In this article, I will explain NFTs for dummies in the simplest way. Even a 4-year-old will understand or, at least, I will try.

Here are 7 things to know to understand NFTs

1. What does NFTs stand for?

NFT is an abbreviation for NON-FUNGIBLE TOKENS. “Non- Fungible” is simply an English word, a synonym for something that is unique and also means that there can only be one version of it. $1 note is Fungible, meaning there are tons of 1$ notes printed and if I exchange $1 note with another $1 note, I will still get the same thing and the same value. However, If I have the Mona Lisa painting, it is non-Fungible! There is only one of the Original Painting. If I decide to exchange it, I cannot get the same original Mona Lisa painting again. Any other version will be fake or a duplicate.

A token on the other hand, can be referred to a thing, serving as a tangible representation or a voucher or a ticket for something. Thus, if you put the two together, it can simply mean a unique tangible representation or a ticket of a particular digital piece of art. Now, NFTs can be in the form of art, music, video or any form of art or piece created.

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2. Think of NFTs as artwork collections in a physical art gallery

For easy understanding, think of NFTs, as artwork collections in a physical art gallery. For example, Nike Art Gallery in Nigeria or the Louvre Museum in France. Now, when you understand what they do in the art gallery, it becomes easier- creating arts, holding exhibitions. Bidding, sale and collections of these arts and everything else they do in a physical art gallery. NFTs are basically the gigital representation of what we do in art galleries, well, just with a little bit of more frenzy and advantages.

3. Who are the players in NFT space?

There are different players when it comes to the NFT space. You can either be a “Creator” or a “collector”. Creators, as the name implies, are those that create the arts (the NFTs), while “buyers” or “collectors” are those that buy from them. Some have argued that there is a difference between a buyer and a collector. They say buyers are those that just buy and resell almost immediately the price or the value of the NFT has increased and they make their Profits, while collectors are those that buy these arts and keep them for a long-term. (maybe hoping to sell in the future or just having it in their possession).

4. Where to buy NFTs

Now, that you understand that NFTs are basically what we do in the art Galleries in the physical world, however, it is done in the digital world instead. Now, where do we go to buy and sell these arts in digital space? That place is called MARKETPLACE. A marketplace is basically like the “Art Gallery” where you go to exhibit, bid and buy your NFTs. The most popular NFT MARKETPLACE at the point of this writing is called OPENSEA. The website is http://opensea.io. However, there are several marketplaces on the internet. There is RARIBLE, SOLANART, BINANCE NFT MARKETPLACE and others. On these Marketplaces, as a Creator, you can go and exhibit or sell your NFT, and as a buyer or collector, buy an NFT. As a buyer or collector, it is always advisable to know the particular NFT you want to buy already before entering the marketplace, so that you do not get confused by the myriads of NFTs you see on these marketplaces.

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5. How to buy NFT

Of course, when you go to a physical art gallery to purchase an artwork, you must have your money. Now, in the digital art gallery of NFTs which is the NFT marketplace, you must have your digital money too which are cryptocurrencies. Different markets accept different digital money. Each Marketplace stipulates the exact digital money or cryptocurrency they will accept for you to exhibit or purchase an art from them. For example, OPENSEA collects strictly ETHEREUM, While SOLANART collects Solana and BINANCE NFTMARKETPLACE collects Bnb, Busd and Usdt. As such, you need to know the type of money the Marketplace you are going to use collects to be able to exhibit or buy your NFT.

6. Can’t we just download them?

I get many questions like, since all these arts are digital, can’t someone easily just download them or even take a screenshot or a screen record of them. That is where blockchain technology comes in. The blockchain technology is one of the best things to happen in the digital space at large. When an NFT or a digital art is created, it is stored on the blockchain technology network, which will serve as a ledger or a record keeping book to show the originality and the authenticity of the NFT.

The blockchain will show all the information concerning the NFT which will include the Creator, the current owner, the history of how the NFT came to existence and the different prices it has been sold for. Another good thing? It is available for everyone to see. Thus, when someone claims to own an NFT, you can easily check on the Blockchain Technology Network to confirm its authenticity.

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7. How do you make money with NFT?

I know this is the part that might make you get more interested. See you, you like money too much. Well, who doesn’t? Like earlier stated, there are different players in the NFT space. You can either be a creator or a collector/buyer. If you are a creator, you can create a collection of different NFTs. Each of the NFTs in this collection will go for a price you set them and when a buyer sees and buys them, you make your money.

As a collector or a buyer, when you purchase an NFT, you become the owner and you also decide the price you want to resell it and another juicy part is that, there is a feature that comes in selling NFT, that even when it gets resold from another person to the next, you will still get a particular amount of money, like a royalty. Yes, it is that nice.

Conclusion

It should be noted, however, that NFTs are not only for you to make money, buy and sell. It also has great benefits, subject to different NFTs and what they offer. Non-fungible tokens, which work on the same blockchain as cryptocurrencies, are generally safe. NFTs are difficult (but not impossible) to hack due to the distributed nature of blockchains. One security issue with NFTs is that if the platform hosting the NFT goes out of business, you may lose access to your non-fungible token.

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