What is NFT? How do NFTs work? NFTs stands for Non Fungible Tokens. They are unique digital files of which you have ownership of the artwork.
NFTs gives the buyer the right over the digital art, and it is good for the Artist as his art gets appreciated while earning him a livelihood.
What is NFT?
Fungible (adjective): Replaceable by another identical item; mutually interchangeable.
So what is NFT? NFT is a Non Fungible Token which by definition means it’s unique and nonreplaceable, and as it is based on primarily Digital content, it is a unique and non-replaceable digital content.
Something Fungible is like a $1 Bill, there are literally 10000s of such notes in circulation, all of them are of equal value, and can be interchanged easily, and still maintain the value, because every $1 note is “Fungible”.
But NFTs are Non-Fungible, each of them is unique, and the value for each NFT is unique. For example, any great painting like the Mona Lisa is one of a kind and hence unique.
Therefore it is unique.
NOTE: I am not a financial expert, and many of the factors and their possible future impact are just my speculations. Please do not make any financial decisions based on just this article, I am not liable for any of your decisions, I have tried my best to just provide information about What are NFTs and How do NFTs work, this post just to provide you information, and it is NOT financial advice/recommendation by any means.
But How do NFTs work?
NFTs are a class of Cryptocurrency assets, based on Ethereum Blockchain. It is different from normal cryptocurrency as NFTs have some extra information stored to make them work.
NFTs are digital Certificates, or “Tokens” if you would like to call them, which are a proof of you being the owner of a particular digital property, stored on the Blockchain network of Ethereum, though recently more cryptocurrencies have shown interest in building their own NFT implementation
While discussing How do NFTs work? You might be wondering what is Blockchain? A Blockchain is nothing but a shared ledger having records of who owns what.
But Who maintains these records?
Well, the Blockchain records are maintained by 1000s of computers globally.
Upon sale of NFTs, these records are changed to mark the new owner of the Digital art.
Is that it?
While I have explained to you all the basics of How do NFTs work, there are some further care dependant scenarios.
Nope, NFTs can have some further complications based on the original artist’s needs, and in some cases, the NFTs can potentially have contracts attached to them, which award the original artist a percentage share on every future sale.
Can NFT be stolen or hacked?
You already know How do NFTs work, but there are still chances of NFTs being stolen.
NFTs are based on Cryptocurrencies, and we know that in the past cryptocurrencies have been stolen many a time.
While there is no certainty, the Blockchains have improved over time leading to much more security, but when it comes to things worth well over $100k who knows a hacker travels the extra mile to steal it.
NFTs are really popular, and for the amount of money at stake, there can surely attempt to hack it.
Blockchain is secure and it gets better day by day, the stealing of the NFT would NOT be easy by any means, but would still require extreme levels of effort, and brainstorming.
Your Blockchain-based assets are stored in Digital Wallets, so a better idea is to potentially put it in a Digital Wallet of your own and bury it deep underground, or keep it in a safe.
But Come on, if you had Mona Lisa at your home, what are the chances that no one will ever break into the house and steal it?
Can NFTs be Duplicated/Pirated?
Well, NFTs are proof of ownership, no one is stopping people from reproducing them, or their clones, or duplicating them from a version that pre-exists on the Internet.
So basically NFTs can be duplicated.
So what is NFT? Just an overpriced version of something available for free on the internet? Nope.
Artists usually retain the Copyright, even after transferring the ownership to you.
This means that the original artist can redistribute and sell the copies without any restriction.
Besides that, like everything else on Internet, these files can also be downloaded, sometimes with almost no effort.
Beeple’s art was sold for $69 Million, and the image exists freely on the internet and has been copied many a time.
If NFTs can be Duplicated, then Why are NFTs so Expensive?
That’s a great question, the whole concept of How do NFTs work falls apart if you can get the same for free from the internet right?
Well, I had the same question when I read about NFTs for the first time.
Here’s what I learned after talking to people familiar with it, and I will explain it in simple words.
You know How do NFTs work, so let me explain to you why NFTs are so expensive with an example, It’s like an Autograph, you can get an Autograph of Virat Kohli on a piece of paper, and then photocopy and resell it as many times as you want.
But it would still be a copy, none of the copies was actually signed by Virat Kohli.
That’s the difference between NFT and copies downloaded from the internet, NFT is always ownership of the original.
Take Mona Lisa for example, you can easily find high-resolution pics of the Mona Lisa on the internet and can take a Canvas size print at high quality from nearby shops, but how well will it sell? Well, it won’t get you more than a couple of bucks. Which is way less than the actual price of the Mona Lisa.
Similarly, NFT clones/duplicates can be downloaded from the internet easily, but the reason why NFTs are so expensive, it that they represent the actual product.
What are some of the most expensive NFTs?
NFTs are really expensive, and here I will tell you about some of the most expensive NFT sales of all time.
Twitter CEO Jack Dorsey, sold the first-ever tweet on Twitter as an NFT, that got bids as expensive as $2.5 Million
Beeple’s art was sold for $69 Million, which broke all sales records in form of Digital art.
The Disaster Girl which became a popular meme was sold for about $500k
So as you can see some of the most expensive sales of NFTs, are really massive and make you realize What is NFT and How do NFTs work.
The potential of NFT is massive, though not all countries have all the provisions/laws to properly support NFT, and it’s still a relatively new concept, so definitely it will take time to reach the last man in the chain.
How Can I create and sell NFT art?
Now that you know what is NFT, and How do NFTs work, you might also be interested in knowing how to create NFT, and how to sell NFT.
Well creating NFTs is quite simple, you just have to make your artwork as an image or GIF or some other common standards.
For making Images, you can use Pro-level tools like Photoshop, if you are low on budget GIMP is a free alternative with the majority of the tools, and if you have the courage, you can also use MS Paint to create NFTs.
NFT market is currently flooded with various options, some are super difficult and can take ages to properly use, and others are super simple that can easily be implemented in minutes.
Some sites that are based on Ethereum Blockchain, may charge you some fees, which is the cost of computational power needed to process your request. While some other sites might keep it low cost.
Sites like Nifty Gateway or Opensea, these sites are really useful for beginner-level stuff.
Hopefully, I have answered every question in your mind, and perfectly explained what are NFTs, and how do NFTs work.
The working of NFTs mostly remains the same in every blockchain network, and the basic concept of NFTs is quite simple too, they are just proof of ownership of original and unique artwork.
NFTs are still relatively new compared to conventional auctions, and stock trading. NFTs gained momentum in the middle of 2020.
Even though you know the basics of How do NFTs work, there are still a lot of laws and legal barriers that you might need to consider based on your location.
There are chances that if you ask for advice on the internet, you might not get the right advice, and a lot more people would discourage you because they themselves don’t have any idea about what is NFT as a result they can give you the wrong advice too.
I am no financial advisor either, and I request you to not consider this post as financial advice, however, I have tried to remain true to facts, and being accurate to my knowledge, I would still strongly recommend you to talk to a real financial advisor.