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Oxalus Insights

What Is An NFT? How Do Non-Fungible Tokens Work?

Guides Sep 8 2022

Even if you are new to NFT, you must have noticed the word everywhere and were wondering what the hype is all about. 

Ever since the explosion of blockchain use, there have been many things coming up and some are quite confusing including all the different types of tokens. When it comes to NFT, things get more confusing since you could see ape pictures being sold for millions of dollars and you wonder if it is necessary. 

With such kind of information, sometimes it is best to dive deeper into the world of NFT to understand its meaning, how it came to be what it is now, where to use it, and so much more. 

What Is An NFT (Non-Fungible Token)?

To begin with, NFT stands for non-fungible token. Well, this probably does not make it very clear to you. 

“Non-fungible” simply means that the token is unique and it is impossible to replace it with something else. For example, when you trade a cryptocurrency like bitcoin with another bitcoin, you still end up with bitcoin making it “fungible”. However, when you consider a unique trading card, then it becomes “non-fungible”. Once you trade it for a different card, you end up with something totally different. 

As NFTs have unique properties, they have been developed into numerous types, varying from art NFTs, music NFTs, gaming NFTs, and social NFTs, to the NFT form of physical real estate.  

How Does An NFT Work?

NFTs exist on a blockchain, which is a distributed public ledger that keeps track of transactions. 

An NFT is made from digital objects that represent both tangible and intangible things, such as: Graffiti GIFs, sports highlights, videos, collectibles, video game skins, and virtual avatars, designer sneakers, music, and even tweets. Jack Dorsey, a co-founder of Twitter, sold his first tweet as an NFT for over $2.9 million.

NFTs are basically digital versions of physical collectibles. Therefore, the purchaser receives a digital file rather than an actual oil painting that can be hung on the wall.

Additionally, they receive exclusive ownership rights. The use of blockchain technology makes it simple to verify ownership and transfer tokens between owners of NFTs, which can only have one owner at any given time. An NFT’s metadata also allows the creator to store specific data. For instance, by including their signature in the file, artists can sign their work.

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What Are NFTs Used For?

Buying Digital Content 

This is the biggest use of NFTs right now in the market. Content creators now see there is potential in making huge profits because of the exclusivity that NFTs offer to buyers. Once the creators have the NFTs ready for sale, the buyers can easily access them from different marketplaces. 

Gaming Items 

NFT games are where you may have to buy some NFT characters to keep playing the game. The games’ creators make their money each time you buy a character. Also, other players do the same since they can sell you their characters and make money off the game. 

Investments and Collaterals 

You can invest in an NFT with the hope that it will increase in value with time. It all depends on the hype and speculation around the NFT. You can still use the same NFT as collateral if you want to borrow money too. So, do not think NFT is all about buying and holding, use it as collateral if the need arises to still get money for other projects.

Source: Simplilearn

Real Estate 

NFTs could also work great for real estate property. This is where NFTs can be used in the transfer of land deeds, offer proof of ownership, and still, keep track of how the property changes in value by using timestamped NFTs. 

Currently, opening an equity line or purchasing a property like a real estate requires a significant amount of paperwork. When the transaction process is simplified with an NFT, a buyer can acquire the real estate in just several minutes. Krista Kim, a Canadian artist, sold her virtual “Mars House” for $500,000 on a non-fungible token marketplace, demonstrating that this idea is now a serious investment.

Medical Data Records

You would also come across NFT ledgers. These ledgers can be used for storing individual medical records and keeping such records safe. If the NFT is stored on a secure blockchain protocol, then you do not need to worry about malicious manipulation of the NFTs. 

An example is that you may find NFTs have been used in the making of NFT birth certificates after getting newborns. We can wait and see more applications of NFTs in the medical world. 

Ticketing

Your access credentials to an event/a place are stored in digital assets known as NFT tickets. To make the fan experience even more immersive, they can also offer ticket holders additional perks like meet-and-greets and exclusive merchandise. NFT tickets have the potential to provide ongoing royalties for artists, event organizers, and stakeholders, in addition to assisting in the development of a closer relationship with fans. 

What Is Different Between NFT and Cryptocurrency? 

Crypto assets are simply virtual currency you can use like the currency we have in the real world such as the dollar. So, when you buy $100 worth of Bitcoin from different vendors, you should find it is the same value based on the current market value. It is still Bitcoin of a certain value in the end. 

When it comes to NFT, a different concept is applied. This is because each NFT token would be unique. Let us say it is an NFT representing a particular art, there will be no other token with the same properties as that NFT. It is the uniqueness of each token that makes NFTs different from cryptocurrencies

Another common similarity between the two is that NFTs and cryptocurrency values are often driven by hype and speculation. Just because someone had success with their NFTs, it does not always mean it remains the same for others too. 

An example would be that just because you paid a million dollars for an NFT, there is no guarantee that the NFT would still have the same value in the future. It could be more or less its original value. 

Conclusion 

NFTs should now be well understood after going through the guide above. It might still be something new to you, but know it has similar characteristics as other digital currencies only that it is tailored to be unique. Its uniqueness is what drives the value of NFT  and makes it usable in certain scenarios. Do not be afraid to invest in such tokens, however, make sure to do due diligence not to spend your money on overhyped NFTs. As always, invest wisely. 

Frequently Asked Questions

1. How to buy NFTs?

To get started buying NFTs, you’ll need a crypto wallet that can be stored either online or offline. Minting is used to call the first purchase of an NFT. It will appear in your wallet when it’s either minted, purchased from NFT marketplaces, or transferred by the NFT’s current owner.   

2. What is so special about an NFT?

NFTs are all about owning unique tokens no one else has. This uniqueness and exclusivity make it possible for more people to consider NFTs. 

3. What is an NFT character?

These are images of characters that would be represented in an NFT format. Each would be unique and have different traits from other characters. 

4. Are NFTs safe?

NFTs are not very secure as they are still in their infancy from a market perspective. Also, NFTs’ incredible growth has been appealing to attackers. When joining the NFT space, people should always keep their eyes on NFT scams and how to avoid them. 

5. What is a fungible vs non-fungible asset?

Fungible assets are divisible and non-unique. For example, fiat currencies like US Dollar are fungible. Non-fungible assets, meanwhile, are unique and non-replicable items. For instance, a flight ticket is non-fungible as it cannot be changed by another of the same kind due to its specific data. 


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