Just as Bitcoin is being touted as the digital answer to currency, NFTs are being hailed as the digital answer to collectables.
But what are NFTs and how do they work?
What is an NFT?NFT stands for non-fungible token.
NFTs are digital assets that are “one-of-a-kind” that can be bought and sold, but they have no material form of their own.
They can be thought of as certificates of ownership for virtual or physical assets.
How do NFTs work?Art such as paintings or sculptures are valuable because they are one of a kind.
But digital files can easily be duplicated.
NFTs create a digital certificate of ownership that can be bought and sold – meaning they’re “one-of-a-king”.
No two NFTs are the same.
A record of who owns what is stored on Ethereum – a shared ledger known as the blockchain.
The records of who owns what can’t be forged because Ethereum is maintained by thousands of computers across the globe.
NFTs can also include smart contracts which could for example give the artist a cut of any future sale of the token.
What stops NFTs being copied?Nothing is stopping people copying or sharing the image.
In my cases, the artist retains the copyright of their work so they can continue to sell copies.
But the buyer of the NFT owns a “token” which proves they own the “original” one.
How much are NFTs worth?
Interest has been fuelled by recent multi-million-dollar-sales.
How are NFTs different to cryptocurrency?It’s built using the same kind of programming as cryptocurrency, like Bitcoin or Ethereum, but that’s where the similarity ends.
Money and cryptocurrencies are ‘fungible’ meaning they can be exchanged or traded for one another.
They’re also equal meaning one Bitcoin is always equal to one Bitcoin; one pound is always worth another pound.
Cryptocurrency’s fungibility means it’s a trusted way of conducting transactions on the blockchain.
NFTs are different.
Each NFT has a digital identification which makes it impossible for NFTs to be exchanged for or equal to one another – hence, non-fungible.
What are NFTs used for?Blockchain technology and NFTs give artists an opportunity to monetise their work.
It means artists no longer have to rely on galleries or auction houses to sell their art.
Instead, the artist can sell it directly to the consumer as an NFT, which also allows them keep more of the profits.
Artists can also program in royalties so they’ll receive a percentage of future sales whenever their art is resold. This is an attractive feature as artists generally do not receive future proceeds after their art is first sold.
But art isn’t the only way to make money with NFTs.
The viral internet clip known as ‘Charlie Bit My Finger’ was taken down from YouTube after selling as an NFT for more than £500,000.
Nyan Cat, a 2011-era GIF of a cat with a pop-tart body, sold for nearly £424,000 in February 2021.
Even celebs like Snoop Dogg are releasing unique memories, artwork and moments as NFTs.
How do I Buy NFTs?You need to get a digital wallet that allows you to store NFTs and cryptocurrencies.
You’ll then need to purchase some cryptocurrency, most likely Ethereum, depending on what your NFT provider accepts.
You can buy cryptocurrency using a credit card on platforms such as Coinbase.
You’ll then be able to move it from the exchange to your wallet of choice.
OpenSea, Mintable, Rarible are the three main platforms to buy NFTs.
You can bid on items like you would on eBay or other internet auctions sites.
How are NFTs Created?Creating an NFT is an easy process.
All you need to do is make an account with a marketplace like Opensea which lets all of its users create NFTs.
You don’t need to have any experience with blockchain.
Most NFTs made by random people never sell, however.
NFTs often gain value from the artist’s reputation or the historical significance of the NFT.