How do NFTs Work?

If you follow ether closely, you must have heard about the new wave: Non Fungible Tokens, NFTs. And now, you might be wondering what the hype is all about. Are these digital assets here to stay? If yes, perhaps you should invest too.

If you would invest your hard-earned money in any asset, we say you know how it works first. So, how do NFTs work? Do they operate the same idea with Bitcoin and other digital currencies?

This piece contains all the answers. Here, we will show you:

  • The fundamentals of NFTs; how they are different from cryptocurrency.
  • From there, we will explain how this digital asset works and how you can use it.

That said, let’s get into the details already!

Are NFTs Different From Cryptocurrency?

Short answer: yes!

Even at that, NFTs and cryptocurrencies share similar building blocks. They both work on blockchain technology. Other than that, the two digital assets are fundamentally parallel. How?

By definition, cryptocurrencies, much like your dollar, are fungible. In other words, they are exchangeable. Confusing, eh?

You can always exchange or trade your dollar with another. When you do, the value remains the same. And that same principle applies to cryptocurrencies.

However, the case is different with NFTs. Like the name, they are non-fungible (non-exchangeable). In other words, an NFT does not equal another. Why?

Each non-fungible token has a unique digital signature. That also means the value isn’t a constant. And for those reasons, you can’t exchange an NFT for another, even when the token is the same.

But, if you can’t exchange NFTs, how then are they a good investment? How do they work?

How Do NFTs Work?

Like we had mentioned earlier, NFTs work on blockchain technology, much like cryptocurrencies. But they operate differently. And here comes the twist:

Non-fungible tokens don’t just work on blockchain; they have eyes for Ethereum. And that’s where they stay for transaction purposes.

But before storing on the Ethereum blockchain, you must first create (or mint) your NFT. Fortunately, you can do that with both tangible and intangible digital objects. Such objects range from art, images, videos to even tweets.

Fun bit: perhaps you would sell your tweet like Dorsey. He sold his first for more than $2M.

In essence, NFTs work like collectibles, only that they are digital. For example, instead of getting an art piece you bought as NFT, it will be a digital file.

As that is the case, you will have exclusive ownership rights to your purchased NFT, much like your physical goods. That way, only one can have its unique data for verification in case of identification or transfer.

About transfer, some NFTs will allow you to reap royalties on resale. More importantly, you can decide the scarcity of your NFT in the market.

Summarily, NFTs work on the Ethereum blockchain. You can create or mine them from virtually anything. And when you do, you will get exclusive ownership rights that you can transfer. Even then, you can still get royalties from future exchanges.

Now that you understand how NFTs work, let’s brief you on what you can do with them.

How Can You Use NFTs?

NFTs are digital assets that let you monetize your ware. Thanks to the technology, you needn’t depend on auctions or galleries to sell your dispensable items.

And about the dispensable items, you can trade virtually anything with NFTs. Some of the usual transfers, however, include collaterals, domain names, and gaming items.

Furthermore, you can create a token for your valuables as some form of investment. There are endless possibilities to what you can do with NFTs, really.

So, what do you think? You probably understand how NFTs work now. If not, then check our other resources on the topic. Or you can send us your question over!

Posted by Brett Melville

Brett Melville is a SEO consultant at Digital Treasury and a NFT writer.

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