What Are NFTs And How Do They Work?

Interest in non-fungible tokens (NFTs) has risen over the past few years, especially in the art world. But what are NFTs, how do they work, and why have they become so popular among buyers, investors and creators?

What are NFTs?

NFTs are digital assets that are bought and sold via online marketplaces. Rather than owning a physical item, such as a painting, people who buy NFTs purchase a digital file. Each NFT has a unique digital signature, and they contain built-in authentication which serves as proof of ownership.

NFTs are commonly created (or “minted”) from digital art and collectibles. However, they can also be created from any other type of digital asset. For example, the co-founder of Twitter, Jack Dorsey,sold his first tweet as an NFT.

How do NFTs work?

NFTs are typically recorded on the Ethereum blockchain, although they are supported on other blockchains. This means ownership is verifiable and traceable. By definition, NFTs are non-interchangeable (or non-fungible). In order to purchase an NFT, the buyer needs a digital wallet and whichever cryptocurrency the marketplace accepts. NFT prices are often listed in ETH (ether).

So,where does the value of NFTs come from? Essentially, the answer is market supply and demand. NFTs can have a limited run or involve unique assets. The key thing to remember is that when someone buys an NFT, they are not buying a copy but the asset itself. If that asset is, for example, a one-of-a-kind work by a popular artist, it will sell at a premium, just as physical works of art can sell at auction for astronomical sums.

Why are NFTs popular?

NFTs are popular among a wide range of buyers, organizations and creators. They allow people to own rare and unique assets, which may (or may not) increase in value over time, while companies can use them to raise money.

While they first gained traction in the art world, other sectors have embraced NFTs, including gaming, music and graphic design. NFTs are also increasingly popular among sports teams to generate additional revenue streams, such as the sale of digitalized memorabilia. In addition, NFTs can be used to engage with fans and consumers through the sale of desirable “experiences”, such as VIP access to events or the chance to interact with celebrities and sportspeople.

For artists and other creatives, NFTs offer the chance to sell their work directly to buyers, bypassing galleries, and other intermediaries, and collecting a royalty if the work is later sold on. Individuals can easily create their own NFTs and sell them online via a dedicated marketplace linked to the creator’s crypto wallet.

How much do NFTs sell for?

The price of an NFT varies considerably. Factors that can influence the selling price include quality, creativity and the reputation of the creator. At the high end, the price can run into the millions. For example, a digital artwork by American graphic designer Beeple (Mike Winkelmann) called “Everydays: The First 5000 Days” sold for $69.3 million. However, they are also accessible to everyday buyers and investors, with prices of around $100 or even less.

While the world of NFTs is not without risks, the main advantage is that they allow buyers of all backgrounds the chance to own a unique digital asset.