Recently, NFTs have emerged as a new application on blockchains, yet many still wonder what NFTs are and why many people chase after them when they cannot even be held in hands. If you are a new person, this article which will give a clear and simple explanation about NFTs is for you.

What is an NFT?

NFTs, also known as non-fungible tokens are cryptographic tokens used to verify ownerships of digital assets on blockchains. The digital assets can be songs, videos, pictures or pieces of virtual land. Every NFT represents an online object with its own value. Therefore, they are irreplaceable or cannot be exchanged equivalently like common coins or tokens (the word fungible alone means exchangeable).

E.g. I have a ETH and you have another ETH. Our coins essentially have the same value so we can swap them, which means they are fungible. However, when I have an NFT that represents Mona Lisa by Leonardo da Vinci and you have an NFT that represents Starry Night by Vincent van Gogh, we cannot swap our NFTs because they have different value.

Created and stored on blockchain, NFTs have some blockchain-related remarkable features:

• Sustainability: Once minted on a blockchain, an NFT will be safely stored there for good. If you own a drawing, it may be damaged over time. But when you own a digital art work as an NFT, it will permanently be there. An NFT cannot be altered by anyone but the owner. When you buy an NFT, you can make any decision about it such as to sell at any price or even to burn it.
• Transparency: Blockchain is like a public ledger as you know, so every transaction of an NFT on a blockchain will be recorded for everyone to see. You can trace back to know who created an NFT or who bought that NFT at what prices.
• Uniqueness: An NFT minted on a blockchain has an identity code to ensure authenticity and avoid forging. Hence, every NFT is unique and cannot be replaced.
• Scarcity: For every NFT is unique, they are valuable for their scarcity. It is the ownership that makes an NFT valuable, so it would be meaningless for you to keep a fake NFT.
• Indivisibility: Normally you can split a coin or token into smaller parts, yet you cannot do that to an NFT. An NFT, just like a drawing or a song, will lose its value when it is broken into parts.

Recently, NFTs are largely built and traded on the Ethereum blockchain, which is well known for its prestige and reliability. Some prominent NFTs trading platforms are Opensea, Rarible, Superare, Nifty Gateway, etc.

What makes an NFT valuable?

Price and value of an NFT

Every NFT has its own value, but the price is set due to the how scarce it is and how many people want to have it. The creator of an NFT need to understand what their work’s worth to assess a suitable floor price to sell it well.

The price of an NFT may be low at the beginning but increases much higher later. It sounds unfair for the creators. That’s why lately many NFT marketplaces have allowed creators to receive royalty fees. 

Royalty is an amount of money that the sellers have to extract from the money they get paid from reselling NFTs to pay for the creators. The percentage of money that they have to extract is based on the rate which is set by the creators, usually from 10% to 30%.

NFTs’ use cases

Due to their security and authenticity, NFTs are now widely used in many aspects from entertainment to storing documents.

Gaming

NFTs are mainly used to represent in-game items. Blockchain is a decentralized platform; therefore, NFTs are actually owned by gamers, not the gaming platforms. With multi-chain technology, gamers can transfer their items to other accounts even in different games. NFTs have been more attractive because recently many so-called play-to-earn NFT games have allowed players to make money by playing games and selling items.

Digital Art

Because NFTs are unalterable and undamageable, they are used to store digital arts to maintain their original state.

Trading

The price of an NFT can increase or decrease overtime considerably depending on the needs of the market. Henceforth, many people trade NFTs as a way to earn a profit.

Real-estate

NFTs can be used to represent real-estate in virtual world. The land can be resold for interest, leased or used to build galleries, concert halls to make a profit.

Licensing and ticketing

NFTs are hard to forge and also sustainable as you know, so they are utilized to represent tickets or documentary such as graduation certificates, diploma or land papers, etc.

Metaverse

Metaverse is now well known as a virtual environment for everybody to interact from far away with each other. This new virtual world requires an NFT, especially 3D NFT, as an avatar to represent the user to enter.

Bottom line

The technology development has brought about the emergence of blockchains and now NFTs. This new type of digital asset may not be well known at the present, but it bring us many amazing advantages. Its applications lately are not limited to entertainment or trading but NFTs are now used in education, documentary and so on. As a result, NFTs investing is anticipated to become more developed and profitable.