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What are Non-fungible Tokens (NFTs)?
by Omor Ibne Ehsan · · 3 minute read
Non-fungible Tokens or NFTs are unique blockchain tokens that can represent anything such as art, in-game items, videos, music writing, tickets etc. An NFT cannot be exchanged like-for-like, hence the name "Non-fungible."
Unlike traditional cryptocurrencies, all NFTs have their own unique properties. Thus, no two NFT can be the same or share the same value over time. This is because NFTs contain information recorded in their smart contracts, and this piece of information verified by the blockchain is the unique aspect of each NFT token.
Where are NFTs Stored?
When someone buys an NFT, their ownership of the NFT is digitally stored on the blockchain, much like a certificate or a signature. All of the NFT data is stored on the blockchain through the usage of smart contracts, which means that NFTs cannot be destroyed, removed, or replicated alongside their blockchain signature.
Most NFTs use the Ethereum blockchain through the usage of smart contracts, though you can also find NFTs on many other blockchains such as Cardano, Solana, Bitcoin cash or Tezos. There are also off-chain NFTs that are stored in centralized servers or the interplanetary file system (IPFS).
Benefits of NFTs
NFTs allow content creators to sell their artwork digitally
Content creators can easily monetize their work by selling NFTs in a decentralized ecosystem.
Some marketplaces enable creators to earn royalties each time their NFT is sold
NFT royalties give you a percentage (often 5-10%) of the sale price each time your NFT creation is sold on a marketplace. These royalties can make you a significant amount of passive income over time.
Content creators can access a larger market
Due to the nature of the blockchain, anyone from any country or age can buy NFTs. Thus, content creators can access a more extensive market.
NFTs are immutable due to blockchain metadata
NFTs will exist unchanged as long as the blockchains they are stored on keep them protected. Since most NFTs are stored on the ever-growing Ethereum blockchain, it is safe to assume that they are immutable.
Drawbacks of NFTs
NFTs have significant variations in cost
The prices of NFTs can be highly unreliable. Most marketplaces are unregulated, so it is hard to know how much of a resell value an NFT has.
High power usage
If NFTs attain mainstream adoption, they can highly impact the environment due to their high power usage. Currently, just one Ethereum transaction can cost up to 238.22 kWh of energy, equal to ~160,000 VISA transactions.
No control over others copying and distributing your content
Others can copy and distribute the contents of your NFT except for the blockchain signature, and you cannot control it.
NFT Marketplaces
NFT Marketplaces are where you can buy and sell NFTs. There are many NFT marketplaces. Some popular ones are:
Some of the iconic NFTs that have been sold
Bored Ape Yacht Club
The Bored Ape Yacht Club features a collection of 10,000 NFTs. Each depicts an ape with distinct traits and visual attributes. These are some of the most well-known NFTs, and some of them are being sold for hundreds of thousands of dollars. The total value of all sales is over 303,000 Ether or $1 Billion as of this writing.
CryptoPunks
CryptoPunks are 10,000 uniquely generated characters with some characters going for millions of dollars. The total value of all sales is over 645,000 Ether or $2.1 Billion as of this writing.
The Merge
The most expensive NFT sold by a single living creator, The Merge was sold for $91.8 Million. The NFT is sold with units of "mass", and with each unit sold, the mass gets bigger.
The First 5000 Days
The First 5000 Days is a digital work of art created by Mike Winkelmann, known professionally as Beeple. The work is a collage of 5000 digital images created by Winkelmann.
Conclusion
NFTs have their benefits and drawbacks and may not be for everyone. However, NFTs are still an asset with great potential due to ongoing global digitalization. They are especially useful for content creators who wish to monetize their content online. NFTs allow you to represent ownership of your assets in a unique way, which is appealing to many.