Non Fungible Token (NFT) – Explained

Do you want to own a piece of digital art but don’t know how it can be done? Well, Non Fungible Token (NFT) is here for the rescue. If you want to understand NFTs and how they work, you have come to the right place.

We will deep dive into all the details of NFT and also go through the use cases where they are helpful. Also, we will see how and where it can be purchased.

What is Non Fungilble Token (NFT)?

Before understanding NFT, we need to know what “Fungible” assets are. Any assets whose quantities can be replaced with other assets are called fungible assets. i.e., one $20 note can be replaced by two $10 notes. Another example can be one 5kg of rice that can be replaced by five 1kg of rice of the same brand. So, a fungible asset means an asset that can be replaced.

A Non-fungible asset is a unique asset that can not be replaced with anything. NFTs are the tokenized assets on Blockchain, with unique id and meta descriptions to separate them from other NFTs. Investors or people can buy/sell NFTs in the blockchain network.

How does Non Fungible Token work?

NFTs are created by a process called minting. Whenever any NFT is created its record is entered in a new block and validated be the blockchain validators. Once the block is successfully validated, it is then appended in the blockchain. Minting involves smart contract for assigning ownership and transferability. 

Most NFTs reside in the Ethereum blockchain network, but other blockchain networks have also implemented their NFTs. It has a unique identifier used to authenticate the ownership and transfer the tokens between owners.

Examples of Non Fungible Tokens

Some popular examples of NFTs are :

Sports, utilities and collectibles are some more examples of NFTs.

How to buy NFTs?

You can follow the following steps to buy NFTs.

  1. Create an account in metamask.io, a plugin for google chrome to create a software wallet for you.
  2. Transfer some Eth(Ethereum coin) in the wallet created from step 1 from another wallet. Since most NFTs are available in the Ethereum blockchain, we must buy them from Eth coins.
  3. Go to any NFT marketplace like opensea.iosothbys, or binance.
  4. Go to the collection, where you can see the list of NFTs available for sale.
  5. Choose the NFT you want to buy.
  6. You can either buy NFT directly by clicking “Buy Now” and pay the amount in Eth, or if you want to negotiate, click “make offer”. It might take 30 secs to a few minutes in the transaction. 
  7. Sign the transaction for confirmation. You must pay the gas fees in Eth while signing the transaction. Gas fees is the cost of the transaction on the Ethereum network.
  8. Once the transaction is signed, NFTs ownership will be changed, and you can see the NFT in your account.

How to sell NFTs?

To sell NFT, you first need to list the NFT in the NFT marketplace like opensea, sothbys or Binance NFT marketplace. Steps are mentioned below for selling the NFT.

  1. Initialize your wallet with some NFTs; in this step, you list your NFT in the marketplace by confirming the NFT transaction. You will have to pay the gas fees to the Ethereum network.
  2. Approve the NFT item for sale.
  3. Sign the transaction.
  4. You can also put email notifications in the listing so that if someone is buying or making any counteroffer, an email will be triggered to you.

How to create NFT?

  1. Open your NFT marketplace like opensea or Binance.
  2. Click on Create NFT and upload any digital asset (photo, music, video, painting, game etc) from your computer.
  3. Give it a name and a link where details are mentioned of this asset.
  4. Write a description of this asset.
  5. Give the collection a name where all your contents should be listed.
  6. You can also provide unlockable content to the buyer. It may be a short descriptive video or file or something extra you want to provide to the buyer besides the NFT.
  7. Select the Polygon/Ethereum blockchain and click “Create” and your asset will be created and listed.

Note: You can choose Polygon Blockchain to list your asset without gas fees. Selecting the Polygon network means you don’t have to pay a single buck while listing the NFT.

Origin of Non Fungilble Token(NFT)

The first NFT, “Quantum” was created in 2014 by Kevin McKoy on the Namecoin blockchain. After 7 years of listing, it was sold in 2021 in the Ethereum blockchain.

In 2017 Ethereum blockchain was developed, and Ethereum smart contract enabled the creation of more complex and diverse NFTs.In 2017, William Entriken, Dieter Shirley, Jacob Evans, and Nastassia Sachs proposed a new standard of NFT called ERC-721.

How are NFTs different from cryptocurrencies?

NFTs are unique and indivisible, which makes them “one-of-a-kind” assets. All the NFTs have a unique id, which shows the ownership of the unique digital asset.

Cryptocurrencies are “Fungible” assets, one crypto can be exchanged with another crypto with different quantity if their prices are same, but any art like “Monalisa” or “The Last Supper” cannot be exchanged with another painting or anything.

What is an NFT marketplace?

Like selling any stock or bond, we have stock exchanges like NYSE, NASDAQ, Nikkei 225, BSE or NSE. We can buy or sell NFTs in some place called the NFT marketplace.

All the marketplaces might have different features, but they all work the same way. User lists their NFTs on the marketplace, which internally uses the Blockchain for the transaction. Ethereum Blockchain is costly, and users must pay some gas fees while listing and buying the NFT, but Polygon blockchain is free.

Some popular NFT marketplaces are opensea.iosothbys, and Binance. All the marketplace needs to be connected with an online wallet like metamask.io first.

Most expensive sales in NFTs

Here are the top 5 most expensive NFT sales so far:

Merge NFT image

Merge
US$91.8M

Merge was created by a digital artist "Pak" in december 2021.

The First 5000 Days image

The First 5000 Days
US$69.3M

Mike ‘Beeple’ Winkelmann created this art. It was purchased by Vignesh Sundaresan, who is a Singapore based crypto investor.

Clock NFT Image

Clock
US$52.7M

This clock shows how long Julian Assange was imprisioned and it raised a fund for him.

Human one image

HUMAN ONE
US$29M

This image shows how an astronaut is walking in different envrionment.

Crypto punk image

CryptoPunk #5822
US$23.7M

Two Canadian software developers launched "CryptoPunk" in 2017 in Larva Labs.

You can get more details about NFTs from crypto.com.

Image source: https://crypto.com/university/most-expensive-nfts 

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