NFT Explained: Its Uses & Examples

Let's know about NFT. A simple explanation with examples to understand it in a simple way.

What is NFT?

NFT stands for Non-Fungible Token, but what exactly is fungible? Well. You can think of something that is fungible as interchangeable or as having no unique properties.

For example: If I have a one-dollar bill and ask you to trade it with me for a different one-dollar bill, you probably won't have any issue with that. Since they're basically two of the same thing meaning both bills are fungible.

However, if by chance you happen to have a rare one dollar bill with a unique marking or unique serial number like say one two three four five six seven eight or a true binary serial number, where all of the digits are either a zero or a one.

You probably won't be so inclined to trade it. These one-dollar bills are extremely rare and can be traded for up to five thousand dollars and more in other words. These bills are non-fungible.

They are unique and have specific attributes that distinguish them from the rest of the bills. 

So, a non-fungible token is like a unique dollar bill. It's a digital coin that has unique attributes attached to it.

Categorization of NFT:

We know that NFT can be anything that is available on the Internet.

But still, NFTs are categorized. Those are-

1. Digital Art

2. Memes

3. Sport Highlights

4. ENS Domains

5. Metaverse Land

6. Gaming Assets

Use of NFT:

Well, NFTs are used to prove ownership of a certain digital file or a digital certificate of authenticity.

For Example: When we look at a piece of art or a painting, the original painting is always much more valuable than its copies and there are specific methods you can use to validate the authenticity of that painting.

By receiving a certificate of authenticity, right. But when it comes to a digital file, how do you know what is the original and what is a copy? And does it even matter?

Well apparently, it does in the same way that people collect physical art. Digital goods are becoming very popular.

For example, I can write an ebook and sell the first copy of it as an NFT. Whoever buys it from me will have the right to say that he owns the first-ever copy of my book.

But, here is where it gets tricky. You see, it's not that I gave the buyer any rights to my book or anything tangible. For that matter, I only gave the buyer the right to grab that. 

With an NFT, you don't have any power over the goods that you're buying. That's why it's questionable as to how valuable NFT actually is? 

I mean an NFT is worth only as much as the next guy is willing to pay for it and if it doesn't even exist in the physical world.

How is an NFT created?

A creator creates a digital good. This could be an image, a video, a tweet, a website or anything else that lives in the online world.

The creator then creates a coin or more accurately a token on a blockchain that supports smart contracts like Ethereum, Cardano, or Solana. This token holds within it information about the digital goods that are being sold.

This information includes the token name, the token symbol, and a unique hash that proves the authenticity of the NFT.

Keep in mind that digital goods themselves aren't stored inside the token, only attributes relating to them.

So, while the NFT may point to where the file can be found online. Anyone can use that link and it's not unique in any way once the token is created.

The creator can sell it to someone else and that someone will be the new owner of that digital good. To sum it up an NFT is a token on a blockchain that acts as a digital certificate of authenticity.

It can be verified instantly and also show the history of its previous owners. Aside from being non-fungible or unique, NFTs are also indivisible, easily transferable, fraud-proof, and programmable.

This means that NFT creators can decide that royalties will be paid to them each time an NFT is sold.

Popular NFTs that has been sold:

Popular NFTs include CryptoPunk, a collection of 10,000 8-bit style pixel art images of well punks that are sold as NFTs and their price has already surpassed several millions of dollars.

Another Example is NBA Top Shot a marketplace where fans can trade NFTs of NBA moments. These moments are video clips packaged as an NFT.

A bit like trading cards. We used to have back in the day using NFTs for sports highlights is another way players can make money by getting royalties when a top shot moment that they are highlighted in gets sold as an NFT.

Additional popular examples include Jack Dorsey, the founder of twitter, selling his first ever tweet as an NFT.

The famous digital artist Beeple sold an NFT of his work for 69 million dollars.

Types of NFT Marketplace:

Actually, there are two types of NFT marketplaces: Centralized and Decentralized.

Centralized Marketplace

The Centralized marketplaces allow you to sign up and fund your account using a credit card or other form of payment. For example, Nifty Gateway is a centralized NFT marketplace owned by the exchange Gemini. There you can buy NFTs using your Gemini Balance.

Decentralized Marketplace

If you want to make NFT purchases through a decentralized marketplace, you'll need a wallet that's compatible with the blockchain. For example in Ethereum's case, MetaMask is the most popular option. It's a wallet that was built as a browser extension and you can use it to log into decentralized NFT marketplaces.

Once you fund your account or wallet you can just buy or bid on different NFTs in the marketplace. 

See Also: How to buy an NFT?

What can you do with NFT?

Well, most people find some creative ways to show it off. For example, Some NFTs are displayed digitally across art galleries.

Another creative idea that's been getting quite popular is to use a digital frame that can display the NFT and hang it up in your house.

Alternatively, you can use a physical print of the NFT with a QR code next to it. Pointing to your proof of ownership on the blockchain, there are also online galleries inside virtual worlds that are used for displaying NFTs as you can see the opportunities for displaying your latest digital artwork are abundant. 

But NFTs aren't used only for art actually. Anything that is unique or needs proof of ownership can be created as an NFT.

In simple terms, an NFT is a term used for tagging something in the digital world as your own. So anything that requires such tagging can benefit from the NFT technology.

For Example, Decentraland is a virtual world, where users can buy digital land that can be sold or used for advertising. 

Online games can use NFTs to prove ownership of rare digital items. Players can then start trading amongst themselves.

Unstoppable Domains uses NFTs to establish ownership of domain names.

NFTs can also be used as collateral in Defi instead of cryptocurrencies. It's the equivalent of pawning something you own in order to get a loan in the real world.

NFT Phi is one example of a marketplace for NFT collateralized loans.

Conclusion

As you can see the ideas are endless so are NFTs the next big thing or are they just a craze like the 2017 Ico Mania.

It's hard to say on the one hand. It seems like everybody's talking about NFTs and all the big companies are moving into this space. On the other hand, it's hard to wrap your head around the concept of people paying millions of dollars for digital proof of ownership without any claim in the real world.

In the end, an NFT is just a coin or token to be more precise that is stored on your wallet just like any other Cryptocurrencies. Keep in mind that unless you're an avid collector, you'll also need to sell the NFT at some point and NFTs aren't very liquid.

In other words, they don't always have a market of people who want to buy them. Just like it might be hard to find someone who'll pay thousands of dollars for a rare baseball or pokemon card.

As you can imagine, this market is very hype-driven. This could lead to a situation, where a person buys an NFT for millions of dollars only to find out that he can't sell it later on since the interest in that specific NFT is no longer there.

I guess only time will tell what the future holds for NFTs.