NFT Knowledge: What Are NFTs and How do They Work?


Do you want to know more about NFTs and why it’s such a popular buzzword today?

NFTs have existed since 2014, but they only became popular recently. Today, it’s hard to find a platform that doesn’t discuss NFTs. You’ve likely even heard about NFTs reaching a trading volume of over $10.7 billion last year.

The big question many people have is, what are NFTs? If you’re looking for an answer, continue reading to expand your NFT knowledge.

What Is an NFT?

An NFT is a non-fungible token, a piece of digital content connected to the blockchain. Blockchain is the database where you can find and get cryptocurrencies like bitcoin. However, NFTs differ from cryptocurrencies.

Although it’s still a token, it is non-fungible. You can’t replace it with anything else, even if the replacement is a replica of it.

In comparison, bitcoin is a fungible token. You can exchange or replace a bitcoin with another at the same value.

As of the moment, each NFT can only have one owner with each purchase. Every NFT owner has a certificate of authenticity or proof of ownership to show they bought it. These certificates come in the form of a unique ID and metadata unique to one NFT.

Examples of NFTs

Now, what does NFT being a digital token mean? It means an NFT can be any digital piece of content. It can be:

  • Digital art
  • Videos
  • Music
  • Collectible art
  • GIFs
  • Signatures
  • Legal documents
  • Tokenized invoices
  • Deeds to a car
  • Tickets to a real-world event, and more

Do you want a concrete example of an NFT? The most expensive NFT of 2021 is EVERYDAYS: THE FIRST 5000 DAYS, priced at $69.3 million.

How Do NFTs Work?

As we mentioned, NFTs are digital assets that are parts of the Ethereum blockchain. Thus, you can only use Ethereum tokens to buy and sell NFTs.

You gain access to its certificate of authenticity and proof of ownership when you buy an NFT. For example, a person pays $5 million to buy the original Nyan Cat GIF. Yet, it doesn’t limit who can share, download, or use the GIF.

Basically, anyone can still have their own copy of the GIF you just spent your money on and use it however they want. Plus, the artist still keeps their intellectual and creative rights. The copyright and reproduction rights are the trickiest parts of becoming an NFT owner.

An easier way to understand NFTs is to imagine them like the Mona Lisa. Only one genuine copy of the Mona Lisa painted by Leonardo da Vinci exists in the world. Yet, you can find many people replicating and modifying it.

Where Do NFTs Come From?

Like photos, videos, and other types of digital content, people create NFTs. You don’t need to be a well-known artist or music producer to create one. The average Joe can create and turn something into an NFT.

NFTs vs. Cryptocurrency: How Do They Differ?

Cryptocurrencies and NFTs use the blockchain to function. They are also digital or virtual assets only. However, this is where the similarities of NFTs and cryptocurrency end.

Unlike cryptocurrency, each NFT is trying to show that they are different, even when others can basically replicate your NFT-bought item. An Ethereum coin is fungible or replaceable. Also, you can’t trade or exchange NFTs for another NFT at the same value.

Advantages of NFTs

NFT technology claims to provide more security than real-world art. For example, traditional art collectors have to take extra security measures to take care of their craft.

NFTs also claim to have an immutable digital signature. They also can’t physically decay because they’re digital which can be accessed through a computer or smartphone.

They can also be used for content marketing strategies. Remember, NFTs can be anything digital like essays, articles, or eBooks.

Disadvantages of NFTs

Do you prefer hanging art in your house or displaying a one-in-a-billion comic book on your shelf? If so, you may not enjoy buying NFTs, which are digital content. You can print it and hang it up, but it’d feel like hanging a replica of the NFT.

However, you can be assured that your art is unique to you since it is physical and hard to fake. Other people would also have difficulty in using what you’ve purchased since the art itself is with you.

You also don’t control the digital asset of your purchased NFT, even though you are the owner. It’s like holding a certificate of ownership without the power of deciding what happens to it. The artist can still reproduce the NFT that you bought.

In other words, you don’t really have clear ownership with your NFT, since the artist still technically owns what you’ve bought. It’s like you’re spending money without getting the item you’ve spent it on.

Getting an NFT is like becoming the owner of the Mona Lisa. You have the bragging rights of being her owner, but it won’t stop other people from using, editing, and sharing digital copies of it.

Are NFTs Worth Anything?

Many people see NFTs as the future of blockchain. Yet, NFTs are worthless when looking at the bigger picture.

First, you’re buying the ownership of a digital asset that isn’t as versatile as cryptocurrency. Some NFTs are more valuable, but it’s not always a guarantee for all NFTs. Only iconic or “meme-worthy” NFTs are likely to rise in value.

Despite having ownership of it, you won’t have its copyright. The creator can still earn money from his art without any of it going to you. Some may even claim that companies are just using the NFTs for the buzz, even if consumers gain absolutely nothing from it.

On top of that, NFTs are replicable. It won’t matter if you have the authentic original copy of a GIF or digital art.

In fact, here’s what Wikipedia has to say about NFT’s:

A non-fungible token (NFT) is a non-interchangeable unit of data stored on a blockchain, a form of digital ledger. NFTs can also be associated with reproducible digital files such as photos, videos, and audio. NFTs use a digital ledger to provide a public certificate of authenticity or proof of ownership, but do not restrict the sharing or copying of the underlying digital files or the re-creation of identical NFTs. The ownership that NFTs confer is not legally binding. The lack of interchangeability (fungibility) distinguishes NFTs from blockchain cryptocurrencies, such as Bitcoin. NFTs have seen some use as a speculative security and a means of money laundering. NFTs have drawn criticism with respect to the energy cost and carbon footprint associated with validating blockchain transactions as well as their frequent use in art scams.

Wikipedia – Non-fungible tokens (NFTs)

We do recommend giving the Wikipedia article a read, as it does a far better job at categorizing how NFTs have impacted different industries (eg: video games, art, music, film).

From our point of view, it’d be far wiser for someone or a brand to invest in blockchain and cryptocurrency instead of NFTs; and that’s saying something considering cryptocurrencies are the riskiest asset class out there.

Learn More About NFTs

Do you think NFTs are worth buying? No matter which side of the fence you stand on, we hope you found peace of mind now that you know what an NFT is.

At Frasca Digital, we have done the research on NFTs for you. Our hot take on NFTs is that they’re relatively worthless and easy to replicate, which makes the vanity of them significantly less and likely a waste of time for brands. We strongly believe NFTs are gimmicks, but brands with big budgets are on-board this hype train.

Regardless, decide carefully if you want to incorporate NFTs into your business. Whatever you decide, we’d be happy to help bring your plans and ideas into reality.

Want to become more digital? Visit the Frasca Digital contact page now and we’ll provide a complimentary website audit for free!

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