22 November 2021
If you follow trends in the world of cryptocurrencies, you have heard about NFTs being sold for millions of dollars. But what does NFT stand for, and why are so many people buying NFTs?
Cryptocurrency and blockchain technology are slowly entering more areas of our lives. Blockchain is one of the most fundamental technologies of the 21st century. It is a decentralized database in which cryptocurrency assets and transactions are recorded. NFTs are a key element of the entire blockchain-based economy. NFTs are becoming more and more popular and are revolutionizing different industries, such as art, entertainment, or even real estate. In this article, we will explain what are NFTs, what you need to know before owning one, and how to get started with buying NFTs.
NFT stands for a non-fungible token. An NFT is essentially a unique digital asset. This means that each NFT is different and has a unique value. NFTs cannot be copied or moved without the consent of the owner. In other words, an NFT can be copied many times from device to device, but there is only one original of the file with an NFT certificate. The most widespread standard for creating and issuing tokens is ERC-20. However, there are also other standards, such as ERC-223, ERC-721, ERC-777, and ERC-1155. Each new standard is modernized, making it safer and faster to use.
NFTs are non-exchangeable, technically unchanged, impossible to hack certificates. NFT can take many forms, for example, a jpg photo, gif, movie, or text file. An NFT certificate proves that a given file is an original with only one copy. Think of an NFT as a valuable painting. For example, the Mona Lisa painting in the Louvre is unique, and the Louvre confirms its authenticity. Even though many painters can paint a replica of the Mona Lisa, and each of us can print her image on a piece of paper, there is only one original Mona Lisa. This is precisely how NFTs work.
NFTs can also be treated as a currency unit. Since NFTs are non-convertible tokens, they cannot be exchanged for something else. For example, a banknote is interchangeable since it can be exchanged for other banknotes of the same value. At the same time, an airline ticket is non-convertible because it contains unique information and cannot replace another passenger's ticket. NFTs work in a similar way. For this reason, buying NFTs can serve as a unique proof of authenticity which makes them highly valuable.
The history of NFTs dates back to the first experiments with so-called Colored Coins in 2012. Colored Coins were basic bitcoin units used as coupons, company shares, access tokens, or simply collectibles. However, the technology behind NFTs gained popularity when a game called Crypto Kittes was released in 2017. The game, built based on Ethereum, allowed players to collect, duplicate and exchange virtual cats. Each Crypto Kitty had its own unique properties such as age, race, or color. Crypto Kitties couldn't be replicated nor transferred without the user's consent, even by the game developers. Users could buy and sell their Crypto Kittes as well as interact with them. Each Crypto Kitty had a unique market value, and the more unique the kitty, the more expensive it would be to buy.
Right now, NFTs can be used by decentralized applications to issue unique digital items, such as collectibles or investment products. Nowadays, NFTs are used in the development of games, digital identities, licenses, certificates, and even in the art and entertainment industries. They also allow for equity ownership of high-value items.
Before you start buying NFTs, it is essential to take your time to figure out what type of NFTs you want to invest in and what type of NFT collection you want to build. There are many NFT categories, although they are currently dominated by digital arts, games, and music. When buying NFTs, you can choose between premium NFTs (those made by famous creators) or standard NFTs (those made by everyone else). In addition, many marketplaces support different types of NFT collections, serving audiences in various niches.
If you're planning on buying NFTs, another important thing to remember is the risk of low liquidity. Depending on the type and popularity of the NFT you purchase, you may face low liquidity and low demand for that asset.
At this point, you may be wondering how to buy your first NFT. Buying NFTs is a straightforward process. NFTs are traded in cryptocurrencies. Therefore, the first step to buying NFTs is to buy the cryptocurrency you will then hold in your wallet. The next step is to register with an NFT exchange of your choice. On the exchanges, the NFT sale usually takes place in the form of an auction. Buying NFTs does not transfer the copyright to you, but it gives you basic rights to use them.
With some basic knowledge, any investor can create their own non-fungible tokens. All you need to do to get started with the creation of your own NFTs is to choose the right platform. You can create your NFTs easily with NextHash. NextHash is a state-of-the-art blockchain platform that allows easy and liquid access to crypto trading. NextHash is envisioning a future where anyone can be a self-taught investor and participate in the value creation process of new crypto NFT products. Click here to get started!