What are NFTs?

11.01.2023

NFTs have become one of the most significant and fastest-growing innovations in many areas of life, like finance, fashion, sports, games, and art. Many people heard of NFTs, but still, they don't really know what are they. If you are one of them, you have come to the right place!

In this article, we will explain in an easy way through a simple analogy what exactly NFTs are, what the buying process looks like, and the most important question: why are they valuable?

Let's answer a fundamental question: What is NFT?

The non-fungible token is unique data saved on a blockchain that can’t be modified after it had been created. These tokens or assets you can compare to digital trading cards or paintings. When you purchase NFT, you acquire the right to that specific asset. You can’t split it up and it must be distinguishable from something else. In contrast to a bitcoin, where one token is the exact same as another, NFT is a unique unit of data that cannot be replaced by an identical version because there is no such version.

Why are we buying NFT?

The main reason most people buy NFTs is that they see them as collectibles in the investment category but let’s focus on 5 essential things that make NFTs valuable:

• The first NFTs of specific creators or businesses will likely have some perceived value. A perfect example is pokemon cards where the first edition is the most expensive
• Artists can sell their work independently from publishers. Furthermore, they earn royalties from all secondary sales of their artwork. Hence, it is a perfect way for fans to support the creators financially
• Utility which in simple words is the real-world benefits, like access to events, closed groups, exclusive merchandise, a vote in the future of the project, possession of things, characters, or lands in the metaverse, and many more
• They are unique and inalienable which means that nobody can own an identical NFT. The same is in real life where only one person or museum can hang up an original painting by a great painter.
• Everyone can check who was the previous owner of that thing thanks to ownership history.

Can someone copy your NFT?

Anyone can copy any other piece of artwork from another artist, just like in the real world. However, as I mentioned before the original NFT address can be traced back to the real creator because all NFTs have a log of their transaction history. It’s also important to note that anyone could create a new NFT that looks the same as the original but he will not be able to rewrite the same data on the blockchain. The value in NFT is not the image itself but it’s the specific piece of data.

How do you buy an NFT?

Purchasing NFT is quite simple and probably easier than the acquisition of company stock. They are sold on marketplaces, kind of like amazon or eBay but that specialize in NFTs. Most NFTs are on the Ethereum and Solana networks. If you want to find out more about these networks I invite you to read another of our articles explaining the difference between them (https://cryptovoucher.io/blog/solana-vs-ethereum-explained).

The first step to buying NFT is to get a crypto wallet which you can set up in a few minutes. It can be a physical device or application that can be downloaded and installed on your device. Each wallet has pros and cons, but the best solution is to have both. A software wallet (known as a “hot wallet” ) is the best option when you need to do shorter-term trades or mint a new collection. That wallet lets you easily access exchanges and it is more convenient for everyday use. However, they are seen as being less secure. A hardware wallet(known as a “cold wallet”) looks like a USB stick that you use to store files from your computer. In this case, you can mainly store your cryptocurrencies and NFTs. Nevertheless, more and more websites and applications are created where you can also stick to your cold wallet. Due to the fact that the wallet is isolated from the network, it gives much greater security. More information about BTC wallets you can find in our other article: (https://cryptovoucher.io/blog/bitcoin-wallets-differences-explained)

Step two is buying crypto on exchanges or on our website cryptovoucher.io and transferring it to a wallet. More frequently you can purchase crypto directly on the wallet application. Bear in mind that in this case, you pay more for exchange and fees. Moreover, you don't have too many payment methods to choose from.

The third step is to find a proper marketplace where you connect your wallet. Your account will be automatically created as soon as you link your wallet to a given marketplace. The most popular NFTs marketplace are OpenSea, Rarible, LooksRare, or Magiceden. Once connected with the marketplace you can buy or mint your first NFT. Mint is a process of associating a specific set of data with an asset or object which simply allows you to create your own NFT. All you have to do is upload the file you intend to associate with your NFT and pay for the transaction fee. Nevertheless, you can also choose one that interests you and purchase it from somebody else.

Conclusion

It cannot be denied that NFTs are slowly becoming an integral part of our lives. Many well-known companies have already released their first NFT increasing their adoption. A perfect example is Reddit, they onboarded nearly 3 million new users of NFTs thanks to digital collections and profile pictures. NFTs and the technology behind it will probably stay with us longer and evolve into a really useful tool to protect the intellectual properties of creators.