What Is An NFT And How Does It Work?

Hey fellow marketers and Crypto Geeks, Thomas here, and in this article, I'm going to show you exactly what an NFT is. By the end of this article, you'll have a solid understanding of what is an NFT and how does it work.

So Why Did I Get Into NFTs?

Around 6 months ago, I decided to focus my copywriting work on the blockchain space. My fascination with Cryptocurrencies, NFTs and other blockchain related technologies compelled me to dive into this exciting new world.

During that time, I've been deeply involved as a lead copywriter and project manager for a groundbreaking NFT project.

In a nut shell, the project involved the creation, distribution and marketing for immersive NFTs all the way from building a passionate community around our art collectibles niche, working directly with world renowned artists to, of course, the final sale.

Since then, I've learned a TON about the NFT space and how it works. In this article, I'll be sharing some basic insights with you.

So.. What are NFTs?

Many of you following the ever-evolving world of blockchain are probably somewhat familiar with Bitcoin, Ethereum and other currencies in the realm of crypto. 

But what about NFTs? What are they and why are they important?

Before we start, it's important to establish a basic distinction between Cryptocurrencies and NFTs.

Cryptocurrencies are decentralized digital currencies based on blockchain technology. NFTs on the other hand, are digital assets you can purchase with Cryptocurrencies that represent real world art, music, and collectibles.

So let's start with the basics of NFTs.

First what does NFT stand for? NFT stands for Non Fungible Token. The key term here is non 'fungible.' The term isn't very common and if you're like me, you've probably never heard of it until now. However, it's fairly simple.

Fungible by definition means mutually interchangeable. For example, a one dollar bill is fungible to another dollar bill because they share the same value. So non fungible means that two items are not interchangeable because they are NOT of the same value.

Now the reason NFTs are not interchangeable or non fungible is because they're each different from one another. Each NFT has a different story, appeals to a different market and holds a unique value.

So it stands to reason that you can't just exchange an NFT for another one the same way you can exchange a dollar bill with another dollar bill.

For example, a Crypto-punk NFT cannot be directly exchanged with a 3D Fluf NFT because they each cater to different audiences and have unique values.

Alright that's cute but what's the point of it all?

Well, NFTs offer an exciting, interactive approach to investing in collectibles that can appreciate over time. Whether or not these collectibles appreciate is based on many factors. 

For example, the background story of an NFT, the reputation of its creators, market perception, hype, and the quality of its marketing are but a few elements that determine its value.

So What Are The Advantages of NFTs?

1. Ownership: NFTs cannot be removed or altered, allowing you to irrefutably prove ownership.
2. Confidence: Traditionally, trading artworks and digital assets has had its share of risks. With NFTs, investors are able to securely move assets of great value.
3. Security: NFTs function as permanent digital signatures that cannot be tampered with.
4. Transparency: In the past, it was impossible to confirm, without a doubt, the ownership and creation of a digital asset. With NFTs, this is no longer a concern. As mentioned, we can irrefutably confirm ownership for each unique asset with full transparency.
5. Revenue: Using smart contracts, NFTs can be embedded with code that automatically pays out royalties to the original creators each time they are traded or sold.
6. Meta-verse Utility: NFTs are instrumental to supporting an engaging and immersive meta verse. Creators can craft all kinds of avatars and accessories for a meta verse character. How about a super cool vehicle to drive around the meta-verse?

As you can see, the NFT episode isn't just a silly new trend with no real world use. In fact, it's the complete opposite! NFTs are packed with powerful benefits that allow users to trade digital assets securely, transparently and earn money while doing it!

Having covered the key benefits that NFTs offer, let's also examine the potential downsides that have many people feeling skeptical about the whole thing.

What Are The Disadvantages of NFTs?

1. It's an unpredictable market: The NFT space is the newest wave in the blockchain episode so the market remains speculative and people are still deciding whether or not NFTs can be seen as a sound, long term investment or just another passing trend.
2. Toll on the Environment: Blockchain based initiatives like cryptocurrencies and NFTs consume a ton of computing power; which translates to the consumption of tremendous energy resources. As a result, many wonder whether blockchain is sustainable for the long term. And if so, is it worth the costs to the environment?
3. Cyber attacks: Earlier we spoke of the robust security NFTs offer stakeholders. However, this does not mean that cyber attacks are unthinkable. Many exchange platforms hosting NFT transactions are not as secure as you would like them to be.
4. Illusion of Ownership: While NFTs offer irrefutable evidence of ownership to its end users, digital assets can still be copy-pasted. Owning an NFT doesn't prevent others from posting identical copies of your NFT online. Your ownership of an NFT provides you with a token of authenticity that proves your ownership. However, the market's evolving perception of how valuable this actually is remains to be seen for the long term.

Conclusion: Are NFTs the Future of Collectibles and Digital Art?

You may have come across blockchain enthusiasts who insist that blockchain technology is undoubtedly the future. Even though I consider myself, at the very least, a blockchain optimist, I still feel that it's hard to guarantee that NFTs and their case uses will persist over the coming years.

NFTs are ever evolving in utility. Many projects are working tirelessly to innovate and improve upon what is already a revolutionary new technology. 

Perhaps NFTs as we understand them today will have evolved into something more refined in a few years or perhaps a few months given the rapid speed at which they are evolving. 

What are your thoughts? Do you believe NFTs are here to stay? If so, why? Leave your comments below and I will reply!

I hope you've gained a solid understanding of what are NFTs and how do they work. In future articles, I'll be diving deeper into the intricacies of NFTs, Cryptocurrencies and more.

 Talk soon!