Meaning of Non-Fungible Tokens (NFT)
Non-fungible tokens (NFTs) are essentially cryptographic assets present on a blockchain and have unique identification codes to distinguish them from other NFTs. Cryptocurrencies like Ethereum and Bitcoin are fungible in nature, meaning they can be exchanged with each other without too many complications. But non-fungible tokens are different from them in the sense that they cannot be exchanged or traded at equivalency. Each NFT token comes with unique properties and its worth isn’t the same as other similar NFTs.
You can consider non-fungible tokens as modern-day collectibles and artwork. They are bought and sold by people online, Moreover, these crypto-assets also represent your digital ownership, providing you with digital proof that is entitled to trade in the collectibles. However, just like cryptocurrencies, NFTs are recorded securely on a blockchain, ensuring that you have a one-of-a-kind asset. The strongly encrypted nature of the blockchain technology also makes it difficult to counterfeit, alter or tamper with NFTs, making them an immutable record of transactions and ownership.
How do NFTs work?
Non-fungible tokens are widely created on the decentralized Ethereum network. But they can also be created on other blockchains that have smart contracts enabled on them and that provide the necessary support services and tools. NFTs and their smart contracts allow you to add detailed attributes, such as your ownership identity, secure file links, and rich metadata. Their potency to immutably prove your digital ownership of modern tangible assets marks a promising progression towards an ever-expanding digital world and they bring great security to the exchange or ownership of any asset.
Tokenization of NFTs is the conversion of a digital file—be it a GIF, PNG, or JPEG– into a crypto-collectible that can be traded or exchanged once it is published on the blockchain. However, you will have to pay a small amount from your cryptocurrency balance to be able to mint your NFT. You can choose to create the collectible token either as a single image or multiple images on the blockchain. Different host networks offer different options to create the collectible. On some of them, you can add a name, token description, and other relevant metadata. They also allow you to set your royalty amounts on the NFT. These amounts are percentages that you will earn from every subsequent collectible you sell on the secondary market.
The copyright and licensing rights depend on the NFT, but they usually might not come when you purchase. It’s akin to how purchasing a limited-edition and one-of-a-kind print does not always give you exclusive rights to its image. The concept and underlying technology of NFTs are making great strides and the digital assets certainly have the potential to beyond the world of art. The blockchain ecosystem for creating NFTs is expanding beyond Ethereum with many other platforms like NEO, Solana, EOS, Tezos, Flow, TRON, and Secret Network supporting their creation.
Published: August 18, 2022