What Is an NFT?: A 2024 Beginner’s Guide

Last updated Feb 21, 2024 | 03:27 PM UTC
  • In contrast to cryptocurrencies, which serve as digital currencies or investment vehicles, NFTs reflect ownership of distinctive digital assets.
  • Unlike cryptocurrencies, which are fungible and have a fixed value, NFTs are non-fungible, or not interchangeable.
  • While cryptocurrencies are largely used as a method of commerce, NFTs have grown in appeal in sectors including art, collectibles, and virtual property.
  • While cryptocurrencies allow for safe and decentralized transactions, NFTs use blockchain technology to give proof of ownership and authenticity.
  • While the value of cryptocurrencies is based on market demand and utility, the value of NFTs can be driven by intrinsic worth, emotional attachment, and scarcity.

Imagine owning an original work of art in the digital age, such as a one-of-a-kind painting. By utilizing blockchain technology to provide digital ownership and authenticity certificates, NFTs make this possible. These tokens guarantee that every digital object is genuine and cannot be copied or faked.

NFTs are indivisible and irreplaceable, in contrast to cryptocurrencies like Bitcoin and Ethereum, which are interchangeable and have the same value. Every NFT is unique and has its own unique metadata. This metadata may contain information about the creator, history, or even embedded media like photographs, movies, or music.

NFTs have completely changed how we see and exchange digital assets. Now more than ever, creators of all kinds may make money off their work directly without the need for conventional middlemen. Collectors and enthusiasts have access to a brand-new type of digital ownership where rarity and distinctiveness reign.

The possibilities for NFTs are fast developing, appealing to both tech-savvy people and art enthusiasts equally. Examples include digital art galleries and virtual real estate. It's a space where invention and imagination meet creativity and technology, and the idea of ownership is given a completely new meaning.

Prepare to enter the realm of NFTs, where digital assets become valuable belongings and ownership boundaries are reimagined in the most fascinating and creative ways.
 
 

What Are NFTs Used For?

NFTs exist on blockchain, a distributed ledger that records purchase and sale of NFTs. NFTs are, therefore, tokens that store valuable information. Because they have a value set by the market supply and demand, you can buy and sell them like typical artwork. 

Non-fungible tokens can be used for:
 

Digital Art and Collectibles

NFTs have significantly increased in popularity in the world of digital art and collectibles. Artists can tokenize their images, illustrations, or works of art, enabling consumers to acquire a one-of-a-kind piece of digital material. In the digital realm, NFTs offer evidence of ownership, legitimacy, and scarcity.
 

Gaming And Virtual Real Estate

NFTs have branched out into virtual worlds and gaming, allowing users to purchase, sell, and exchange virtual real estate, homes, and in-game goods. Within particular gaming platforms or systems, these digital assets may have real market value, fostering a robust market for virtual property ownership.
 

Music And Entertainment

NFTs have made their way into the music industry, allowing musicians to release limited edition NFTs of their exclusive albums, songs, or event tickets. As a result, fans might potentially gain access to exclusive benefits or experiences by owning a one-of-a-kind piece of the artist's artwork.
 

Intellectual Property And Licencing

By tokenizing works such as patents, trademarks, and copyrights, NFTs offer a way to safeguard and profit from intellectual property. Transparency and traceability in intellectual property transactions can be achieved by streamlining licensing contracts, royalties, and ownership transfers.
 

Social Tokens and Community Engagement

NFTs can also represent social tokens, which serve as electronic representations of membership or involvement in online groups. These tokens promote community interaction and thank supporters by granting access to premium materials, events, or voting privileges.
 

Charitable Causes and Fundraising

NFTs have been used for fundraising and charity causes, where artists or makers auction their NFTs, with the money raised going to a cause or organization. This offers a fresh method for using the sale of digital assets to raise money and make a difference.
 

Unique Experiences and Virtual Identities

NFTs can open the door to exclusive experiences like VIP access to events, meet-and-greets, or individualized interactions with creators. NFTs can also be used to develop digital personas, avatars, or digital identities that have value and reflect real people in online communities or virtual worlds.
 
 

Benefits of NFTs

NFTs provide a number of advantages, such as evidence of ownership and authenticity, increased opportunities for artists to make money, transparency in business dealings, access to one-of-a-kind experiences, democratization of ownership, accessibility to the global market, fostering innovation, preservation of digital art, charitable giving, and ownership of a digital identity and virtual property.
 

Authenticity And Proof of Ownership

NFTs offer a safe and dependable solution to demonstrate the legal and beneficial ownership of digital assets. This is especially useful in the field of art and collectibles, where originality and provenance are quite important.
 

Increased Artist Revenue

NFTs give artists new ways to profit from their work directly, cutting out conventional middlemen. Every time an NFT is sold again, artists can get royalties, maintaining steady income streams and giving creators the power to keep ownership of their works.
 

Improved Transparency And Traceability

The NFTs' underlying blockchain technology assures that transaction records are transparent and unchangeable. This lowers the risk of fraud and maintains market trust by enabling buyers to trace the ownership history and origins of NFTs.
 

Access To Unique Perks And Experiences

NFTs might grant their owners access to special content, perks, or experiences. This could entail VIP entry to occasions, online meet-and-greets with performers, or exclusive rights within online forums, adding value for NFT holders.
 

Democratization Of Ownership

NFTs make it possible for multiple people to jointly own a portion of an asset, which is known as fractional ownership. This makes it possible for a larger group of people to take part in owning valuable assets that might not have been available otherwise.
 

Global Marketplace and Accessibility

Because NFTs are accessible from anywhere on the globe, artists and collectors from all over the world can participate in a worldwide market. This gives artists more exposure and gives collectors more opportunities to find and buy distinctive digital goods.
 

Innovation And Creative Expression

NFTs encourage innovation by pushing the boundaries of what can be regarded as a valuable digital asset. The exploration of novel forms of expression, interactive experiences, and immersive virtual worlds is thus encouraged.
 

Preservation Of Digital Art And Culture

Digital art and culture preservation is made possible by NFTs, which offer a way to keep and immortalize these forms of expression. They make sure that significant works are preserved, archived, and protected for future generations to enjoy and study by tokenizing digital assets.
 

Ownership Of Digital Identity And Virtual Property

Through the use of NFTs, people are able to take control of and display their digital identities and virtual assets on a variety of online platforms and virtual worlds. This enhances users' online experiences by giving them a sense of ownership and customization in digital spaces.

 
NFTs Pros and Cons

Drawbacks of NFTs

Apart from having numerous advantages, we’ll also take a look at NFT's drawbacks: 
 

Environmental Impact

Concerns have been expressed concerning the environmental impact, notably in terms of carbon emissions, due to the energy consumption associated with minting and trading NFTs on some blockchain networks, particularly those that use proof-of-work consensus.
 

Market Volatility And Speculative Activity

Prices in the NFT market can change quickly and erratically. NFTs' genuine worth may be obscured by speculation in purchasing and selling, which makes it difficult for creators and collectors to estimate.
 

Lack Of Industry Standards And Clear Rules

The NFT market currently lacks industry standards and clear rules, which can cause problems with copyright infringement, disputes over intellectual property, and fraudulent activities. Both buyers and sellers run the risk of losing money in the absence of a standardized framework for NFT formation and trading.
 

Limited Tangible Utility

NFTs may only have limited practical utility in addition to serving as ownership and display documents for distinctive digital assets. An NFT's worth might occasionally be determined more by its status as a collectible than by its usefulness or functionality.
 

Accessibility And Exclusivity

Access to NFTs may be restricted for some people, notably those who are unfamiliar with blockchain technology or don't have the necessary funds to participate, due to high transaction costs and the demand for cryptocurrency holdings. This exclusivity may limit audience participation and involvement.
 

Lack Of Long-Term Value

NFTs' durability and long-term worth are still unknown. The market for some NFT types may fall as trends change and new technologies appear, thus leading to a decline in value over time.
 

Potential For Copying And Replication

The underlying digital asset of an NFT can still be easily copied or replicated even while the ownership of the NFT is documented on the blockchain. This calls into question the genuine scarcity and exclusivity of NFTs as well as the likelihood of unauthorized copying.
 

Environmental Impact of Digital Storage

Digital storage has an adverse environmental impact since it necessitates a substantial amount of data storage, which uses up resources and energy. When evaluating the sustainability of NFTs overall, it is important to take into account the environmental impact of data centers and digital storage infrastructure.
 
 

Famous NFT Platforms

With the increasing popularity of NFTs, the market has reached over $40b in value. If you are ready to buy NFTs, you may want to know more about the most popular marketplaces:
 

OpenSea

This is one of the largest NFT marketplaces, launched in 2017. Here you can find different tokens such as music, virtual worlds, art and photography. The main cryptos you will find there are Ethereum, USDC, and Solana, but don't expect to find fiat options. What's great about OpenSea is the possibility to open your account easily, browse popular tokens, or create one. 
 

Nifty Gateway

The platform is popular for famous NFTs sales. It is owned by Gemini exchange and the main focus is on artwork from artists. They also use an open-edition system via which you can purchase new editions for a short period. This could be a great option when looking for large investments. 
 

Rarible

Another popular marketplace where you can purchase and sell collectibles, arts, or video game assets. It offers multiple cryptos such as Tezos, Flow, or Ethereum. As for the fees, it charges 1% both on the purchasing and selling side. The company has also developed its RARI token, and everyone who holds it has a voting power. 
 

SuperRare

This is an exclusive NFT marketplace that works like an art gallery. It accepts only the most sophisticated tokens and does not support meme-based NFTs. The platform also reviews work in detail, so investors can rest assured about the quality editions.
 

NBA Top Shot

NBA fans shouldn't look further than the NBA Top Shot marketplace.  Here you’ll find incredible NFTs of memorable events in the NBA world. For instance, you can purchase video clips and enjoy art or highlights. It accepts different cryptos including Bitcoin, Bitcoin Cash, and Ethereum. You are also required to pay fees.
 

NFTs vs Cryptocurrency

Virtual assets are available in several categories - cryptocurrencies, stablecoins, CBDCs, and non-fungible tokens. The difference between them is slight, so you might want to delve deeper into the subject.
 

Aspect NFTs Cryptocurrencies
Type of Asset Unique digital assets Digital currency
Interchangeability Non-fungible Fungible
Purpose Collectibles, art, virtual property, unique creations Medium of exchange, investment
Ownership Proof Proof of ownership and authenticity Ownership through cryptographic keys
Blockchain Technology Utilizes blockchain for provenance and transparency Utilizes blockchain for secure transactions
Value Determination Intrinsic value, emotional attachment, scarcity Market demand, utility, supply and demand
Environmental Concerns Energy-intensive blockchain processes Energy consumption and sustainability

 
 

Use cases of NFTs

Art NFTs 

What is an NFT art? This seems like an intriguing question for the wider public. The answer is simple; NFT art is a piece of work situated on a blockchain. It has a digital form, thus allowing investors to buy it. NFT art is also exclusive and non-transferable. This means that only one individual owns the artwork.

When it comes to the benefits of NFT art, you should know it eliminates intermediaries, creates more diversification, and ensures ownership rights. You can easily create your artwork, choose a marketplace, upload your work and start promoting it. This can increase awareness of your product and bring you profits.
 

Music NFTs

Non-fungible tokens are digital proofs of ownership linked to a blockchain network. As a result, music NFT is proof of ownership of a musical work. Artists can sell their music NFT to customers, but they will keep the rights to change any content. 

Non-fungible tokens in music exist on the blockchain. This means that only owners can receive certain rights from their music, album, content, or videos. In addition, artists can connect with their followers and receive revenue without the influence of third parties. 

NFTs Examples
 

Gaming NFTs

As we already mentioned, NFTs are certificates that demonstrate ownership of digital items that run on blockchains. Non-fungible tokens in the gaming world appear in the form of rewards. They have an NFT structure and a certain value among customers and collectors.

NFT in Gaming can consist of digital items with codes, but also in conjunction with other tokens. This connection of gaming elements like rules, scoring system, and so on led to creation of GameFi, where customers can claim rewards by playing.

NFT avatars have emerged as a popular and exciting trend within the world of non-fungible tokens. These unique digital representations of individuals allow users to express their identity and creativity in virtual spaces. Unlike traditional avatars, NFT avatars are one-of-a-kind and can be owned, bought, and sold on blockchain-based marketplaces. This ownership provides a sense of exclusivity and rarity to the avatar, making it a sought-after form of self-expression.

NFT avatars offer individuals the opportunity to showcase their personality, style, and preferences in the digital realm. With a wide range of customizable features, users can create avatars that truly represent their unique identities. Additionally, owning an NFT avatar often comes with various perks and benefits within virtual communities, such as access to exclusive events, virtual goods, and social interactions. 
 

Sports NFTs

Sports NFTs are also digital objects, allowing people to gather digital cards, virtual collectibles, and other items. They also provide fans with a new method of interaction with their teams and athletes. In addition, sports NFTs create a new opportunity for monetization for athletes, clubs, and sports brands.

Sports fans are usually ready to pay a fortune to get a limited edition of the item of their preferred baseball or basketball team. As a result, the value of NFTs continues to increase, and some items have developed dramatically high scalability. 
 
  

NFTs vs Environment

Non-fungible tokens may have a severe impact on the world we live in. The question is - “Why are NFTs bad for the environment?” Non-fungible tokens don't actually cause harm by their very existence. However, their creation may be energy-consuming. This is part of the minting process that leads to the release of new NFTs.

Minting an individual token with a proof-of-work blockchain requires the identical amount of electricity used by a typical American household in 47 days. This is why developers have been looking for methods to lower the environmental harm caused by NFTs.  For instance, take the case of Ethereum, which is the main blockchain for mining non fungible tokens. After it switched to proof of stake in 2022, this led to a dramatic decrease in energy use.
 
 

FAQs:

What are NFTs?

Non-fungible tokens are unique and irreplaceable assets that work on blockchain. They have the form of real-world or digital items such as artwork or music.
 

How is an NFT stored?

You can store NFTs online or offline. On-chain storage means that NFTs exist on a blockchain, while off-chain refers to storage outside of the blockchain.
 

Who created the first NFT?

The first non-fungible token was produced by Kevin McCoy and Anil Dash in 2014.
 

What happens if I lose my NFT?

If you lose NFTs, you should contact the exchange where you purchased the token. You can lose a non-fungible token by deleting a file with its information. If an NFT remains on the blockchain, it cannot be permanently deleted or destroyed.
 

What are some examples of NFTs?

You can find NFTs in different shapes and sizes, including collectibles, NFT Art, music videos, video game items, metaverse assets, memes, and more.