What Are NFTs And How Do They Work?

What Are NFTs And How Do They Work?

What Are NFTs And How Do They Work?

Imagine you’re handed a painting claimed to be by Leonardo Da Vinci. Your first reaction? Skepticism, of course. But let’s say the giver is someone you trust. Next step: you’d probably rush to find an art expert. This expert would scrutinize the painting right in your living room, analyzing its style and composition. If it screams ‘Da Vinci’, a team of professional appraisers would be called in next to determine if it’s a masterpiece or a masterful forgery. Sounds like a scene from a movie, right? But it’s the only way to really know if you’ve got a Da Vinci original on your hands.

Now, enter the world of NFTs, or non-fungible tokens. Here, the old-school drama of authenticating art takes a backseat. With an NFT, when you acquire a piece of digital art, there’s no second-guessing. It’s the real deal. Why? Because that unique, cryptographic token – the NFT – is your proof. It’s like a digital signature that can’t be replicated. Screenshot the artwork all you want, but without its NFT, it’s just a copy, easily spotted as a fake on the blockchain. No need for experts or appraisers here.

This digital certainty is exactly why an artist like Beeple made headlines, selling a digital art piece for a jaw-dropping USD 69 million. We know it’s a Beeple original through and through, thanks to the NFT attached. For Metavokan, the proud owner of Beeple’s ‘Everyday: The First 5,000 Days’, there are no restless nights. This piece will always be recognized as Beeple’s creation, steering clear of the kind of attribution confusion that once had a Rembrandt masterpiece credited to his apprentice.

So, it’s no wonder NFTs have taken the art world and beyond by storm. To really grasp the impact of NFTs, let’s dive into how this whole ecosystem evolved.


The Background On NFTs

Colored coins, a concept born on the Bitcoin blockchain, are often hailed as the earliest ancestors of today’s NFTs. Their functionality was basic and not as sophisticated as modern NFTs, but they laid the groundwork for the non-fungible revolution. These colored coins weren’t just one-trick ponies; they represented a variety of assets like digital coupons, real estate, subscriptions, and even early digital collectibles. However, they were just taking their first baby steps in technology, and a standard database often proved more practical. While they didn’t skyrocket in popularity, they did spark a crucial realization about the potential of blockchain-based assets.

The real game-changer came with Counterparty in 2014. Built on the Bitcoin blockchain, this peer-to-peer platform began to shape the NFT landscape we recognize today. It hosted digital assets and games, with Spells of Genesis and Pepe Memes emerging as early NFT hits.

Fast forward to 2017, and Ethereum is on the rise. Enter Cryptopunks: 10,000 distinct, pixel-art characters that became some of the first NFTs on Ethereum, blazing a trail for digital collectibles. Soon after, CryptoKitties pounced onto the scene in October 2017, marking a pivotal moment in the digital asset craze. Seeing the enormous potential, big players like SamsungNEXT and Google Ventures started investing heavily in NFTs.


The years 2018 and 2019 saw NFT marketplaces like OpenSea and Rarible pick up steam, democratizing the creation of NFT art. Thanks to the Metamask wallet, accessing the NFT realm became easier. The ERC-721 standard, proposed in 2018, began to flourish, shaping the diverse and vibrant NFT ecosystem we know today.

ERC-721, or Ethereum Request for Comments 721, is more than a ticket to trading cards and collectibles. It’s your pass to a world of unique digital experiences – from owning virtual land and exclusive game attire to acquiring music and video clips. What’s more, these assets can interact across the Ethereum network, enabling exciting cross-platform adventures. Imagine stepping into virtual museums in Decentraland, showcasing NFT art sourced from various platforms. This interoperability isn’t just cool; it’s a testament to the evolving digital landscape.

This journey through NFT history brings us to the present, where the concept of NFTs has blossomed into a rich and multifaceted digital ecosystem. From their humble beginnings to their current status as hotbeds of creativity and investment, NFTs have transformed how we perceive and interact with digital ownership and art. Now, let’s dive into the essence of NFTs and why they’re reshaping our digital world.

What Does Fungible Mean?

To grasp the concept of non-fungible tokens (NFTs), it’s essential first to understand what fungibility means. In the financial world, fungibility refers to items that can be interchanged due to their identical value and characteristics. Fungible items have the unique trait of being divisible into smaller units while retaining their value proportionally.

Take the example of currency. A five-dollar bill is, in essence, the same as any other five-dollar bill. Similarly, five individual one-dollar bills can be exchanged for a single five-dollar bill. This interchangeability extends to larger denominations as well – four five-dollar bills hold the same value as a twenty-dollar bill. This characteristic is what defines them as fungible. Even in the realm of digital currencies like Bitcoin, fungibility holds true. One Bitcoin holds the same value as another Bitcoin, and fractions of Bitcoin, such as 0.02 BTC, maintain their proportional value and can be exchanged equivalently with another 0.02 BTC.

Non-Fungible Examples

Consider this: your cat is unique, not just another feline from the neighborhood. Even if your neighbor’s cat is a Siamese just like yours, they’re not the same. Your furry friend might be the cuddly type that never scratches your furniture, unlike the neighbor’s cat. Similarly, a rare Pokemon card isn’t just like any other card. Picture two 1st edition Pikachu cards – both shiny and holographic. Yet, at an auction, one might fetch USD 40,000, while another could go for USD 80,000. The same goes for cars. Your car might be the same model as someone else’s, but yours could have higher mileage or a spotless interior, influencing its value differently than a less-traveled, more worn vehicle.

These items – cats, collectible cards, and cars – share a common trait: indivisibility. You can’t split them into parts without losing their inherent value. A baseball card, for instance, loses its worth if cut into pieces. This contrasts sharply with fungible assets like currency, where you can break down a USD 20 bill into smaller denominations without losing overall value. Non-fungible assets stand out due to their unique, irreplaceable nature.

This uniqueness is precisely what NFTs bring to the digital world. Employing cryptographic techniques, NFTs ensure the originality of your digital possessions. Owning an NFT, whether it’s a piece of Fewocious artwork, a digital collectible card, or virtual real estate in Upland, guarantees that what you have is exclusively yours, no extensive paperwork required. Just the ownership of the token is enough to affirm your claim.

But this leads us to ponder: Why do people invest their digital currency into these unique digital items? Is there more to it than simply trading these assets in hopes of a financial windfall? Are individuals seeking more than just profit from their engagement in the world of NFTs?

Subjective Value Of NFTs

The perceived worth of NFTs lies in their subjective value. Imagine a digital Super Bowl card featuring Gronkowski valued at USD 1.8 million. If there’s a buyer who sees that value, then there’s a market for it. The allure lies partly in the digital ‘signature’ of the person who created the NFT. When you buy such an NFT, you’re getting more than just a digital item; you’re acquiring something akin to Gronkowski’s digital autograph, a piece with sentimental value, especially for fans.

Moreover, NFTs offer a level of security that physical collectibles can’t match. Consider owning a rare baseball card. It’s always at risk – a house fire could destroy it, or it could fall into the hands of thieves. But with an NFT, these risks are mitigated. The blockchain serves as a robust and decentralized ledger, ensuring your ownership is recognized and secure across the entire network. This digital safeguard significantly enhances the subjective appeal and value of an NFT.

An Overview Of NFT Technology

You might be wondering, “How does this technology work?”

Blockchain technology is at the core, using a cryptographic hash – a kind of digital fingerprint – to secure the ownership keys of NFTs. The complexity of this hash makes it virtually impossible for even the most powerful computers to crack it. Any discrepancies in the digital ledger are immediately noticeable and flagged as invalid by the network. This is the essence of a peer-to-peer platform, operating independently of centralized authorities like governments or banks. To compromise such a network, one would have to obliterate every computer and node linked to it – a near-impossible feat. Even if a single copy of the blockchain’s ledger survives, it retains the record of all transactions.

NFTs are essentially tokens embedded in blocks, crafted from intricate algorithms. Unlike fungible cryptocurrencies such as Bitcoin, NFTs embody uniqueness and permanence. Each NFT bears a cryptographic signature, adding layers of rarity and distinctiveness. This signature is immutable, meaning it cannot be changed, tampered with, or falsified. Every transaction is encrypted and recorded on the blockchain, with every node in the network acknowledging it. Even if your computer fails, the data remains secure on other nodes.

Having a standardized protocol is crucial. Just like the internet relies on the HTTP protocol, allowing web developers to create websites without reinventing the wheel, blockchain, and particularly Ethereum’s ERC-721 standard, provides a framework for NFT creation. However, this standardization means that any network flaws affect everyone. A current issue with Ethereum, for instance, is the high ‘gas fees’ required for NFT transactions, leading investors to explore alternative platforms like Cardano, which promise lower costs.

How To Make and Sell NFTs

As an artist witnessing the staggering success of digital artists in the NFT space, you might be curious about how to join this lucrative market. While platforms like Zilliqa, TRON, Flow, and Cosmos offer NFT minting capabilities, it’s the Ethereum network that’s renowned for those eye-popping sales figures. The go-to marketplaces for crafting these NFTs are notable names like Mintable, Rarible, and OpenSea.

To get started, you’ll need to set up an account by linking a digital wallet, with Metamask being one of the most favored choices. OpenSea, for example, supports a variety of wallets for seamless integration and transaction handling.


The platform you choose enables you to craft your own collection for sale. You have the option to transfer your NFT from a different platform, such as Rarible, or create one directly on OpenSea. Once your collection is set up, you can specify the characteristics of your NFT, like the total number of copies that will exist. To officially mint your NFT and list it for auction, a gas fee is required to activate the process. Other exclusive marketplaces, such as Superrare or Nifty Gateway, operate more like traditional art galleries. These sites typically require you to submit your artwork for consideration or receive an invitation to showcase your collection, instead of self-minting.

On both types of platforms – whether it’s self-minting or invitation-based – there’s a marketplace feature that allows for bidding on NFTs. Securing the highest bid means you become the proud owner of the NFT artwork.

The Future Of NFTs

The future of NFTs is as vibrant and dynamic as the digital art they represent. We’re stepping into an era where the lines between virtual and physical worlds blur, with NFTs leading the charge. They’re not just transforming the art world; they’re redefining ownership in the digital age. Imagine a world where everything from your favorite video game skins to virtual real estate in sprawling online worlds can be uniquely yours. NFTs could revolutionize industries, from music to filmmaking, by offering new ways to distribute and monetize content. As technology advances, we might see NFTs integrated into everyday life, making each digital interaction more personal and meaningful. The possibilities are endless, and the digital canvas is vast, waiting to be explored with the brush of innovation and creativity.

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