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Mar 17, 2022

Non-Fungible Token (NFT)

Non-fungible tokens (NFTs) are one-of-a-kind digital assets stored on the blockchain that are not fungible — that is, unique and not interchangeable.

Non-fungible tokens (NFTs) are unique types of digital assets that aren’t interchangeable. Each NFT is completely singular and has its own distinct value. This makes NFTs ideal for representing unique assets, such as digital art, collectibles, and vouchers. In contrast, most other cryptocurrencies or assets are fungible, meaning that they can be traded interchangeably. 

History of Non-Fungible Tokens

Even though most people aren't aware of it, NFTs have been around for nearly ten years at this point. Colored Coins — small denominations of a Bitcoin — are considered by many to be the first NFTs to exist. Their earliest known mention originates from an early 2012 blog post.

In more recent times, however, two projects come to mind when talking about NFTs:

  • Rare Pepes — In late 2016, people started trading "Rare Pepes" crypto-based memes featuring the titular frog character.

  • CryptoPunks — A set of 10,000 unique characters created by Larva Labs’ Matt Hall and John Watkinson in 2017, hosted on the Ethereum blockchain.

In 2017, NFTs hit the mainstream with CryptoKitties, a blockchain-based game in which players adopt, raise and trade virtual cats. The game quickly made more than $1.3 million, with numerous virtual cats selling for more than tens of thousands of dollars.

While NFTs such as Rare Pepes, CryptoPunks and CryptoKitties were viewed as nothing more than a fad, time would prove otherwise.

The Emerging NFT Industry

Today, there are NFTs selling for millions of dollars, hundreds of celebrity-endorsed NFTs, and an emerging industry that's showing no signs of slowing down. Although some still feel that the industry won't amount to much, numerous examples indicate the opposite.

Two of the most significant recent NFT milestones demonstrate industry growth:

How Do Non-Fungible Tokens Work?

Non-fungible tokens are created using a particular type of smart contract, called a "non-fungible token contract,” which stores each token's unique attributes — such as its name, description, and creator. When someone wants to trade or use an NFT, they need to provide this information to the contract to verify that the token is authentic.

How Do NFT Marketplaces Work?

Creators and artists mint their work on credible marketplaces, such as Nifty Gateway, OpenSea and SuperRare. “Minting" refers to the process of creating an NFT.

The process entails creating a smart contract stored and exchanged on the selected blockchain’s network. While the Ethereum blockchain network powers most NFTs, Solana and Tezos are growing in popularity among the NFT community.

The smart contract contains essential information about the NFT, including the creator and other third parties involved. A certificate of authenticity is issued to the buyer when an NFT is sold, in order to ensure transparency.

NFT creators earn royalties every time the NFT is sold to other investors. Ready to dive into this lucrative cryptocurrency world? Here’s a detailed guide on creating and selling an NFT