Liminal secures FSP license from FSRA in ADGM   Read more

Non Fungible Tokens (NFT)

| May 2, 2024

Share this article

Non-fungible tokens are commonly known as NFTs. NFTs are tokens that exist on the blockchain. Each token uniquely represents a digital asset. These assets include art, digital content, or media. Conceptually, an NFT serves as an immutable digital certificate. These tokens affirm ownership and authenticity for a specific asset, be it digital or physical.

Key Takeaway

  • NFTs, or non-fungible tokens, are distinct cryptographic tokens. They have singular attributes. They reside exclusively on a blockchain and are resistant to replication.
  • These tokens have the capacity to symbolize either digital assets or tangible items from the physical world, such as artwork and real estate.

What is an NFT? What does NFT stand for?

Non-fungible tokens (NFTs) are digitized assets represented by unique tokens on a blockchain. These tokens, generated through an encryption function using metadata. You will find their place on the blockchain, while the corresponding assets are stored elsewhere. The intrinsic link between the token and the asset contributes to their individual uniqueness.

NFTs are tradable entities, exchanged for currency, cryptocurrencies, or other NFTs.  It depends upon their perceived value within the market and among owners. To illustrate, a simple banana with a drawn smiley face, photographed with embedded metadata, can be tokenized on a blockchain. The private key holder of that token receives ownership of the designated rights assigned to it.

While cryptocurrencies are also tokenized assets, the crucial distinction lies in fungibility. Cryptocurrencies on the same blockchain are interchangeable, possessing fungible qualities. Conversely, even if two NFTs from the same blockchain appear identical, they lack interchangeability, emphasizing their non-fungible nature.

How Non-fungible Tokens (NFTs) Operate

Non-fungible tokens (NFTs) are cryptographic assets that reside on a blockchain. And blockchain is a decentralized public ledger that documents transactions. Each NFT is distinguished by unique identification codes. Thus, facilitating seamless token transfers and ownership verification.

NFTs derive their value from market dynamics, driven by supply and demand. They are subject to buying and selling processes similar to tangible assets. Functioning as digital representations, NFTs extend their scope to encompass real-world items like artwork and real estate. Tokenization of tangible assets is perceived by some as an enhancement. Thus, fostering efficiency in buying, selling, and trading, while also potentially mitigating fraud risks.

How is a Non-fungible Token Created?

A non-fungible token is generated by an artist, creator, or license-holder using a procedure known as minting. Minting involves executing a blockchain transaction that specifies essential token details. This transaction is then broadcasted to the blockchain. Thus, activating a smart contract function responsible for generating the token and associating it with its rightful owner.

At its core, a non-fungible token comprises a distinct token identifier, or token ID. This ID is linked to an owner identifier and stored within a smart contract. When the current owner of a specific token ID decides to transfer it to another user, the process involves straightforward verification of ownership. Thus, enabling the seamless reassignment of the token to its new owner.

How to Purchase NFTs

If you’re eager to initiate your NFT collection, you must obtain certain essential components:

1. Digital Wallet: Begin by acquiring a digital wallet that facilitates the storage of NFTs and cryptocurrencies.

2. Cryptocurrency Acquisition: Purchase cryptocurrency, such as Ether, considering the accepted currencies of your chosen NFT provider. Platforms like Coinbase, Kraken, eToro, PayPal, and Robinhood allow you to buy crypto using a credit card. Afterward, transfer the acquired cryptocurrency from the exchange to your preferred wallet.

3. Research Fees: Be mindful of transaction fees as you explore various options. Most exchanges impose a percentage-based fee on your transactions when you buy crypto.

What is an NFT Marketplace?

The NFT landscape is dynamic, and generally, NFT marketplaces can be categorized into three main types:

1. Open Marketplace:

This type allows anyone to sell, buy, or mint NFTs. Minting involves the unique publication of your token on the blockchain. Thus, making it available for purchase. Open marketplaces often handle the minting process, although creators can mint their own works.

2. Closed Marketplace:

Artists need to apply for membership, and the marketplace typically oversees the minting processes. Selling and trading are more restricted in closed marketplaces.

3. Proprietary Marketplace:

Operated by a company, this marketplace exclusively sells NFTs that are trademarked or copyrighted by the company.

NFT enthusiasts often create accounts on and engage with various marketplaces to stay informed about new NFT drops. Information about upcoming NFTs is also shared on platforms like Discord, Twitter. Also, you will find information on specialized investing platforms such as Rarity Sniper and Rarity Tools. Investors often act swiftly when eagerly anticipated NFTs are released.