What are Non-fungible tokens?
Non-fungible tokens (NFTs) are used for representing the ownership of unique and identifiable items. Because these cryptographic assets are stored over the blockchain and have unique identification codes and metadata, they are clearly distinguishable from other NFTs. It means that it is impossible to find two NFTs that are the same.
An NFT could be used to describe things like a piece of artwork, a collectible, or even a real state, whose ownership is under only one official owner at a time. One of the most important features of these new assets is that they cannot be exchanged for other items because each item is characterized by unique properties.
Difference between Non-fungible tokens and Fungible tokens:
fungible tokens represent digital units, divisible and non-unique, that can be developed in an existing blockchain ecosystem. They can be interchanged for other fungible tokens due to the fact that they are defined and assessed based on their value rather than their unique properties. Cryptocurrencies and dollars are the examples of fungible tokens. A dollar is interchangeable for another 1 dollar. So, these identical items can be traded at equivalency.
In other words, fungible tokens store value, but nonfungible tokens store data like a piece of digital artwork.
How to create NFTs (Non-fungible tokens)
Anyone can create NFTs through smart contracts, assigning a public certificate of authenticity (a proof of ownership) and managing the transferability of the NFTs. When a non-fungible token is created or minted, a code is executed while it is stored in smart contracts. This information is added to a digital ledger (blockchain).
If a non-fungible token is created:
- The real creator can easily prove their ownership
- The scarcity is determined.
- Royalties can be earned every time it’s sold.
- It can be sold on any NFT market or peer-to-peer without the need for third parties or intermediaries.
A step-by-step guide to make an NFT:
1. AN ITEM IS PICKED
For the first step, a unique digital asset that we aim to turn into an NFT needs to be determined. It can be a painting, music, video game collectible, picture, or GIF. The main important factor that we should take into account is that the ownership of each NFT is assigned to a sole owner and its value is because of its rarity.
The person who wants to turn an item into a non-fungible must own the intellectual property rights of the item.
2. A BLOCKCHAIN IS CHOSEN
After picking a unique digital asset, the process of minting it into an NFT can be started on a blockchain selected by the creator. Smart contracts are incorporated for creating this asset.
3. A DIGITAL WALLET IS SET UP
There is a need to have a digital wallet that provides the access to the digital assets. The wallet enables people to buy or sell NFTs.
4. AN NFT MARKETPLACE IS SELECTED
After having a wallet, it’s time to start selling an NFT. In this regard, an NFT marketplace that is a good fit needs to be chosen.
It is worth considering that some marketplaces require their own cryptocurrency.
After selecting the marketplace, there is a need to connect it to the digital wallet.
5. THE FILE IS UPLOADED
The chosen marketplace usually provides a step-by-step guide for uploading a digital file to their platform. This process will allow a digital file to be turned into a marketable NFT.
6. THE SALES PROCESS IS SET UP
At the final step, it should be decided about how to monetize a non-fungible token. Platforms usually offer the following options for sale:
To sell at a fixed price:
a fixed price is set and the first person interested in the offered price can buy the NFT.
To set a timed auction:
a time limit is defined so that those who are interested in NFT can submit their final bid.
To start an unlimited auction:
There is no time limit. Instead, an unlimited auction allows to end the sale whenever it is desired.
What are the benefits of using non-fungible tokens?
One of the most important advantages of non-fungible tokens is the proof of ownership. Because NFTs are minted and stored on a blockchain network, the ownership is associated to a single account. Further, they aren’t divisible and cannot be distributed to several owners. Due to this feature, buyers are assured that their purchased NFT is not fake.
A major benefit of These asset is their transferability. They are easily and freely tradable in the markets.
Because smart contracts are incorporated in the process of creating NFTs, ownership can simply be transferred. The fulfillment of transferring ownership is achieved when specific conditions specified in smart contracts between buyer and seller are met.
Currently, it’s highly probable that the worthiest applications of NFTs haven’t been envisioned yet. They have brought a new way of commerce and advanced on the road towards revolutionizing the market. NFTs have paved the way for buyers and sellers not to trust intermediaries because of transparency achieved by blockchain technology.