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What Are NFTs? A Simple Explainer Guide

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If you follow the latest crypto news, you’ll likely learn about non-fungible tokens (NFTs). You’re also likely curious about what NFTs are and if you should invest in them? This simple guide to NFTs provides the answers you need.

What are NFTs?

Non-Fungible Tokens (NFTs) refer to digitalized versions of art, in-game items, or event tickets. The catch is that each NFT has unique attributes and they are also not directly interchangeable. So, while NFTs enable the ownership of unique digital items, you cannot simply sell one NFT in exchange for the other. Instead, you’re likely to sell it for cash or another cryptocurrency.

Some unique features of NFTs include:

  • Indivisibility: NFTs cannot be divided into smaller denominations.
  • Composability: A token can be combined into different NFTs to represent different digital assets.
  • Ownership: An NFT holder has the asset in their personal wallet and retains absolute control of it.
  • Transparency: All transactions can be publicly verified on the blockchain.
  • Scarcity: NFT creators can produce many assets, thus driving their value. 

NFTs are sold on marketplaces or available for purchase in games that support NFT assets. We have NFTs on different blockchain networks. Examples of Solana NFT marketplaces include OpenSea and Magic Eden. On Ethereum, we have SuperRare and Nifty Gateway. Some blockchain games that support NFTs include Axie Infinity, Sorare, and Decentraland.

A Brief History of NFTs

NFTs have been in existence a lot longer than you probably think. The idea emerged from the concept of coloured coins initially launched on the Bitcoin network around 2012-13. However, the trend didn’t really catch on until the first known NFT was created by Kelvin McCoy and Anil Dash on May 3, 2014.

Meanwhile, digital art and gaming were slowly starting to be linked to the blockchain. In 2015, Etheria was launched for everyone as a game that lets you buy and sell assets as NFTs. This was closely followed by other experiments that led up to the launch of CryptoKittes, a cat-themed blockchain-based game that took off in 2017. Since then, NFTs have grown in popularity, before hitting a tipping point in 2021.

The Three Most Popular NFT Projects

Although there are so many NFT projects on various blockchains, here are some of the most popular ones:

  • Decentraland: What is Decentraland? Decentraland is a blockchain-based game based on the Ethereum network. On Decentraland, users buy and send digital lands as NFTs. Users can also build on their digital land and set up other virtual businesses to serve gamers in the community. 
  • CryptoPunks: Released in 2017, CryptoPunks are unique digital art of pixelated punk pictures. Only 10,000 CryptoPunks exist. Even though each drawing may look similar, they have unique features and some of these features are scarce than others which makes some more collectable.
  • CryptoKitties: As mentioned earlier, CryptoKitties are blockchain-based tokens that represent digital cats that you buy, sell and breed. Owners groom their cats to improv while playing CryptoKittes, and can sell them off at a higher price later. 

Are NFTs a Good Investment?

The NFT market has experienced huge growth over the past few years. In 2020, the total trading volume for these assets was $250 million. Fast forward to 2022, however, the trading volume has hit $17.6 billion.

However, this growth does not necessarily make NFTs a good investment. Just like most digital assets, the supply and demand for NFTs will change over time. NFTs can be a risky investment, so if you plan to buy NFT, it is advisable that you invest the amount of money that you can risk. The amount you can earn from an NFT only depends on how much someone is willing to pay for it. It doesn’t have a fixed price.

Conclusion

NFTs are blockchain-based tokens that provide proof of ownership for a digital item. NFTs have become more popular in the past few years, with more artists and collectors dabbling in the market. Prospective investors can invest considerable time into researching NFTs and only invest what they can afford to lose.

Read also: Types of Advertising on telegram in 2022

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