What are NFTs? How do they work? Why buy them? These and other questions have been running around since NFTs popularity began to grow.
In this article we will try to explain what NFTs are in a simple way so that also people who are not very familiar with fintech and terms such as crypto-art, blockchain, DeFi and token will be able to understand.
This guide will answer the first questions people who are just approaching this topic and want to know more might stumble across to help them decide if they want to be a part of this huge phenomenon.
What are NFTs
The first step to understand what they are is to know what NFT actually means.
The term NFT stands for Non-Fungible Token, but what’s the meaning of those words?
Non-fungible is an adjective to describe something that it’s unique and can’t be replaced with anything else identical to the original in every aspect.
A dollar bill, for example, is fungible since it can be replaced with another. NFTs, on the other hand, are unique pieces: that is, they cannot be replicated or replaced.
The broad definition of token, on the other hand, indicate a thing that serves as a representation of a fact, quality, fee or any other aspect which needs a “symbol” to pass on their significate or function.
“A token of appreciation”, for example, might be a gift that represents appreciation towards someone. Casino chips, also, are a token for your actual money, as well as gift cards or vouchers.
Therefore NFTs are tokens which represent the ownership, usually of digital art, this ownership is unique: only one person might have ownership on that specific art piece and that’s roughly what makes them non-fungible.
How can digital media be unique?
This is a common question. Digital media can be copied, moved from computer to computer and uploaded on the web, this would therefore make them fungible, so how can some digital objects, a piece of code, be unique?
To make it simple, NFT is a way to uniquely, safely and undoubtedly identify a digital product created on the internet. NFT can be any digital object: a video, a photo, a GIF, a text, an article, an audio … When a digital object is certified as an NFT it is as if the author signed it, and no one can say that it is not original or that there are other copies.
If you prefere, you can imagine the NFT is the ownership, the -smart- contract of a piece rather than the piece itself. If a wonderful picture becomes an NFT, everyone could download and view the actual file, but having bought the NFT gives you the right of ownership on the original piece.
This system allows to make purely digital objects unique or scarce, and therefore collectable, binding their authenticity and ownership to the smart contract within them.
What are NFTs for and why buy an NFT?
Digital art is unsubstantial, you can’t hang it on a wall or put it on a shelf for display. And if the digital media could also be saved on their computer and printed by anyone, why should you even bother buying one?
This is one of the most asked questions from who’s starting to approach this environment.
While it’s due saying NFTs are not for everybody, you might still be part of the wonderful collective which appreciates them and their various implications. Most of them are being developed overtime with the greater understanding of the possibilities provided by the smart contracts technology from the blockchain.
At first classic NFTs didn’t really have any practical function. They’re digitali art to own for collectionism, to speculate on their value or to simply just support an artist you might really like. Some, if not all, the money gained from an NFT collection might also be devolved to charity campaigns or funds.
It has to be noted that whether it’s buying a physical Andy Warhol piece or a digital Pandacubz, investing in art, just for the sake of investing, has always the risks of speculation. However, a recent Citi study, for example, found that the contemporary art market produced an annualized return of 7.5% from 1985 to 2018 and this could greatly improve thanks to technologies of NFTs on the blockchain.
In the last couple of years more and more NFTs started to gain side functions other than being just some nice but stale piece of art. Some of the ones that are applied nowadays are:
- NFT staking: a way to earn passive earning depositing your NFTs and gaining interests much like in a bank.
- Gaming application: like to earn prizes in related video games or use your NFTs as characters inside a game. Often associated with P2Es.
- Governance applications: using them as tokens for decision making and voting much like the percentage of ownership of a business
- Utility tokens: for example, an NFT could represent a key that unlocks access to a certain service or piece of content.
- Legitimacy certification: since NFTs can’t be forged, some companies are using them to legitimate their work, for example some journals are loading as NFTs their articles so no one could misquote them.
NFTs are a fairly new technology that is not easy to summarize in a short article but we hope we cleared much of your doubts and hope you’ll want to deepen this knowledge since it might be the main way contracts and documentation will be handled in the future.
To summarize, Non-Fungible Tokens are:
- Contracts of digital objects based on blockchain technology;
- Can be a high-yield investment;
- Are unique, non-fungible, and certified ownership of an object;
- Don’t allow any fakes to be passed on;
- Can be used in the metaverse (please read our article on the link between NFT and metaverse);
- Can have various uses, depending on the project.
If you want to check our work, here you’ll be able to find all the NFT collections Uppeee has released or are coming soon.
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What is Uppeee
Uppeee is a project with an ever expanding pool of utilities, born thanks to a wonderfull community of gamers and art lovers. The Uppeee coins are Ethereum-based token flowing through all the experiences of our Platform.