NFT (non-fungible token) is a unique set of data that certifies the rights to any digital object. This object can be an image, an audio file, a video, a 3D model, a domain name, or a character in the game – in general, everything that can be digitized.

NFT tokens operate on the basis of blockchain technology, which makes it possible to ensure the undeniable authenticity of these rights. In the article, we will explain in simple terms what the essence of NFT is, and we will tell you where and why they are already being used.

How NFT works: an explanation for beginners

To understand how this technology works, let’s look at what the phrase “non-fungible token” means in general. To do this, we decompose it into two components.

Non-fungible

The term comes from economics. This is a property that expresses uniqueness, the impossibility of exchanging one object with others. For example, any monetary currency is fungible: a $100 bill can be replaced by another of the same bill or five $20 bills – all three options will have the same value.

But if an object does not and cannot have analogs, it is considered non-interchangeable. This quality is characteristic of living beings, works of art, and personal property.

For NFTs, non-fungibility is a key characteristic. Rights can only be assigned to a unique object: an original meme, a man-made highlight from a basketball game, a cut scene from a movie, a photograph, a music album, etc.

Token

In the abbreviation NFT, this word denotes a unique digital code that is assigned to the above object. Tokens are something like a substitute for security. They are recorded on the blockchain, a database that cannot be changed or hacked because copies of it are stored on many computers around the world. This is a kind of register for recording information about completed transactions.

The NFT token contains information about when for what amount and by whom the token was purchased. It also has an identification number of the owner in the Ethereum system (blockchain for NFT) and a set of his rights. Note that it rarely includes copyright.

As Buidlbee experts emphasize, the latter is very important to understand. When buying a non-fungible token, you do not buy the object itself (unless it is specified in the smart contract), but only exclusive rights to it – often they are limited to distribution and resale.

So how does it work?

Let’s say you’re a digital artist and you have a painting that you want to sell. How do this if anyone on the Internet can simply download a file with your work, and he does not have to pay for it? This is where NFT comes into play.

You create a wallet in the Ethereum system. Through a special application like Mintable, you issue a token for your picture in the blockchain. Then you put it up for sale in the NFT marketplace (OpenSea, for example) and hold an auction. Anyone who buys an NFT for a painting will be able to resell it or distribute copies, but the authorship will always be yours since the information about this is embedded inside the token. Unless, of course, you want to sell exclusive ownership.

Where non-fungible tokens are used

Theoretically, you can pack anything in NFT – even an apartment and a dog. This is just a tool that is used to protect a unique object from copying and unauthorized use. Let’s consider several areas in which NFT technology is used most actively.

Collecting

Thanks to non-fungible tokens, collectors can create virtual collections and be sure that they are the owners of genuine pieces. At the same time, none of these specimens is influenced by time, does not deteriorate, but can grow in price.

Art

Artists, musicians, filmmakers, and other artists can sell their work in the form of NFT tokens, declaring indisputable rights to authorship. Yes, people can still share them over the internet, but that only increases the value of the original item. It becomes more popular, it is more often resold. In this case, the author will receive a percentage of each resale, if he initially prescribed such a condition in the smart contract.

Games

It was gamers who made the practice of paying for virtual content the norm. Now there are games with their own in-game economy, built on the NFT model, where people really acquire the rights to own this or that token and can dispose of it like property.

Metaverses

These are real ecosystems. Virtual worlds where users can interact with each other, influence the economy of this universe, create games, applications and do anything. Everything you own in the metaverse truly belongs to you in the form of NFTs. If you buy a Banksy NFT painting, you can hang it on the wall in your virtual home. Blockchain in such worlds is a substitute for real legal laws.

Сonclusions

Tokenization makes it possible to “materialize” digital objects, fixing real property rights on them, which are easy to confirm. NFT adds value to goods and simplifies interaction with them. Technology is actively developing, and it has many pitfalls, but it has already revolutionized art. What will happen next – we do not undertake to say. But one thing is clear: NFTs are here to stay.