NFTs Explained in Simpler Terms
Last week I was in a virtual class, a new member from Brazil just joined the class and the tutor asked us to introduce ourselves and what we do. it got to my turn, “I am Ibiyemi but you can call me Pedro, I am a software engineer, ….” when I finished and my tutor asked, “You are in tech right, I have been hearing about NFTs, could you kind of explain what that entails to the class, It might be a way to tell us more about what you do”.
First NFTs is not what I do, at least not at the moment, but then I explained:
Since the creation of cryptocurrency in 2009, the space has continued to receive a lot of attention. However, NFTs seem to be taking the center stage of attention this year. Everywhere you turn on the internet, there seems to be some ridiculous sale going on. From the famous Nyan Cat down to an autographed tweet from Tweeters CEO to rocks and even toilet paper, everyone seems to be buying something in the name of NFTs.
So, what are NFTs, and what makes them so special?
What NFTs are
NFTs or Non-fungible Tokens are blockchain-based cryptographic assets that have unique identification codes and metadata that make each one of them unique. In essence, they are digital files or unique codes that people can collect and own. They are different from other digital files because they are unique. Unlike cryptocurrencies that are fungible tokens, you cannot trade or exchange NFTS at equivalency. But then, as crypto assets that they are, you can send and receive NFTs
Difference between NFTs and cryptocurrencies?
NFTs and Cryptocurrencies share a lot of similarities and as a result, people often confuse them as cryptocurrencies. For instance, NFTs and cryptocurrencies both rely on the same blockchain technology. Also, NFT marketplaces may require people to use cryptocurrency to purchase NFTs. In reality, cryptocurrencies and NFTs, are different and the two of them serve different purposes.
To understand it better take money, and the painting of the Mona Lisa as an example. If you had two $5 bills, you could exchange them for a $10 bill. That is because money is a fungible asset and as such all units of money carry the same value.
The Mona Lisa also carries value just like those notes. But then, there can only be one original Mona Lisa painting in the world so you cannot exchange a Monalisa painting with another one. Even if you reproduce the painting or take pictures of the original, none of these will carry as much value as an original painting. That is because the Monalisa here is a non-fungible asset.
Cryptocurrencies, like physical money, are fungible, which means they can be traded or exchanged for one another. For example, one Dogecoin has the same value as any other Dogecoin. As a result of this, cryptocurrencies are suitable for use as a secure medium of transactions in the digital economy.
On the other hand, just like the painting of the Monalisa, NFTs are unique and irreplaceable. As a result, it is technically impossible to find NFTs that are equal. They are digital representations of assets like digital passports because each token contains a unique, non-transferable identity that allows it to be distinguished from other tokens. They are also extensible, which means you can produce a third, distinct NFT by combining two NFTs.
How Do NFTs Work?
Creating NFTs on a blockchain implies representing digital or physical artwork with tokens. Tokenization means that a digital form of the art exists, and whoever owns that token owns the actual art.
NFTs, like Bitcoin, include ownership information for easy identification and transfer between token holders. That is, when you buy an NFT, a ledger entry is created on the blockchain just like when someone sends bitcoins from one address to another. The ledger entry created includes a file address that establishes ownership of that NFT. This procedure makes it simple to determine ownership of NFTs on the blockchain.
Basically, this is how I would explain NFTs simply. To talk about a related topic quickly: The importance of NFTs and the problems NFTs solve
The important use cases of NFTs?
The most important use of NFTs is that they allow artists and content creators to make maximum profits from their art at ease. With blockchain technology and NFTs, content creators and artists can make money from their artworks without paying intermediaries.
That is, artists can sell their art directly to their buyers, allowing them to avoid payments to auction houses and galleries. That way, the artists can even make more profits from their arts. Also, the artist can add royalties to the program such that whenever the art is sold, they still get some money from the sales.
NFTs also solve the problem of unauthorized sales or replication of art. All NFTs come with unique signatures backed by the blockchain. Therefore, creating unauthorized copies is almost impossible.