What is NFT? Everything You Need to Know

Introduction to NFTs

If you ever been interested in fancy expensive pictures called NFT (Non-Fungible Token) but found it complicated to understand what is all about, this article aims to provide you with a clearer understanding.

It's "Non-Fungible" for a reason – these tokens cannot be exchanged with another NFT, and their prices are never the same, even when they appear similar. You can't trade half or a quarter of an NFT; only the complete digital asset can be transferred.

So, are all NFTs unique? And how does one gain ownership?

Before we talk about ownership, let me explain what an NFT consists of. First, you need to know this non-fungible token can be like an image, video, or audio file—it's called a digital asset. And the metadata that describes and defines the asset. The visual or audio part of an NFT is what you typically interact with, such as a digital painting or a music file. However, what makes it part of the blockchain and an NFT is more about the metadata and the code behind it. What does it look like?

Digital asset

As we mentioned before, this could be any form of a digital asset.

Metadata

This is data that stores information about your asset (The title, author's name, description and so on).

Smart Contract

The piece of code that runs on the blockchain and manages the NFT. It handles the rules around the ownership, transfer, and potentially other interactions like royalties every time the NFT is sold.

What makes an NFT valuable?

When I first started, I couldn’t understand why some NFTs were so expensive while others looked almost identical but weren’t worth as much. It all comes down to things like:

If there are only a few NFTs in a collection, they tend to be worth more. One of my early purchases was a part of a limited collection, and I’ve seen its value increase just because there aren’t many like it.

I’ve learned that well-known creators can make their NFTs much more valuable. One of the first pieces I bought was from a lesser-known artist, and while I love it, it didn’t appreciate like I’d hoped. That’s when I realized how much the creator’s reputation matters.

How does the minting process go?

The minting process for an NFT begins with the creation of a digital asset, such as art or music. The creator then tokenizes this asset, making it a unique token on a blockchain like Ethereum. Minting involves creating this unique token and connecting it to the digital asset using a smart contract. Alongside the token, metadata is added, containing details like title, description, artist information, and other relevant data for the NFT.

How to buy or sell it?

For buyers, the purchase goes on an NFT marketplace, where you can browse and purchase NFTs. One of the largest NFT marketplaces is OpenSea. There, if the NFT is listed as an auction, you can place a bid. If it's a fixed price listing, you can choose to buy it outright. It's important to connect your wallet that supports NFTs. I would recommend Trust Wallet or Metamask for this purpose.

What's its use purpose?

Actually, there are different use purposes whether the digital asset is an image, audio, and so on. For pictures, mainly arts, people generally collect them because of limited editions. For audio, an important part for musicians and bands is to monetize released songs and albums as NFTs, giving fans a new way to support their favorite artists.

Non-Fungible tokens are also popular in video games. They mostly look like unique weapons, skins, and accessories. Players can buy, sell, and trade these items both within and outside of the game. But in some games, a player can own a virtual world, as you can see below in the image.

Is that a risky investment?

The volatility can be high in the NFT market, so keep in mind there are potential price swings. Also, don't forget about the high gas fees during periods of high activity. These fees can significantly impact your investment.

Conclusion

When I first got into NFTs, I was honestly just curious. I remember buying a random piece just because I liked the art—it wasn’t until later that I realized I hadn’t done enough research on the creator or the actual value behind it. That was one of my first mistakes, but it taught me a lot. NFTs are exciting, but they can also be unpredictable. I’ve had some moments where I thought I’d hit the jackpot, only to see the value drop the next day. If I could give one piece of advice, it’d be to start small and don’t let the hype sweep you away. Take your time, do your research, and always expect the unexpected. Trust me, it’s a wild ride, but if you’re careful, it can be a fun one too!