The cryptocurrency community’s ability to innovate is surpassed only by its influence in setting new trends, as evidenced by the rise of NFTs. But what do NFTs stand for? NFTs refer to nonfungible tokens, which are digital objects that are verified on the blockchain and hold features such as uniqueness and non-interchangeability. They can fall into pretty much any category but are most notably appearing in the form of art, music and as items in blockchain-based video games and video.
One particular area that NFTs have taken by storm is the art world, where digital tokens are selling for tens of millions of dollars at major auction houses and beyond. Budding artists who would once post their work for free or sell it cheaply are realizing that they can cash in on their talent through the use of blockchain technology and NFTs.
It’s still the early days for nonfungible tokens, which were thrust into the spotlight in 2017 with a decentralized application (D App) called Crypto Kitties, where users can buy, trade and collect virtual cats.
After the NFT market ballooned by close to 300% in 2020 to more than $250 million year-over-year, these nifty digital assets have captured the imagination of traders and creative types alike. Another sign of growing adoption is the number of NFT wallets on which NFT transactions have occurred, nearly doubling in 2020 to more than 222,000 YoY.
You don’t have to be in the crypto space too long before you hear about NFTs — you don’t even have to be in the space at all. When you do, it probably won’t be long before you decide to go down the NFT rabbit hole like the rest of the community, either in an attempt to score a big sale or to scoop up some digital art to diversify your portfolio. But before you do that, it helps to have a grasp on the NFT ecosystem and what it is all about.
How do NFT work?
NFTs differ from ERC-20 tokens such as DAI and LINK in that each token is unique and cannot be divided. NFTs allow for the assignment or claim of ownership of any unique piece of digital data, which can be tracked using Ethereum’s blockchain as a public ledger.
As a digital or non-digital asset representation, an NFT is created from digital items. An NFT could, for example, represent real-world items like legal documents, signatures or digital art like videos or music. So, what is NFT digital art? NFT digital art is an Ethereum-based asset that reflects the artwork’s certificate of ownership and authenticity.
At any given time, an NFT can only have one owner. The uniqueID and metadata that no other token can replicate are used to manage ownership. Smart contracts, which assign ownership and govern the transferability of NFTs, are used to create the uniqueID and metadata.
When someone generates or mints an NFT, they are executing code from smart contracts that follow various standards, such as ERC-721. This data is stored on the blockchain, which is where the NFT is handled.
