HomeNFTWhat is an NFT? How does it work? - Explained

What is an NFT? How does it work? – Explained

Non-Fungible Tokens (NFT) took the world by storm. This digital asset has taken the world of the internet to another level. Ranging from art to music or anything, they are being sold even for millions of dollars. But the question arises whether these NFTs are worth the money or just created hype. Various opinions are taking around in the corner. Some say that NFTs are here to stay, while others believe they will pop up like a bubble. After the explosion in the popularity of crypto assets, there’s a surge in the sales of NFTs in 2021.

What is NFT?

To put it simply, NFT is anything that can convert into a digital form. It is a digital asset and represents objects of the real-world like games, videos, music, art, even a tweet, etc. Although non-fungible token came into being in 2014, it is gaining wide popularity as it lets users showcase and trade their artwork.

NFT is backed by blockchain technology, unlike other digital forms. It is encoded with similar software as most crypto and is known for online buying and selling with cryptocurrency. NFTs have unique identifying codes that are generally one of a kind. They create digital scarcity in contrast to other digital creations that are infinite in supply. Cutting off the supply of NFT raises its value which gives a false belief to be in demand.

How Is an NFT Different from Cryptocurrency?

Although NFTs and cryptocurrency are built on blockchain yet they differ from each other. Cryptocurrency is a currency, that is fungible (interchangeable) for example if a user holds one crypto token (Ethereum), the next Etherum is also of the same value. On the other hand, NFTs are non-fungible, meaning the value of one token doesn’t match the other, depicting that every art is different hence making it non-fungible and unique.

How Does NFT Work?

NFTs are backed by Ethereum’s blockchain, which is a public ledger and is known to record transactions. It is coined from digital objects as a representation of non-digital or digital assets. The unique data of NFT gets the user exclusive ownership rights that make it easy to verify ownership token exchange between creators. Artists can include their signature in the metadata of NFT.

Following are the examples that NFT could represent:

Original world items:

  • Tickets to an original event
  • Legal documents
  • Deeds to a car
  • Signatures

Digital Art

  • Music
  • Videos
  • GIFs
  • Virtual characters

NFT includes special properties:

  • Each token has a sole identifier that is linked to one Ethereum
  • Interchangeability is not possible with other tokens
  • Information about the owner is easily verifiable
  • They can be traded on any Ethereum-based market

Examples of NFT

Some of the best examples of these special kinds of cryptoassets are as follows:

  • First tweet of Jack Dorsey

In March 2006, on the launch day of Twitter, CEO Jack Dorsey sold his first tweet. The tweet NFT was sold for nearly #3million. Dorsey claims that money would convert to bitcoin and then donate to a charitable organization named GiveDirectly.

  • GIFs of Taco Bell

Taco Bell, a fast-food giant, drafted GIFs of dishes from the menu and traded them online as NFTs. He was able to sell the NFTs within minutes of their launch. All that he generated from the sales were donated to Taco Bell Foundation.

  • Nyan Cat

Chris Torres created the meme GIF Nyan Cat and sold it in an online auction for $590,000. He made a pathway for a meme economy in the crypto world.

  • Beeple’s artwork

Beeple created digital artwork (Everydays: the First 5000 Days), was sold for $69 million, and is the first NFT that is sold at an auction house.

  • Glenfiddich Whiskey

William Grant and Son created NFT artistic impression of Glenfiddich whiskey bottles and sold 15 bottles that were 46 years old, for $18,000 per piece. NFT lets the owners to show-off their purchase.

  • Digital sneaker from RTFKT

RTFKT created virtual sneakers for the online gaming characters and traded them for $10,000 a pair. He sold a series of sneakers within minutes for $3.1 million.

What is NFT Used For?

Now artists and content creators have an opportunity to monetize their articles. Earlier artists had to rely upon galleries for the acknowledgment and trading of their art. But now non-fungible token is that platform where the artwork can be sold directly to the client and can generate more profit. There is a provision for programming royalties to acquire sales percentage when a new client buys the art.

Not just art but off-themed non-fungible token are equally important in making money like Taco Bell or Charmin who raised funds for charity through food art or non-fungible toilet paper respectively. There are many more examples who are gaining profits by appropriate use of this non-fungible token.

Why Are Non-Fungible Tokens Becoming Popular?

With the massive creativity potential, the popularity of non-fungible token is skyrocketing. It is turning out to be a rewarding business for creativity as the assets reap huge value and the investors witness this opportunity to increase their rarity.

It is a growing market with impressive sales in the year 2021. Digital assets are here to stay and grow in 2022. Blockchain gaming is gaining a foothold as it links physical and virtual worlds. The remarkable flexibility makes this technology outstanding as almost everything can get tokenized; you name it and get it, for example, songs, games, books, tweets, videos, etc.

How to Buy NFTs

The first and foremost step to owning non-fungible digital asset is to get a digital wallet so that you can store cryptocurrencies and NFTs. Depending on the currencies your NFT provider accepts, you need to purchase crypto using a credit card. Different platforms are available for the purchase of crypto like eToro, Coinbase, Kraken, PayPal, and Robinhood. It can be transferred from the exchange to the wallet of your choice. When someone is buying crypto most exchanges charge a percentage of that transaction.


Although it is an upcoming future, the non-fungible token is subject to risk like other businesses. Therefore, investing in it is a personal decision. It may be a chance that it does not receive long-term capital gain. Plunge into it after all the research, gaining enough knowledge of risks.


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