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What Is an NFT And How Does It Work?
- By Kriss
- Published on: August 3, 2021
Digital assets, such as NFTs, represent real-world objects like art, music, in-game items, and videos. They are bought and sold online, and frequently with cryptocurrency, and they use the same underlying technology as many cryptos.
Copying a digital file is possible as many times as you want, or making copies of the art that is included with an NFT. The original can only be owned by one person.
NFTs are not new, they’ve been available since 2014. But now they are gaining popularity because becoming a new way to purchase and sell digital artwork. In 2020 the NFT market value made a triple jump, reaching more than $250 million. Also during this year’s first quarter, NFT market value exceeded $2 billion.
As a result of the Blockchain technology and NFTs, artists and content creators now have an opportunity to monetize their work in a more direct way. For instance, artists no longer need to sell their wares through galleries or auction houses. If the artist prefers, they can sell their art directly to the consumer as a non financial transaction, which lets them keep more of the profits. This means that they can program in royalties so they receive a percentage of every sale when their art is resold. After selling their art, artists generally do not receive any future proceeds.
How does an NFT work?
In the background of NFTs there is a blockchain, a form of distributed ledger that records transactions, which you’re most familiar with as the foundation of cryptocurrencies.
Even though NFTs are typically held on the Ethereum blockchain, there are other blockchains that support them as well.
An NFT is created, or “minted” from digital objects that represent both tangible and intangible items, including:
- Art
- GIFs
- Videos and sports highlights
- Collectibles
- Virtual avatars and video game skins
- Designer sneakers
- Music
Even tweets count. Twitter co-founder Jack Dorsey sold his first ever tweet as an NFT for more than $2.9 million.
NFTs are like physical collector’s items, only digital. Instead of obtaining a physical oil painting, the buyer receives a digital file.
In addition, NFTs come with exclusive ownership rights, which has the advantage of verifying owners’ ownership and helping them transfer tokens between owners. Their unique data can also be stored inside NFTs, giving them the advantage of storing specific information. For instance, artists can sign their artwork by including their signature in an NFT’s metadata.
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Kiara Sofia Smith
My current focus is blockchain technology and cryptocurrency. One could even call me a blockchain “enthusiast.” I have worked for almost a decade on several financial projects related to the stock market news, fundamental research and technical analysis for several blogs.
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