Understanding How Non-fungible Tokens Actually Work in Practice

Non-fungible tokens, or NFTs, seem to be impacting every industry these days. Some of the most popular ones to trade include digital artwork, virtual fashion items, and even tickets and coupons. One of the most expensive NFTs out there last sold for over $91 million. 

However, knowing what an NFT is doesn’t explain how exactly they work or how they acquire value. While cryptocurrency functions a lot like exchanging money, a non-fungible token works like a collectible. 

Here’s what you need to know about NFT, the blockchains they run on, and why they’re so valuable. 

How Non-Fungible Tokens Work

An NFT is a lot like cryptocurrency in that they’re created and held online. Although they’re based on blockchain technology, that’s where the similarities end. 

Instead of holding equal value to other tokens, your individual NFT is completely unique. They function as one-of-a-kind collectibles that no one else can own unless they purchase it from you. 

The majority of NFTs exist on distributed public ledger technology that records transactions. A blockchain network prevents alteration of record data. The different types of blockchains allow for private organizations to host their own currencies and NFTs. 

Your NFT’s unique data makes it easy to verify ownership. They can’t be forged or manipulated, though a hacker who gains access to your wallet could steal them. 

Determining Value

NFTs acquire value through artificial scarcity. With other types of cryptocurrency, there’s an abundance of identical tokens or coins you can purchase and exchange.

With an NFT, there’s only one available of any type. 

For example, the original CEO of Twitter sold the very first tweet on the platform as an NFT. Although Twitter hosts the tweet, the winning bidder owns it like a virtual autograph. 

There are also NFTs that function as a sort of currency or reward for a company’s ecosystem. When you buy ape coin, it then allows you to participate in DAO governance votes as well as access games, events, and other services. Certain games also allow you to earn coins just from playing them.

How to Get Started

Buying non-fungible tokens is relatively simple as long as you use the right platform. All you need to do is sign up with a marketplace, fund your account, and buy whatever cryptocurrency you desire. 

Some companies offer NFT drops where they give away virtual and physical prizes. You may also be able to earn them while playing games or participating in their ecosystem. 

Keep in mind that NFTs and their prices can vary a lot depending on the types you’re interested in and their overall rarity. 

A Variety of Investment Opportunities

Generally speaking, non-fungible tokens aren’t the kind of investment that’s going to generate a lot of profit. It all depends on what kind you’re interested in and how it’s used. Some act more like collectibles, while others are much easier to exchange with other investors. 

Check out some of our other articles if you’re interested in learning more about other web and tech topics.