A non-fungible token (NFT) is a unique digital identifier that is recorded on a blockchain and is used to certify ownership and authenticity. It cannot be copied, substituted, or subdivided. The ownership of an NFT is recorded in the blockchain and can be transferred by the owner, allowing NFTs to be sold and traded. The NFT can be associated with a particular asset – digital or physical – such as an image, art, music, or recording of a sports event. It may confer licensing rights to use the asset for a specified purpose. An NFT (and, if applicable, the associated license to use, copy, or display the underlying asset) can be traded and sold on digital markets. However, the extralegal nature of NFT trading usually results in an informal exchange of ownership over the asset that has no legal basis for enforcement, and so often confers little more than use as a status symbol.
NFTs function like cryptographic tokens, but unlike cryptocurrencies, NFTs are not usually mutually interchangeable, so they are not fungible. A non-fungible token contains data links, for example which point to details about where the associated art is stored, that can be affected by link rot.
How NFTs Work:
NFTs are typically created through a process known as "minting," where digital files are uploaded to a blockchain network, creating a record of the NFT on the ledger that cannot be altered, ensuring the item's permanence and security.
This process involves:
Creating a digital file: This can be any form of digital art, audio, video, or other forms of creative work.
Minting the file into an NFT: Through a smart contract, the file is minted on a blockchain like Ethereum, creating a unique token that is stored and managed on the blockchain.
Once minted, NFTs can be bought, sold, or traded on various digital marketplaces. Transactions are recorded on the blockchain, providing transparency and a detailed history of the NFT’s ownership.
Use Cases for NFTs:
Digital Art: Artists can tokenize their artwork and sell it as NFTs, providing them with a new avenue for monetization and ensuring that their copyrights are protected.
Collectibles: Digital versions of collectible items like sports cards, figurines, and other memorabilia can be sold as NFTs.
Gaming: NFTs are used in video games for in-game purchases, allowing players to truly own their purchased or earned items, which can be traded or sold outside the game.
Music and Media: Musicians and filmmakers can use NFTs to tokenize their work and potentially transform how media is monetized and distributed.
Real Estate and Virtual Lands: In virtual worlds, NFTs can represent ownership of virtual properties or land parcels, which can be developed, bought, and sold.