What is NFT and How Does it Work?

What is NFT and how does it work? Here is what you want to know about non-fungible tokens, which are described as unique or unchangeable tokens.

April 6, 2021 | AtoZ Markets – As the decentralized finance (DeFi) ecosystem evolves, unusual token and coin varieties are emerging. The reliability and unchangeability of the data on the blockchain allowed new ideas to emerge.

Especially in 2020, "Non-fungible tokens" became one of the most frequently searched terms. Regardless of whether they are familiar with the cryptocurrency ecosystem or not, many users ask "What is a non-fungible token?" or "What does NFT mean?."

Now let's examine what non-fungible token or NFT means.

What is a non-fungible token (NFT)?

The non-fungible token (NFT), which is an " immutable token" means a unique token that is encrypted on the blockchain network. NFT, which works differently from the conventional coin and token concept; is a unique, unalterable entity whose originality and ownership rights are absolute.

In the simplest terms, non-fungible tokens, which can be described as unchangeable and uniquely, are produced in originality and different values ​​that cannot be substituted for each other.

To explain with an example, it is possible to exchange the $100 banknote we have for another $100 banknote. Because traditional banknotes are interchangeable. While the serial number of the banknote has no effect on its value, they have a fungibility feature. Likewise, the full gold purchased from the jeweler can be exchanged for a different full gold or for four quarters of gold.

The ability to be substituted (fungibility) or being used interchangeably is a critical feature in cryptocurrencies. For example, after a Bitcoin is produced or mined, the number of wallets it has been stored does not affect its value. 1 BTC is always 1 BTC.

Non-fungible tokens contain features that make each one "unique". The owner of NFT knows that there is no other example of the token in his hand.

Where is NFT used?

Unique NFT tokens are often preferred in the field of collections, digital ownership, and property rights. NFT comes across in forms such as artworks, digital collectibles, and unique digital items featured in online games.

The use of NFT for the copyrights of works of art is increasing day by day. For example, the digital artwork for the famous animation series Rick and Morty was sold for $150,000 at auction.

Another example is Spider-Man drawing by Marvel comic artist Adam Kubert. The digital artifact, which was turned into a collection token on the Ethereum blockchain network, became its new owner for 12.75 ETH.

NFT is also used for in-game digital assets. Thanks to this technology, digital assets can become unsold on third-party trading platforms without the game developer's permission.

What are the NFT standards?

Two standards are generally used when creating an immutable, unique token: ERC-721, which is generally preferred for collection purposes, and ERC-1155, which is more common in the gaming industry.

  • ERC-721 standard

ERC-721 was the first standard enabling unique token generation on the Ethereum network. ERC-721, which is a revision of the ERC-20 standard used in Ethereum -based cryptocurrencies, was first introduced in 2017. Unlike the ERC-20 standard, ERC-721 cannot be traded on cryptocurrency exchanges and cannot be converted to another cryptocurrency. They can only be traded in markets and auction platforms developed for the exchange of these tokens.

  • ERC-1155 standard

ERC-1155, a standard that converts unique tokens to "semi-exchangeable", can be thought of as a superset with new features added to the ERC-721 standard, the first example in its field. Any ERC-721 asset can be used in the ERC-1155 standard.

New digital asset classes can be created in the ERC-1155 standard. This standard is preferred especially in the conversion of digital items in computer games into tokens.

How do you make money on NFT assets?

The original crypto tokens are becoming a source of pride for the modern investor. A large capital owner wishes to demonstrate his status by acquiring a unique work of authorship. The high demand for NFT is a great opportunity for those looking to capitalize on a popular investment asset.

AtoZ Markets specialists identify several ways to make money on non-fungible tokens at once.

Top 3 strategies for making money on NFT:

  1. Purchase of rare tokens for subsequent resale. The best place to buy promising NFTs is the marketplace. On such sites, you can buy various digital assets, but Ethereum is accepted as the default unit of account. It is assumed that over time, non-fungible tokens will rise in price, and the holder will be able to earn on their resale.
  2. Purchase of native tokens for participation in large projects. Users of cryptographic exchange platforms can buy a digital unit and take part in the moderation of the whole system. Some cryptocurrencies represent partial ownership, and shares of non-fungible tokens are distributed among multiple holders.
  3. Collecting with the subsequent sale of NFT. The auction becomes a good way to make money when it comes to rare and valuable items. Modern collectors are ready to pay a lot of money for the right to own the most interesting art objects. Holders of promising tokens are selling them at an inflated price, given the high demand from crypto enthusiasts.

At the moment, every participant in the international market can buy NFT tokens. To do this, it is enough to register on one of the marketplaces, then select a suitable object and deposit a certain amount.

Take away

Having become familiar with the concept of non-fungible tokens, an investor can successfully make money by buying NFT art. NFT is very popular and allows those who join the global trend on time to make money.

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