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News/How Non Fungible Tokens Work

How Non Fungible Tokens Work

Sep 11 2023

8 months ago2 minutes read

How Non-Fungible Tokens Work

You've likely stumbled upon the term "non-fungible tokens" or NFTs, and perhaps you're scratching your head, wondering what the fuss is all about. In essence, NFTs are unique digital assets verified using blockchain technology. Unlike cryptocurrencies like Bitcoin or Ethereum, which are interchangeable and identical to each other, NFTs have unique identification codes and metadata that make them distinct.

NFTs have a value determined by the market and their owners. They can be bought, sold, or traded for money, other cryptocurrencies, or even other NFTs. Imagine someone tokenizing a digital artwork of a cat; while some might scoff at its value, others might be willing to pay a fortune for it.

History Of Non-Fungible Tokens (NFTs)

Contrary to popular belief, NFTs have been around for a while, long before they became a mainstream phenomenon. The first-ever NFT, known as Quantum, was created on the Namecoin blockchain in 2014 and later minted on Ethereum in 2021.

The NFT landscape changed dramatically in March 2021 when a digital collage by the artist Beeple sold for a staggering $69 million. This sale not only set a new record but also legitimized the value of digital art and NFTs in the eyes of many.A person is looking at a computer screen showing blockchain transactions to learn how to track crypto wallet addresses (1).webp

How NFTs Work

Creating an NFT, or "minting," involves recording specific information about the asset on a blockchain. This process is more than just a digital stamp of authenticity; it involves complex smart contracts that define the rules around the ownership and transfer of the NFT.

Once an NFT is minted, it's assigned a unique identifier that links it to a specific blockchain address. This ensures that each token has a verified owner, and this ownership data is publicly accessible.

Blockchain And Fungibility

In the financial world, most assets, including cryptocurrencies, are fungible, meaning they can be exchanged on a one-to-one basis. For example, one Bitcoin is always equal in value to another Bitcoin, much like how a single U.S. dollar bill is always worth one dollar. This characteristic of fungibility makes cryptocurrencies a reliable medium for transactions in the digital economy.

How Can I Buy NFTs?

If you're looking to dive into the world of NFTs, you'll typically need to start by purchasing some Ether (ETH), as most NFT transactions occur on the Ethereum blockchain. Once you have your ETH stored in a digital wallet, you can browse through various NFT marketplaces like OpenSea  to make your first purchase.

Are NFTs Safe?

NFTs are generally considered secure thanks to the robustness of blockchain technology. However, the safety of your NFTs ultimately depends on how securely you've stored the private keys to your digital wallet. The phrase "not your keys, not your coin" rings true here. As long as you maintain stringent security measures for your private keys, your NFTs should remain safe and sound.

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