NFT Meaning: What It Is and How It Works

By NFTweets in News on Wed Oct 05 2022 | 4 min read

Are you interested in developing your own NFT collection? Do you know what the meaning of an NFT is? What about how it works? The NFT world is large, complex, and expensive; here's what you need to know.

Bag with NFT non-fungible token and a bundle of dollars on scales.

What Is an NFT?

NFT stands for non-fungible token. This means it can neither be interchanged nor traded owing to its distinct properties.

A digital asset or NFT can be anything, including videogame items, videos, and music. They are generally encoded using the same technology as various other cryptos, and they are often bought and exchanged on an NFT market.

These digital assets appeared on the scene in 2014, but its popularity is growing as more people buy and sell digital art using them. In 2021 alone, the NFT industry saw large spending of $41 billion. This is almost as much as the entire global fine art market.

The term "non-fungible" clearly indicates that it can’t be substituted or changed due to its unique qualities. Both crypto and fiat money can be exchanged or traded for one another because they are both fungible.

Secured NFT

How Does this Digital Art Work?

NFTs can be found on a distributed public ledger, known as a blockchain. This stores transactions. Moreover, NFTs are particularly stored on the Ethereum blockchain; however, you can also access them on other platforms. Digital items that replicate tangible and intangible objects can be "minted" into a non-fungible token, including:

  • GIFs
  • Digital artwork
  • Collectibles
  • Sports highlights
  • Videos
  • Music
  • Designer speakers
  • Video game skins

NFTs are basically digital versions of real collectibles. The buyer obtains a digital file instead of physical artwork to showcase on their wall. Furthermore, the buyer gets the sole ownership rights to the NFT. Since NFTs use blockchain technology, it is simple to transfer tokens and verify ownership.

Green binary computer code with METAVERSE spelled out.

How Do You Buy NFTs?

You need to use an NFT marketplace to buy, trade, and sell NFTs. The selling of NFTs takes place on online platforms, which use technology to directly enable ownership verification.

Historical antique statue of david's head and mouse cursor with finger

What Are NFTs Used for?

NFTs give content creators and artists an opportunity to monetize their creative pieces, as they can sell them directly to the purchaser in the form of an NFT. This allows them to keep a greater portion of their income.

Moreover, creators can code royalties into the technology so that each time their creation is sold to a new buyer, they will get a percentage of the transaction.

Pattern with bust of David, dollar statue and blockchain token.

When it comes to trading NFTs, you need to do so on an NFT marketplace. After creating and adding funds to your digital wallet, you need to choose one of the many NFT platforms. The largest NFT marketplaces are:

  • Rarible
  • Foundation

All of these marketplaces allow you to buy and sell NFT collections.

NFT Marketplace Example

If you're interested in the digital economy, a few NFT projects you have surely heard about are Bored Ape Yacht Club and CryptoPunks.

Bored Ape Yatch Club NFTs

Centralized vs. Decentralized NFT Markets

Centralized Marketplaces

This is a market that a corporate entity creates and manages directly.

In a centralized marketplace, the company that owns it serves as a middleman to connect buyers and sellers, establishing the rules for how transactions and fees should be handled on the exchange.

Since these marketplaces are owned by businesses, they typically have better user accessibility, abide by regulations, and have the ability to protect assets from hacking issues.

Businessman holding Ethereum cryptocurrency coin, close up of hand

Decentralized Marketplaces

These are markets developed by a group or person; however, it's automatically controlled by a decentralized network of computers.

In a decentralized market, third-party authority is mostly eradicated, giving purchasers exclusive chances. Decentralized marketplaces give buyers complete ownership over their assets, potential reductions in transaction costs, and numerous NFT options not otherwise available on controlled markets.

DIGITAL WALLET text on a sticky note on a green wooden background

The Bottom Line

NFT exchanges are a fantastic platform for digital artists. In previous years, NFT sales ranged from a few hundred to millions of dollars. While the NFT space is confusing for many, these digital collectibles have changed the online world as we know it.

NFT text on blue computer Keyboard Key