What are NFTs and
How Do They Work?
What are NFTs and
How Do They Work?
What are NFTs and How Do they Work? Non-Fungible Tokens Explained
In the ever-growing landscape of the internet, the emergence of NFTs almost seems like it was inevitable. The term "NFT" gets tossed around lately, but often without context or a definition. For those wondering what NFT stands for, look no further. In this article, we'll explain what NFTs are, how they work, and why NFTs have value.
What is an NFT?
People often refer to a virtual sports card or piece of digital art as an NFT, but that's not the whole picture. NFT stands for Non-Fungible Token. This unique block of code — or "token" — can't be reproduced or deleted. An NFT records all transactional activity, so whoever owns a particular NFT asset can track its ownership and usage history, all the way back to its creation. The code can only be transferred and can only be modified to add new information to it. Nobody and nothing can change the information that already exists in an NFT.
To further explain, NFT code gets generated and is attached to a piece of work, such as a digital image or piece of media. This imprint is an invisible watermark for that unique piece of work. You can copy and download an NFT asset as much as you want, but the NFT will only remain with the piece's owner.
What is a blockchain?
Blockchain is the technology behind NFTs and several other cyber assets. A blockchain is a decentralized public ledger visible to everybody on that blockchain's network. NFTs, cryptocurrency, and smart contracts are all digital assets that exist on a blockchain. Each exists as a unique record on its blockchain. As an NFT or cryptocurrency changes hands, the blockchain records the event and remains an immutable part of the asset's historical data. Until recently, moving assets from one blockchain to another was impossible. Eleven blockchains can pass NFTs and other digital assets back and forth, but the process hasn't yet been perfected.
What is cryptocurrency?
All across cyberspace, people buy, sell, and trade with cryptocurrency often referred to as "crypto.” In short, cryptocurrency is just digital money. As with NFTs, cryptocurrency exists on a blockchain, and each unit is unique. Using blockchain, each currency unit contains its own transaction history. Many businesses and individuals in other countries accept crypto and use it to make purchases. This acceptance by the broader community gives crypto its value. Several types of cryptocurrency exist, and each gets valuated differently by the marketplace. For example, in a case where Bitcoin runs $21,000 per currency unit, Dogecoin might only hold a value of about $0.10 per unit. Many people would gladly accept a single higher-value Bitcoin, but likely turn away an offer of 210,000 units of ten-cent crypto. In general, the higher the value of a crypto type, the less likely it is to bottom out quickly.
What is minting?
In short, minting is the conversion of a digital asset or file — such as a piece of virtual fashion for an avatar or an animated .gif — into an NFT-encrypted asset. When you mint an NFT, you're essentially turning the image or file into a unique piece stored on a blockchain that only one person can own at a time. It's not difficult to mint NFTs, but it's not free, either. If you've created a piece of digital art or media you'd like to mint into an NFT, research NFT-minting platforms and find the one that fits your needs.
What are smart contracts?
A smart contract is a program stored on a blockchain. Conditions are written into the program with simple if/then parameters, so the program executes when one party meets certain conditions. For example, when a seller receives funds for a sale of an NFT, the smart contract releases the NFT to the purchaser. Once a transaction is complete, it's a matter of permanent record on its blockchain. Though the blockchain is a public ledger record, only people with permission from the contracting parties can view the record on the blockchain.
Are NFTs worth buying
How do NFTs gain value? NFTs have the worth that the market assigns to them. If owning a one-of-a-kind digital work of art or piece of virtual avatar gear isn't for you, there's no sense in purchasing an NFT. They're the perfect option for people that enjoy the idea of owning something that nobody else does. For those who enjoy being at the forefront of new trends in technology and finance, NFTs form the perfect nexus of the two. Many people speculate that an NFTs value will increase over time and become as viable as stocks, bonds, or tangible art that people can invest in and trade.
Why do people buy NFTs?
There are two main reasons why people buy NFTs — personal enjoyment or investment, but no rule says it can't be both. The perfect example of bragging rights would be the artist Banksy. A group of crypto-enthusiasts purchased a Banksy painting and minted a digital copy into an NFT asset. The group then set a torch to the original and sold the NFT for almost $400,000. The NFT has monetary and historical value — a true collector’s item. For the purchaser, the Banksy piece was also an investment because if and when they sell it, the new buyer will likely spend far more than $400K to be the one who owns it.
What determines the value of NFT?
The value of an NFT asset relies greatly on market perception. Since most items bearing an NFT are digital, they have no real material value to back them up on. Many factors determine the worth of an NFT asset. The value of an image or other digital item can also fluctuate, depending on several factors.
If a notable artist or another person of note created an NFT asset, it enormously impacts the item's value. Owning a piece created by a well-known individual affords a person a lot of enjoyment. The higher the creator's status — whether in their field or just as a public figure — the higher an NFTs value is likely to be.
The law of supply and demand plays a huge role in an NFT’s worth. The harder a piece is to get, the more valuable it tends to be. It isn't enough that a famous person creates a work of NFT art. If they make copies of the same piece and mint each copy into an NFT, it cuts down the prestige of owning a unique NFT.
History can offset the rarity to some extent. If ten people own a copy of the same NFT art created by a big-name artist, each copy diminishes the value of all the rest. However, when another famous person buys one of those pieces, it makes that one piece more valuable than the others — just by virtue of the added historical value. If the famous person sells it, the new owner of that item now has bragging rights that other NFT owners don't get to enjoy.
Celebrity endorsements have a way of making an NFT more valuable. When a public figure mentions an NFT asset — even in passing — their acknowledgment increases the public awareness of the item and adds to the piece’s value.
Unlike the ownership information you can look up on an NFT, celebrity acknowledgment might require a little research and salesmanship for the seller and buyer to agree on a practical value based on celebrity endorsements.
What is the most expensive NFT ever sold?
At the time of writing this article, the most expensive NFT sold was created by the digital artist Pak. He generated a series of NFTs for a piece titled "Merge.” Almost 29,000 people put down a collective $91.8 million for the more than 300,000 NFTs associated with this work.
Vignesh Sundaresan — an investor based out of Singapore — paid $69.3 million for a piece titled "The First 5,000 Days" by renowned digital artist Mike Winkelmann — also known by the professional name "Beeple.” The piece of digital art was a collage of individual photographs taken daily over 5,000 days — which comes to almost fourteen years.
Why are NFTs becoming so popular?
NFTs are a new technology that offers a way to own unique digital assets. The security and immutable nature of blockchain give a sense of permanence never before available in digital media.
New technologies almost always become popular early on. Once the initial push of those who like to be at the forefront has cooled, there tends to be a dip in popularity. But when technology proves stable and useful, public appreciation rises again, and it levels off as people become familiar with the ins, the outs, and the how-tos.
With NFTs, the popularity is likely to see a lot of peaks and valleys, depending on other markets and the status of cryptocurrencies. However, many experts agree that each NFT’s permanency and history associated with each will likely continue to raise the value of individual assets over time.
Can you make money with NFTs?
It's possible to make money with NFTs. There are two main ways to do it — creating and investing.
Suppose you're a visual artist, musician, video content creator, or pursue other creative activities. In that case, it's pretty easy to turn a piece of your work into an NFT and put it up for sale on a crypto marketplace. Of course, your work has to be good, or at least generate interest, for someone to purchase it. But if you have talent, all you need is a computer, a crypto wallet, and an account on an NFT marketplace.
NFTs are often used as an investment. Find a marketplace, like the DraftKings Marketplace, for example, and purchase NFTs that you think will do well. You can then turn around and try to sell your NFT for more than you paid for it or hold onto it until it's gained in value. Any financial investment is risky, and NFTs aren't a sure thing. So, go into NFT investing with a lot of research and some nerves of steel.
How to buy an NFT on DraftKings Marketplace
NFTs drop on DraftKings Marketplace fresh and new, with no transaction history beyond being generated and transferred to the Marketplace. Unlike many NFT markets, DraftKings allows you to use the actual currency to buy NFTs.
To purchase at DraftKings Marketplace, log in to your DraftKings account and click on the collectible you want. Follow the prompts through the end to complete your transaction.
If you don't have an account, creating one is easy. Follow the instructions through to the account creation process. Once you've made a DraftKings Marketplace account, all that's left is to log in and browse the vast array of DraftKings NFT collectibles.
If an item is up for auction, click on the product thumbnail in the Marketplace and read the rules associated with that auction piece.
What is a Game NFT
Game NFTs are unique digital blockchain assets that represent sports memorabilia, such as digital trading cards, video clips of great moments in sports, and other types of sports items.
The introduction of NFTs to the sporting scene provides teams, brands, and athletes with an innovative and in-demand revenue source, while also giving fans a unique way of connecting with their favorite athletes and sports clubs.
The DraftKings Reignmakers platform takes NFTs to the next level. With a gamification concept, users are able to buy, sell, and trade specialized NFTs — in the form of sports cards — and include them in the DraftKings fantasy football environment.