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A Guide for Beginners – What Are NFTs and How Do They Work?
Assets are acquisitions. Some of them are investments while some are mere expenses. In other words, all investments are assets but not all assets are investments. Having made this clear, you should know that there are digital assets, just as there are physical assets.
NFTs are prime examples of what qualifies as digital assets. Furthermore, they are investments. This is given their ability to yield profit for anyone who has them. Speaking of NFTs, this article intends to shed more light on these digital assets. Read on to discover more.
What Are NFTs?
NFT is the acronym for Non-Fungible Token. In simpler terms, they are digital assets created and operated using blockchain technology. This technology being at the core of how these assets are created, owned, sold, and purchased; offers several advantages. Transparency, immutability, and security are some of the advantages in question.
Furthermore, one distinct thing about NFTs is how authenticity and proof of ownership matter. The non-fungible status of NFTs is the primary reason why created, purchased, or sold assets are authentic or unique. For the record, its non-fungible status is one of the major features that distinguish it from several other blockchain tech-backed assets.
How NFTs Work
Several intricacies detail how they work. But by and large, it is typically about tokenization, smart contracts, and ownership/authenticity:
Tokenization
Digital assets are tokenized. By the way, it is also possible to tokenize physical assets to serve the same purpose. In simpler terms, tokenization is all about the processes involved in converting the rights to digital or even physical assets into digital tokens.
This is the process that sets the ball rolling in the world of non-fungible tokens. The reason is primarily because it determines ownership and access to these assets.
Smart Contract
Quite a lot has been said about how ownership and access matters in the world of NFTs. However, this cannot be overemphasized.
Against this backdrop, it is worth mentioning how there are agreements detailing how ownership, access, purchase, and sale of digital tokens should play out. This is where smart contracts come into play. They are contracts that explain the aforementioned.
However, smart contracts do not stop at this as they are equally self-executing. In simpler terms, this implies they are capable of ensuring their rules are not broken. For those who may be asking why they are capable of self-enforcement, the reason is because they are blockchain-sponsored. You can click here if you are interested in finding out more about smart contracts.
Ownership/Authenticity
Generally speaking, proof of ownership is critical in asset acquisition. For example, many people can lay claim to being the owner of a real estate property. However, it is the authentic proof of ownership that determines who owns the real estate property.
This is also the case with NFTs. Blockchain technology has the creation, ownership, sale, and purchase of these assets in such a way that proof of ownership is not a problem. For example, there is a valid record of all NFT-related transactions. Furthermore, the records are made public, contributing to the NFTs’ transparency.
Creation of NFTs
NFTs can either be purchased or created from scratch. For those who opt for NFT creation, the processes include the following:
Choosing a Blockchain Platform
There is a long list of platforms that can be engaged for this purpose. Options include Binance Smart Chain, Tezos, Flow, and Ethereum. It is strongly advised that you do your research before choosing any platform.
Digital Wallet
This makes it possible to send, as well as receive tokens. This happens by enabling the storage of cryptocurrency. Just like with blockchain platforms, there are options in this regard. Ethereum and MetaMask are prime examples.
Marketplace
The marketplace is crucial for the monetization of your non-fungible token. This is why you should not make light of the need to choose the right marketplace. For the record, the marketplace is essential for two major reasons.
Firstly, it provides a platform for minting your NFTs. Secondly and equally important is that it provides a platform for showcasing your NFTs. On the whole, the process of showcasing and minting in marketplaces involves the following steps:
- Uploading your content
- Specifying details
- Creation of a unique token
- Setting royalties
- Confirmation and payment of gas fees
All of the aforementioned have to be conducted properly to make the most of non-fungible tokens so bear them in mind.
Purchase of NFTs
Monetization of NFTs is a gradual process. Against this backdrop, you should know that it starts with the creation or purchase of non-fungible tokens. Having discussed the creation of non-fungible tokens above, here is what you should know about the purchase of NFTs:
Digital Wallet
A suitable digital wallet would have to be chosen to kick-start the process. Speaking of suitability, compatibility with the created NFTs blockchain is crucial.
Wallet Funding
NFT purchase implies that these digital assets are bought. This is why your wallet needs to be funded to ensure you can make purchases.
NFT Marketplace
Just as with sales, NFT marketplaces are required for exploring, as well as purchasing these digital assets. Therefore, choose a suitable marketplace for this purpose.
Link Wallet to Marketplace
Your wallet has to be linked to the marketplace of choice. There is no one-size-fits-all approach to getting this done. It is largely determined by the chosen marketplace. Furthermore, the purchased NFTs would have to be transferred to your wallet.
Conclusion
There is a lot to learn about NFTs. However, understanding the basics is crucial and a great way to start the learning process. It is to this end that this NFT beginners guide has delved into some of the basics. Having read through, you are advised to make the most of the details shared here.
That includes creating, purchasing, and generally monetizing these digital assets. You should also explore easy ways to do this. For example, you can leverage platforms that make it possible to make NFT purchases with credit cards.
