An NFT is a cryptographic token that cannot be interchanged in a like-for-like manner. These tokens are entirely distinguishable from one another and are unique and limited in quantity.
NFTs can be used to represent real-world items on the blockchain, but can also be used for digital collectibles. Digital identity and the metaverse are other sectors that can utilize NFTs.
NFTs have been popularized in mainstream culture as a new form of digital art. However, they also have potential applications in many different fields, such as video games, digital identity, licensing, certificates, or fine art – and even allow fractional ownership of items.
Central to understanding the uniqueness of NFTs is the concept of fungibility. Bitcoin, for example, is fungible, just like dollar bills, meaning that each bitcoin or one hundred-dollar bill has the same value and properties as the other. Fungibility thus refers to the property of an asset whose individual units are interchangeable and essentially indistinguishable from each other; all fiat currencies and cryptocurrencies are fungible.
A non-fungible token unlocks different potential and uses cases for blockchain technology. These tokens can be unique, or have limited supply. They can be bought, sold and traded on certain NFT marketplaces, and accrue value. They can also represent unique attributes and become highly prized, sought-after, and collected.
NFTs have become hugely popular in the crypto world, as well as in the mainstream, with high-profile celebrities buying in. This article will dive into what NFTs are, what they can be used for, and how they have become a mainstream phenomenon.
What is an NFT?
A non-fungible token (NFT) is a type of cryptographic token on a blockchain that represents a unique asset. These can either be entirely digital or tokenized versions of real-world assets. As NFTs aren’t interchangeable with each other, they may function as proof of authenticity and ownership within the digital realm.
Fungibility means that an asset’s individual units are interchangeable and essentially indistinguishable from each other. Fungibility is a desirable property for currency because it enables free exchange, and theoretically, there is no way to know the history of each individual unit. However, that isn’t a beneficial trait for collectible items.
What if we could create digital assets similar to bitcoin but instead add a unique identifier to each unit? This would make each of them different from all the other units (i.e., non-fungible) and thereby open up a wide array of new use cases. Essentially, this is what an NFT is.
How do NFTs work?
There are various frameworks for the creation and issuance of NFTs. The most prominent of these is ERC-721, a standard for the issuance and trading of non-fungible assets on the Ethereum blockchain.
There have been other standards introduced, such as ERC-1155. It enables a single contract to contain both fungible and non-fungible tokens, opening up a whole new range of possibilities. The standardization of the issuance of NFTs allows a higher degree of interoperability, which ultimately benefits the users. It means that unique assets can be transferred between different applications with relative ease.
BNB Chain has its own NFT standards: BEP-721 and BEP-1155. These two provide similar functionality to the previously mentioned Ethereum standards. Both have become attractive for creators looking to mint NFTs as the cost is substantially lower than on Ethereum.
Just like other blockchain tokens, your NFT will exist on an address. It’s worth noting that NFTs can’t be replicated or transferred without the owner’s permission – even by the issuer of the NFT. If you are looking to store and have a place to view your NFTs, you can do that in an NFT-enabled wallet such as Trust Wallet.
NFTs can be traded in open marketplaces, including Binance’s NFT platforms, BNB Chain-based BakerySwap, and OpenSea on Ethereum. Naturally, NFTs are prone to price changes in response to market supply and demand as well as cultural trends that some of the NFTs are tied to.
But how can such things have value? Just like with any other valuable item, the value isn’t inherent to the object itself but is rather assigned by people who deem it valuable. In essence, value is a shared belief. It doesn’t matter if it’s fiat money, precious metals, or a vehicle – these things have value because people believe they do. This is how every valuable item becomes valuable, so why not digital collectibles?
What can NFTs be used for?
NFTs can be used as collectible items, investment products, or serve many functional purposes.
Online gaming has emerged as a major use case for non-fungible tokens. Gaming economies are nothing new. And since many online games have already had their own economies, using blockchain to tokenize in-game assets is taking only a step further. The use of NFTs could potentially solve or mitigate the common problem of inflation that many games have.
While virtual worlds are already flourishing, another exciting use of NFTs is the tokenization of real-world assets. These NFTs can represent fractions of real-world property that can be stored and traded as tokens on a blockchain. This could introduce some well-needed liquidity to many markets that otherwise wouldn’t have much, such as fine art, real estate, rare collectible items, and many more.
Digital identity is also a sector that can benefit from the properties of NFTs. Storing identification and ownership data on the blockchain would increase privacy and data integrity for many people around the world. At the same time, easy and trustless transfers of these assets could reduce friction associated with sharing personal data.
How do I make NFTs?
Creating your own NFTs is a simple process offered by numerous platforms and NFT exchanges. All you need to get started is some crypto to pay your minting fee and something to turn into an NFT. You’ll also need to choose between minting your NFT on Ethereum or BNB Chain.
Ethereum has traditionally been the home of NFTs and their development. It has a large user base and well-established NFT community, but transaction fees can be hefty. This makes small purchases, sales, and transactions costly for users. BNB Chain is a newer blockchain but it has already seen a lot of growth in its NFT markets. Transactions on BNB Chain are also much cheaper than they are on the Ethereum blockchain.
Our guide on How to Make Your Own NFTs will teach you the process of turning your creations into non-fungible tokens.
One of the first NFT projects to gain significant traction was CryptoKitties, a game built on Ethereum that allows players to collect, breed, and exchange virtual cats.
CryptoKitties gained some notoriety after it congested the Ethereum blockchain due to the high network activity that it spawned. An estimated 25% of Ethereum’s traffic in December 2017 was related to these collectible cats.
However, the popularity of NFTs has since reached much broader markets with the likes of Eminem, Jimmy Fallon, Steph Curry, Post Malone, and many other celebrities all owning an NFT from The Bored Ape Yacht Club.
As NFTs popularity soared further, a record-breaking $69 million was paid for Everydays: the First 5000 Days, an NFT created by digital artist Beeple, at Christie's Auction House in March of 2021.
Arguably, it’s NFTs use cases related to digital art that have captured the most attention from celebrities and the mainstream media so far. However, use cases continue to be discovered for this versatile asset class, and non-fungible tokens will likely have many more important applications going forward.
How do I buy an NFT?
As mentioned, NFT marketplaces are the first place you should look if you want to buy non-fungible tokens. But that’s not all the information you need. You can’t just buy NFTs with a credit card or PayPal. A crypto wallet and some crypto are essential to the process.
For BNB Chain NFTs, prices will almost always be in BNB. Ethereum NFTs will typically use ether (ETH). Both of these cryptocurrencies are available to buy on the Binance exchange. Once you’ve purchased your chosen crypto, move the funds to a wallet that can interact with NFT marketplaces.
Binance Chain Wallet and MetaMask are good options for browser extension wallets. Both can be connected to an NFT marketplace. You just need to transfer your crypto from Binance to your wallet, go to the marketplace’s website and connect your wallet (the connect button is usually in the top right corner). Beware of fake or suspicious websites. Double-check the URL and consider bookmarking if you use it often.
If you prefer a mobile experience, take a look at Trust Wallet. It’s available for both iOS and Android and also supports multiple blockchains.
Digital collectibles have the potential to extend the utility of blockchain technology far beyond conventional financial applications. By representing physical assets in the digital world, NFTs can become a vital part of the Web ecosystem and the wider economy in the near future.
NFTs’ use cases are vast, and it’s quite likely that many developers will come up with new and exciting innovations for this promising technology.