What are NFTs and how do they work


NFTs were created in 2010, and the first projects using them appeared in 2017. But the real hype around these three letters began in 2021, when digital files began to be sold en masse in the form of NFT. What added to the popularity was the fact that famous people created their NFTs: Ilon Musk, his wife singer Grimes, artist Pokras Lampas, singer Weeknd.

In this article we’ll tell you in plain language what NFT are, what you can do with them and why they are so popular.

NFT – what it is in simple words

First, let’s understand the terms. NFT is a non-fungible token. If you know at least a little bit about cryptocurrencies, you know that tokens are used in blockchain.

If not, here are a couple more explanations:

A blockchain is a database that contains information about all transactions, and that information is open to all participants in the database. The database consists of blocks, and the blocks themselves are a chain, hence the name blockchain (block, brick, chain). Blocks and the information in them are virtually impossible to break, replace or destroy. Because they are not stored on a single server, but simultaneously on several devices around the world. Each digital record in a block is a token.

Let’s give an example of how blockchain technology differs from a bank transaction. If Vasya transfers money from his bank card to Petya’s card, the bank first analyzes Vasya’s account balance. Then it confirms the debit, enters the information into its database, and then sends the money to Peter’s bank (if they have cards from different banks). Petya’s bank confirms the transaction and puts the money on the card balance. That is, the banks are intermediaries in the transaction, work separately from each other and each bank has its own servers and operating procedures.

In blockchain, there are no such intermediaries. Every transaction goes from wallet to wallet directly, and the information on it is available to everyone. Naturally, in encrypted form. To verify the transaction all the devices of the common chain are used. If they see that Vasya has 1 bitcoin in his account to transfer to Peter – the transaction is confirmed. If they don’t have the right amount, the transaction is rejected.

Common tokens in blockchain are interchangeable. The money you and I are used to is also interchangeable. If Vasya lends Petya 500 rubles and then returns the same amount, but with a different bill, the value of the money will not change. It will still be 500 rubles. If a sports store sells the same footballs, they are interchangeable. You don’t care which of the 10 balls you buy, as long as they are the same. But if that ball has Ronaldo’s autograph personally placed on it, the ball will be unique and its value will be much higher. And you can not sell two of these balls, because he is one of a kind. You can make copies, fakes, but the original is still one.

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Another example is Leonardo da Vinci’s Mona Lisa. You can reprint it as much as you want, redraw it, place it as prints on clothing or stamps, but their value will still always be lower than the original Mona Lisa. And so NFT is a kind of proof of authenticity, but in a digital environment.

Conclusions: The NFT is a unique one-of-a-kind digital key. You could say a digital certificate for the work. The token is assigned to the object of sale and can confirm that the buyer is now the true owner of the copyrighted work. It’s as if you bought a ball signed by Ronaldo and received a certificate confirming the transaction and entitling you to own the ball. Only it’s all in digital form.

How an NFT is created

Depending on the NFT pad, the token is created either at the time of the transaction or when the digital file is uploaded to the pad.

The process of creating an NFT and writing it to the blockchain is called minting tokens. No two or more tokens in the system can be the same when it comes to NFTs.

What can be sold as an NFT

Any digital object – a picture, video, music, game artifact, animation, photo, text, book, a file. The main thing is that the object must be of value to the buyer.

The most famous cases of NFT sales:

The author of the animation Nyan Cat sold it as an NFT for almost $600,000:

Artist Beeple’s NFT sold for more than $69 million. It’s a digital collage of 5,000 of his works. The sale made him one of the three richest artists in the world.

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Twitter social network owner Jack Dorsey’s first tweet was sold for nearly $3 million.

A New York Times article about NFT was sold as NFT for half a million dollars.

Russian calligraphy artist Pokras Lampas sold a photo projection of his work on the Chirkei hydroelectric plant for $28,000.

The NBA sells video clips of the best shots on its own NBATopShot site. In the first month of the site’s launch, sales totaled more than $5 million.

What is an NFT marketplace?

It is a marketplace where authors can put their NFTs up for sale and users can buy them. The best known ones are:

  • OpenSea;
  • Rarible;
  • NiftyGateway;
  • SuperRare;
  • Foundation;

What do you pay for NFT?

Basically, now the calculations are made in the cryptocurrency Etherium. Which, by the way, affects its popularity and price. That is, in addition to the sale of NFT, you can additionally earn on the fluctuations of Etherium.

Most likely, more cryptocurrencies will join the NFT market in the future.

Who can sell NFT

The author of a unique digital artwork. You can’t just take someone else’s picture or video and sell it. The drawing, the music, the animation – it all has to be created by you.

What you can do with NFTs

NFT can be kept in a collection or resold on the same marketplace where it was purchased. There is a misconception that buying an NFT involves transferring exclusive rights. No. The exclusive rights remain with the author. Also, the new owner of the NFT receives no royalties for using the work and cannot prohibit its copying. Take the same Nyan Cat gif – it’s still freely available on various sites.

Let’s use the analogy of the Mona Lisa. Theoretically, some billionaire could buy it from the Louvre Museum and hang it in his mansion. But he wouldn’t get royalties for selling copies and prints, and he couldn’t prohibit its distribution.

What then is the point of buying something for which you have no exclusive rights? And even pay a lot of money for it?

The trick is in the psychology of the buyer. Usually the tokens are bought by collectors, patrons who want to support the author or his fans. Buying NFTs is a way to express yourself and support your status. Or as an option – to express a civic position. For example, one 3D artist sold an animation with Lukashenko to a buyer from Europe. The motive for the purchase was the buyer’s personal attitude to the events in Belarus. He saw the animation as a form of protest and decided to support the author.

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It is also worth understanding that not every author can sell NFTs as expensive as in the examples above. Some NFTs just hang on marketplaces and no one is interested.

The development potential of NFT

NFT is currently experiencing a boom in the development of digital art. But this technology has other uses. For example, the brand Nike has already patented a model of sneakers Crypto Kiks. The buyer of the shoes receives a unique token as a sign that the sneakers are original and belong to that particular person. When reselling the sneakers, it is the token that will help prove that it is the original and not a fake.

What’s wrong with the NFT

Not without disadvantages. And they are associated with environmental issues. It has been calculated that the creation and maintenance of one NFT token consumes about as much electricity as one European spends a month on household needs. The same is said about cryptocurrency mining – it harms the environment. It is possible that activists will raise the alarm and the NFT and cryptocurrency market will be regulated at the state level.

The second disadvantage is that the average token price is constantly changing – it can both skyrocket and plummet. How long the information noise about NFT will last – is unknown, but already now people earn on this topic.


NFT is seen as a way to support authors of unique content and a motivator for the development of digital art. Many authors face online piracy or just can’t get a decent remuneration for their work and NFT is their chance. And for some sellers it is just a way to make money quickly on a wave of hype. It is already clear that the scope of NFT will not be limited to digital art, and that it is a trend for the next few years.

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