NFTs are not leaving the crypto ecosystem very soon. Hence, it is very reasonable that, as a beginner, you know what NFTs are and how to make the most of the ecosystem. This beginners introductory guide to NFTs (Non-Fungible Tokens) will adequately explain the basics you need to know to help you navigate the NFT ecosystem.

2020 was undoubtedly rough for countries and traditional finance systems because of the COVID-19 pandemic. However, for the crypto ecosystem, it was a very eventful year. Aside from the usual Bitcoin halving every four years, more traditional institutions pumped billions of dollars into buying Bitcoin. In addition, Bitcoin reached an all-time high of $68,000, and the DeFi (Decentralized Finance) ecosystem gained more attention.

If you have been keeping up with the trends in the cryptocurrency ecosystem, you would have heard the term NFTs (Non-Fungible Tokens). Amazingly, NFTs began to gain much traction in 2020. However, the first quarter of 2021 was the explosion period of NFTs. The NFT world became very popular at the beginning of 2021.

Fungible vs. Non-Fungible Assets

The Best Beginners Introductory Guide to NFTs (Non-Fungible Tokens)

As a newbie in the crypto space, you might be having difficulty differentiating fungible from non-fungible assets. The truth is that differentiating them is simple. In basic terms, when something is fungible, you can exchange it easily. Hence, a fungible item is like another thing in value. Their value similarity means you can interchange them mutually.

Let’s take the dollar, for example. If you loan one dollar to a friend, you expect your friend to repay you precisely one dollar. However, you will not expect the friend to give you a dollar bill strictly. You can accept four quarters of one dollar. You can accept any dollar, even a divisible portion of one dollar. The most important thing to you would be the smaller fractions summing up to become one dollar. In this case, you are not interested in the dollar type but the value. It means that the dollar is fungible.

Therefore, the fungibility of an asset is in its ability to be exchanged with similar assets. Other fungible assets include gold bars, oil, and even bitcoin.

On the other hand, you cannot exchange non-fungible assets with themselves. They are unique, and that uniqueness differentiates them in their values.

For instance, imagine you send your car to the mechanic, who gives you another vehicle in a better condition for the repair period. You will walk away from the shop feeling happy. The mechanic’s car for that period is better than yours even though it is still a car. In this case, the vehicle is non-fungible because it does not have the same conditional value as yours.

Let us examine another example. Imagine you got a necklace from your grandmother and place a sentimental value on the piece for who she is to you. To you, no other chain in the world is more valuable than that one. In this case, the value is high to you because of its uniqueness; “my grandmother gave it to me.”

Here is another example. If you have ever created an artwork you cherish, you will not put any other artwork equal or higher in value than the special one. Hence, that particular artwork is a non-fungible piece.

What are NFTs (Non-Fungible Tokens)?

The Best Beginners Introductory Guide to NFTs (Non-Fungible Tokens)

NFTs (Non-fungible tokens) are cryptographic tokens that can be traced to a person’s intellectual property. These tokens are built on an indivisible smart contract based on Ethereum (ERC-721).

NFTs represent unique and special things, and you cannot replicate them because they are digital tokens built on smart contracts. Another way to look at them is as ‘digital collectibles.’ The uniqueness of NFTs makes it impossible to exchange one asset for another. Each NFT contains a unique component that makes it non-fungible.

One might wonder, “What makes it different from other assets in the crypto ecosystem.” The truth is that other ‘traditional’ crypto assets like Bitcoins have the same components. I mean that over 15 million bitcoins are in circulation, each with the same components. All bitcoins are similar.

NFTs (Non-fungible tokens) are not that way. There are no two similar NFTs in the world. Hence, you cannot interchange an NFT with another one because only one will ever exist.

Aside from being a special and unique digital asset, NFTs are indivisible. Unlike bitcoin, you can send a fraction of 1BTC, for instance, 0.5BTC. For NFTs, there are no elemental units. The fraction of an NFT is the entire token.

Another name for NFTs is ‘scarce digital artworks.’ The rarity and scarcity of NFTs contribute to the factors driving their prices and values up.

One of the most popular NFT token collections in the crypto ecosystem is Cryptokitties. This NFT collection contains uniquely different tokens, and their uniqueness is why they are expensive. You cannot break a Cryptokitty NFT into smaller fractions or trade it for others. In other words, you cannot exchange it with another NFT like you can do for Bitcoin. Hence, you cannot buy a small fraction of any Cryptokitty NFT. The only way to own it is to buy the entire token.

The way to prove the authenticity of an NFT is on the blockchain network. In addition, blockchain technology helps to keep the ownership rights of NFTs. Hence, they can freely move on the network without compromising ownership.

Most NFTs (Non-fungible tokens) run on the Ethereum blockchain, as I mentioned earlier. However, some NFTs also run on other blockchains like NEO and TRON.

Buying NFTs is easy, as well as minting them. You can purchase them from several NFT marketplaces in the crypto ecosystem—for instance, Rarible, Mintable, OpenSea, and Enjin. You can pay for NFTs using Ether (ETH), the Ethereum blockchain’s native token. In addition, some marketplaces allow the use of other cryptocurrencies for purchasing NFTs.

Characteristics of NFTs (Non-Fungible Tokens)

The Best Beginners Introductory Guide to NFTs (Non-Fungible Tokens)

Scarcity

NFTs increase in value because they are scarce. However, it does not mean NFT developers cannot make thousands of NFTs.

Indivisible

You cannot divide NFTs into smaller units.

Uniqueness

The smart contract technology gives every NFT its uniqueness. NFTs follow the API protocol that the ERC-721 implements. The ERC-721 is the ‘non-fungible token standard’ of the Ethereum blockchain.

Pros and Cons of NFTs (Non-Fungible Tokens)

The Best Beginners Introductory Guide to NFTs (Non-Fungible Tokens)

Pros

  • NFT is one of the doorways to enter the blockchain and cryptocurrency world.
  • It is unique and scarce, and these features increase its value in the market.
  • The blockchain technology guarantees its authenticity.
  • It can be a good source of income for individuals who have had difficulties monetizing their work. For instance, game developers and artists.
  • It makes trading collectibles simple because it allows collectors to buy the digital twins of their collectibles.

Cons

  • Building a decentralized application for NFTs takes time; sometimes, the process can become complex.
  • NFTs are not like fungible assets. Hence, people who do not know how to navigate the world of DApps (Decentralized Applications) will find NFT utilization difficult.
  • You can lose money on an NFT you bought when the market deflates. Remember, you cannot change it for another. The only option is to sell it.
  • Newbies in the crypto industry may need time to navigate the NFT world.

Uses of NFTs (Non-Fungible Tokens) in The Real World

The Best Beginners Introductory Guide to NFTs (Non-Fungible Tokens)

One of the most popular questions newbies in the crypto ecosystem ask about NFTs is, “Can NFTs tokenize the real world since they are digital tokens?” If you have the same question, this section will give you the correct answers.

The truth is that NFTs are becoming more popular because of their uses in the real world. In addition, their real-world benefits are making them more diverse. However, it is pertinent to note that the use cases of NFTs are still in their early stages. Below are some of the most popular real-world use cases of NFTs.

Art 

One of the most popular types of NFTs is programmable art. Gradually, blockchain technology is gaining entrance into our art world by allowing people to tokenize their artworks. In addition, users who buy tokenized paintings can see the history of the work on the blockchain because the technology gives ownership proof. You can also see the people who have formerly purchased the artwork and how much they paid.

Certificates and Licenses 

You can mint your licenses and certificates as NFTs. By doing that, you will help anyone verify your documents digitally. You would not need to carry papers around for verifications.

Sports 

Organizers of sports matches, tournaments, and competitions can tokenize their tickets by turning them into NFTs and selling them to fans via the blockchain network.

Music

Artists can now tokenize their songs by minting them as NFTs for sale on marketplaces like Mintbase and Rarible.

Real Estate

Owners of properties can tokenize them on the blockchain network by creating NFTs of these properties. They can also sell these properties in bits by selling out various tokens representing the different segments of their properties. In addition, tokenizing properties using NFT will remove the third parties usually involved in buying or selling properties.

The Future of NFTs (Non-Fungible Tokens)

The Best Beginners Introductory Guide to NFTs (Non-Fungible Tokens)

Many players in the crypto world, like us, believe the next big thing is NFTs. One of America’s billionaires, Mark Cuban, aired his view about non-fungible tokens. According to him,

“This is like the early internet days all over again. I think [NFTs and blockchain tech is] going to be huge,” Cuban said while speaking for “The Quest” podcast with Justin Kan. “I think the collectible side of it will completely turn the [art], music, and movie industry upside down,” he added. 

Furthermore, other billionaires and influencers like Chamath Palihapitiya and Gary Vaynerchuk have recently hailed NFTs. According to them, the NFT industry will be huge.

You can tokenize real-world assets or make their digital twins using blockchain technology to create their NFTs. The ability to tokenize real-world assets shows how NFTs have different use cases. The best time for anyone to start learning the NFT ecosystem is now because this aspect of crypto is still in its early developmental stages.

To further prove that the future for NFTs is bright, big global brands have started getting into NFTs. For instance, Chile’s Vik Wine has tokenized its wine. Coca-Cola is not left out, either. They have launched their NFTs.

NFTs will be as popular as Bitcoin very soon. People from many aspects of our natural world, like arts, law, games, fashion, food and drinks, sports, etc., will employ NFTs to stay relevant. With everyone joining the train, the NFT ecosystem will have the sky as its limit.