What is an NFT?

The origin of NFTs dates back to 2014, when Anil Dash und Kevin McCoy were thinking about a way to verify digital artworks as unique and prove the rightful owner as such. They developed an initial prototype that helped them assign an owner to a digital object. Although it took several years before the first real NFTs were traded, it was the start for this forward-looking technology.

What are NFTs?

The abbreviation NFT stands for "Non-Fungible Token," referring to digital assets based on blockchain technology, making them unique and tamper-proof.

But what does that mean exactly, and what does "non-fungible" mean? Imagine you own a painting by a famous artist. The painting is unique and cannot be simply replaced by another, whereas a 1 Euro coin can be exchanged for any other 1 Euro coin. Just like the painting, NFTs are unique and possess their own value. Being stored on the blockchain gives them a uniquely identifiable signature, allowing them to be unequivocally attributed to their owner and tamper-proof.

What are NFTs used for?

NFTs have a variety of applications and have been used for increasingly diverse purposes in recent years. The most common applications include:

Digital art and collectibles

NFTs enable artists to create and sell digital artworks, with authenticity and uniqueness guaranteed by the blockchain. Collectors can acquire NFTs to own and trade digital artworks, which may include paintings, photographs, or musical compositions.

Authentication certificates for physical products

NFTs are increasingly used to verify the authenticity and origin of physical products. They are linked to specific products to guarantee authenticity and to trace the path from manufacturing to sale indisputably. NFTs provide a transparent and tamper-resistant way to verify the authenticity of physical products and thus protect against counterfeiting.

Assets in virtual worlds

In online games and virtual worlds, NFTs are used to create and trade unique items, characters, or clothing/accessories. Trading and owning virtual properties within virtual worlds are also common applications.

Digital memberships and access passes

Some brands and content creators offer exclusive content and experiences as digital memberships. As the holder of an NFT, you can enjoy special benefits such as access to exclusive events, discount offers, or product launches.

We are also planning an NFT collection whose NFTs will function as membership cards and provide great benefits to their owners. You can learn more about it here:

How can I buy an NFT?

NFTs are often traded via specially created marketplaces, where they can be searched for or discovered while browsing through different NFT collections. Two of the best-known marketplaces for NFTs are OpenSea and Rarible.

Each of these platforms has its own requirements for purchasing NFTs. For example, many platforms require cryptocurrency such as Ether as a form of payment, although other payment methods like credit cards are increasingly being accepted. You will also need some kind of digital wallet where you can store your purchased NFTs.

Are there any other ways to purchase NFTs?

In addition to purchasing NFTs, it is also possible to acquire an NFT automatically by purchasing a physical product if it serves to certify the authenticity of the product. Additionally, NFTs can also be sent to your wallet through so-called 'Airdrops'.

Advantages and disadvantages of NFTs

Like everything in life, NFTs come with their own set of pros and cons. Here are the main ones summarized:

Advantages:

• Uniqueness and authenticity: As NFTs are based on blockchain technology, they possess an individual and tamper-proof signature that uniquely identifies each NFT and sets it apart from other assets.
• Global accessibility: Thanks to blockchain technology, NFTs can be traded worldwide without the need for intermediaries such as banks or galleries.
• Potential value appreciation: Some NFTs have proven to be investments that can increase in value, especially if they come from well-known artists or are used in popular games. This offers the opportunity for financial gains, making them particularly attractive to investors.
• Creative possibilities: NFTs enable artists and creatives to create and market new types of digital works. This opens up a variety of creative opportunities in areas such as art, music, games, and more.
• New way of customer engagement: NFTs represent a novel and creative tool to reward loyal customers and strengthen customer engagement.

Disadvantages:

• Exclusivity and accessibility: Acquiring and owning NFTs currently often requires a certain level of technical know-how. The challenge in the coming years will be to break down these technical barriers to increase the acceptance and usability of NFTs in the mainstream.
• Market volatility: The market for NFTs can be highly volatile, leading to financial losses if purchased as an investment at a high price and then losing value.
• High transfer fees: Depending on the blockchain on which NFTs are based, creating and trading them can incur high transfer fees. However, new blockchains are constantly emerging where transfer fees are minimized, and in some cases, nearly non-existent.

What does it mean to mint an NFT?

For an NFT to become valid, it must be written with all its information to the blockchain, where it can no longer be deleted or manipulated. This process is called "minting". Since transfer fees are incurred during minting, the process is left to the buyer of the NFT, especially in the case of large NFT collections. Only after an NFT has been minted, it can be found on NFT marketplaces and resold there.

If we've sparked your curiosity and you want to know what steps are necessary to dive into the world of NFTs, check out our blog post What is a so-called wallet?.