A monthly overview of the Non-fungible Token market reveals that in the last 7 days, NFTs worth $70 million were traded.
Undoubtedly, NFTs are on the rise, but the fact is that the sector is still being driven by speculators. To transform it into a real value-driven market, it is very important to learn what is an NFT and how do NFTs work.
In simple words, NFTs are unique digital assets. Their ownership is recorded, tracked, and managed on the blockchain. Interestingly, an NFT cannot be duplicated or divided. To state an example, a digital image in a JPEG format can be turned into a non-fungible token.
To understand the difference, it is important to know the definitions of fungibility and non-fungibility.
Fungible asset – Cryptocurrency like Ethereum is a fungible asset. That’s because in any given condition, 1 ETH is interchangeable with another 1 ETH.
Non-Fungible asset – A non-fungible asset or token is unique, non-interchangeable, and irreplaceable. For example, a game character or a piece of art is a non-fungible asset.
Thus, an NFT differs from a cryptocurrency because each NFT has unique metadata and that differentiates two NFTs. As a result, you cannot trade the NFTs with each other like cryptocurrencies.
Let us try and understand how do NFTs work from the perspective of a particular token standard.
Ethereum’s ERC20 token standard is a fungible token standard and is used to build interchangeable tokens like LINK.
Ethereum’s ERC-721 token standard is a non-fungible token standard. It is used by platforms like CryptoKitties and Decentraland.
Some token standards like ERC-1155 also support semi-fungible tokens like concert tickets. Another new NFT standard is EIP-2309. It supports the creation of multiple NFTs in a single transaction.
Anyone can create a non-fungible token by using the right tools and support. Previously, Ethereum was the widely used platform for creating NFT but now blockchains like TRON, EOS, and NEO are also offering NFT standards.
A physical or digital file can be converted into an NFT token by minting. Basically, minting is a process by which a user can publish a unique instance of a non-fungible token, for example, ERC-721 on the blockchain. The platforms that support NFT minting also build NFT smart contracts. These smart contracts are used to track ownership of real-world and digital assets. Let’s take a deep dive into how do NFTs work?
1) An NFT is always backed by a media file. This file could bd in the following formats:
a) JPG
b) GIF
c) MP3
d) GLB and more
2) Take this file to a minting platform. A variety of NFT minting platforms have been launched in the last couple of months. While choosing a particular NFT minting platform one must definitely take care of aspects like the minting fees, does the platform allow the user to earn royalty.
3) Once the minting platform is chosen, the user must connect his wallet to the platform and upload the file.
4) Next very important step is to decide whether you want to create an edition-based NFT or a standalone NFT. In case you choose the edition-based NFT, you need to mention the royalty percentage. Once everything is sorted out, you can start the minting process.
Trading an NFT is pretty simple. If a user is interested in buying an NFT, he needs to find an NFT dedicated marketplace. To carry out the transaction, the user must first set up an NFT-supporting wallet. Once the wallet is set up, the user must add a balance to it like ETH and connect this wallet to the marketplace.
Now, you can search for the NFT you wish to buy and pay for it using the ETH deposited in the wallet. Once the transaction is complete, the NFT bought will appear in the user’s wallet that was connected to the marketplace.
• NFT trading is efficient
• It is a transparent way of trading unique assets
• It is an authenticated and secure method of trading assets
• It improved artist royalties and offers them an infrastructure to set up micro-economies
• It reduces third-party costs
NFT creation and trading are growing rapidly. As of 2021, total investment volume in the space has surpassed $420 million. At Antier Solutions, we are working to support the NFT sector growth by helping build NFTs, NFT trading markets, and wallets. Besides development services, we also provide consulting solutions to help you understand how do NFTs work.
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