What's an NFT?
Blockchain gaming would not be possible without NFTs. Let's dive into the basics of NFTs, how they work, and what they are for.
Topics to read before diving into this course:
Tokens and Tokenomics
By the end of this course, you will be able to answer the following questions:
What is an NFT?
How do NFTs work?
Why are NFTs valuable?
How do you get NFTs?
How do you store and trade NFTs?
What is an NFT?#Copy URL to this article section
NFT means “Non-Fungible Token.” An NFT is a unique digital asset that a user owns on the blockchain. It is similar to a real-life painting or collectibles that can be sold or traded. In the Ethereum Blockchain, they are sometimes referred to as ERC721 tokens.
NFTs are digital items such as pictures, videos, animated GIFs, audio tracks or albums, internet domains, or any other piece of data that is stored on a blockchain. Some NFTs even represent physical objects.
Different kinds of NFTs for sale on OpenSea
To fully understand NFTs, it is important to know the difference between Fungible Tokens and Non-Fungible Tokens:
Fungible Tokens#Copy URL to this article section
These tokens exist in huge quantities and are interchangeable with its own kind (i.e. one Bitcoin is exactly the same as another Bitcoin).
Examples: $MC Token, $BTC (Bitcoin), $ETH (Ether)
In the Ethereum Blockchain, these are known as “ERC20 tokens.”
1 ETH is exactly the same as another 1 ETH.
Non-Fungible Tokens#Copy URL to this article section
NFTs are unique; no 2 NFTs are exactly the same (i.e. one Axie cannot be the same as another Axie).
Examples: Axies, CryptoPunks, Bored Ape Yacht Club
In the Ethereum Blockchain, these are known as “ERC721 tokens.”
How do NFTs work?#Copy URL to this article section
Since NFTs are digital assets, they are technically pieces of data that are stored on a blockchain. The Ethereum Blockchain is home to most NFTs, and its native fungible token, Ether ($ETH), is used to buy and sell them.
For every blockchain, tokens need to follow certain standards that will make them usable in smart contracts. These standards are like plugs that can only fit in the same type of socket. For the Ethereum Blockchain, fungible tokens such as Ether ($ETH) follow the ERC20 standard, while NFTs follow the ERC721 standard.
NFTs can be digital collectibles much like trading cards for collectors.
Every NFT is a piece of data that cannot be split into half or cannot be changed (just like how you cannot sell half of a trading card or change a painting). The data that is stored on the blockchain is not the actual item (e.g. JPEG artwork) but a string of numbers and letters that represent the unique fingerprint of the item, the name of the token, the symbol of the token, and its transaction history.
This is what makes every NFT unique. This way, even if multiple copies of that digital asset are made, it will always be possible to check the authenticity of the NFT and who currently owns it.
An NFT represents ownership, and this is recorded on a blockchain. Nobody can tamper with it.
What makes NFTs valuable?#Copy URL to this article section
A Bored Ape Yacht Club NFT selling for up to $300,000 USD as of 4/16/2022
Just like a Da Vinci painting or a concert ticket, NFTs are bought and collected by users for a variety of reasons. Some buy NFTs for their rarity, as a collector would try to obtain a collector’s item. Depending on the demand, the value of NFTs can go up and down at any given point in time.
Aside from rarity, NFTs are also valued based on their utility. Some NFTs can be used to play games and earn, while others can give you unlimited access to a platform.
How do you get NFTs?#Copy URL to this article section
Interested in having an NFT? You can choose any one of these methods to get one:
Minting NFTs#Copy URL to this article section
You can make your own digital creation, upload it on an NFT marketplace, and sell it.
Buying NFTs#Copy URL to this article section
You may purchase NFTs on marketplaces, in-game or external. These transactions are done by connecting your wallets to the blockchain where the NFTs are stored.
Earning NFTs#Copy URL to this article section
Some games allow you to earn NFTs as rewards, or to level up your assets.
Borrowing NFTs#Copy URL to this article section
You may become a scholar to get access to valuable assets and earn income. The owner can lend you NFTs for you to use, and in turn, they take a percentage of your earnings.
How do you store and trade NFTs?#Copy URL to this article section
Storing NFTs#Copy URL to this article section
Since an NFT is a digital asset, you will be needing a safe place where you can store it. NFTs are stored in crypto wallets connected to the blockchain depending on the user’s preference or the platform’s design.
Non-custodial wallets are those that you fully control. Assets inside these wallets are completely yours, and you are responsible for them. Some games require you to connect a non-custodial wallet before you can play.
Custodial wallets, on the other hand, are usually in-game wallets for new players. This option is better if the user wants to enjoy games without worrying about crypto assets.
For more information on crypto wallets, you may read our beginner's guide to crypto wallets.
Hardware wallets for storing digital assets
Trading NFTs#Copy URL to this article section
Trading NFTs is usually done on public NFT marketplaces where users are able to:
Create or “mint” their own NFTs
Create collections that have visibility
Sell their NFTs for profit
Find other NFTs they are interested in
NFTs are changing how people online view ownership. It allows anyone to create something (i.e. a work of art, a poem, a piece of music), share it with the rest of the world, and even sell it at a fair price. In the gaming world, NFTs allow gamers to truly own their assets and even give them a chance to earn by simply playing the game.
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