The Dummies Guide to NFTs or Non Fungible Tokens

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Think about it, you have a bizarre picture that you painted on your laptop using paint and looks something like this:


Can this be a NFT


No way. Who would buy such a thing? Let alone that there is no point in this mess that I just created 5 minutes ago, this thing cannot be sold. It is not even printed on paper. They have no form; you do not have a possession over them and what is stopping me from having it on my computer by simple downloading it, even if it gets sold and someone else owns it.


Well, this is where your understanding about such art is about to undergo a catastrophe because this is actually possible and is happening as we talk (read/write, obviously).


In fact, a digital painting by Beeple got sold for nearly 70 million dollars. He is the third most valuable alive artist today and he sells images.



So, first things first, how is this even possible. I mean everything on the internet is open-source and things like ethics of ownership respect or privacy are just some terms unknown to the digital world.


This happening of a miracle was made possible as a result of blockchain. Yes, the very technology that all cryptocurrencies use. The digital assets that are traded are referred to as ‘non-fungible tokens’ or simply NFTs.


What are NFTs?

Non-fungible tokens or NFTs are assets that can not be replaced by any similar asset. Non-fungible primarily means unique. This implies that if I own an NFT, only I own that particular non-fungible.


This might help you understand things a little better. I own 1500 bitcoins (I wish, but let’s just assume for a moment). These bitcoins have my digital initials recorded in their transaction history. Now if I decide to exchange 50 of my coins with a friend, I eventually end up with the 1500 bitcoins, no more no less. All of these will worth the same and no matter how many similar transactions I make, they just remain the same.


NFTs are different in this part. They are unique. If I own 1500 NFTs, each one of these fifteen hundred are different from one another. If I exchange 50 of them with a friend, I end up having 50 different NFTs from what I previously had.


Is NFT a new crypto?

Certainly not.
To help you understand, let’s take the example of 50 limited edition Bugatti Chirons. Each of them will be an asset that you can use and drive around town. On the contrary, if you have 5 million dollars, it is just the money that you have. You own it, thousands of others own it, nothing unique about it.


In short, cryptocurrencies are digital money and non-fungible tokens are digital assets that you can own.


How did it all start?

While there a few older mentions of NFTs, non-fungible tokens distinctly began after the launch of Crypto Punks and Crypto Kitties



Crypto Punks were 24×24 images of male and female misfits, obviously ‘punky’ looking. A total of 10,000 of them were sold.


Same is the case for Crypto kitties. People purchase digital pets online. Each of these kittens had unique patterns and designs specific to that one particular piece. In fact, one of them even costs around $390,000 or 600 ETH.


Crypto Kitties


And there we have it as for today. Anything and everything is being sold as an NFT, from tweets to the most expensive digital piece of art ever sold for 69.34 million dollars.


Characteristics of NFTs

NFTs being part of the crypto world, inherit many of their traits from the crypto world, particularly Ethereum. Ethereum was the first to introduce NFTs so why not. While others can also implement their own NFTs, it is a feature primarily limited to Ethereum these days.


1. Security

All non-fungible tokens are secure, perhaps even more secure than the portrait of Mona Lisa. Like the Ethereum coins, you have them in your wallet which is already secure. Since it follows the ERC-721 standard, the information is permanently stored and can not be changed or else destroyed and so is the NFT itself.


2. One-whole

Non-fungible tokens are like literal things in the real world. There is no use of having a car in which you own the steering and the seats. The guy next block owns the engine and someone somewhere is the midlands owns the chassis.


Same is the case with NFTs, you own them in whole and can not rip a painting into bits like a coin. Though I am still not sure, if there will be days when we are trading parts of a painting, as if we ripped apart the Mona Lisa to sell it in some 1000 separate bits.

Anything can happen.

Basic Characteristics of NFTs


3. Scarcity

The uniqueness and scarcity of NFTs is undoubtedly their most important feature which is the actual cause of deriving its value.


You purchase a game skin for $100. Only 100 of these skins were sold and now they are gone. Just like a limited edition of La Ferrari, it is a unique digital good. You might be able to sell it for well over $1,000.
This will depend upon the demand and supply, simply economics you see.


Artists have been keeping the number of similar tokens to very limited, to the extent of exclusive. This helps to raise the worth of the piece and eventually, they end up getting paid more for their work.

Are NFTs any good?

NFTs are a very cool thing if you think about it from a technological advancement perspective. Humans have moved from scribbling things in caves to creating a virtual image in a virtual world but how does this actually make any difference and is it of any benefit; let’s look into it a bit further.


1. As an Artist

In the past 100 years, everything changed from how me move to how we eat, drink and work every day. We invented cars, microwave ovens, mobile phones and even vacuum cleaners. Things changed drastically but the art remained the same.


It continued to be drawings on a canvas with liquid paints generally and continued to be concrete. Although graphic designing had been around for a long time, there was no actual way of selling it as a piece of art.


This was before NFTs were a thing. Now with NFTs, artists can create and sell digital artwork without dealing with the hassles of copies and duplicates. There are thousands of artists who are now selling their work as a ‘non-fungible token’ because of these benefits:


a.) NFTs are built around blockchain. Using the Ethereum ERC-721 standard, the artist and the owner can be tracked very precisely. So, unless the artist created more than one copies of the piece, there is no other of getting your hands on it.


b.) NFTs have resolved the problem for the artists who sold their pieces for nothing and then all of a sudden, their work got famous and there was no way to get the benefit because they had already forfeited their rights for dimes.


With NFTs, a certain percentage of the amount goes to the artist every time his masterpiece changes hands. In this way, they are able to reap the fruits of their work in the long term.

2. As a Collector

If you are someone who truly wants to appreciate the artwork in the modern-day, NFTs provide you a great opportunity to do so while still staying digital. Obviously, you would not want to go all old-school and spend thousands of dollars just to see an art show.

You are smart and you do it online and you own digital artwork. NFTs are the way ahead in this regard where you can build your own digital world, an online museum of your own in Decentral Land. You can even earn from it by placing a ticket on the museum-like they have a La Louvre in Paris.


NFTs from Different Perspectives


3. As an Investor

All investors are looking for feasible opportunities and NFTs are surely one good opportunity to consider. Digital art has just begun and an investor can benefit from the opportunity.


There have been instances when people bought art from $1 and got an offer of $50,000 with a week. That is the kind of profits an investor is looking for and NFTs sure is a promising area in this regard.


Similarly, you can do it in games. There are many games that offer game assets like swords and skins that you can buy and later on, trade them for their market worth. Games like Decentral Land allow you to trade assets and you surely can get a decent return on your investment.

4. As a Player

I am one of those people who think that in-app purchases in games like skins and weapons are useless when you can do the same with the ones you unlock as you progress in the game. Plus, when you spend the money, there is no way to get it back but not now when you can trade skins and weapons as NFTs.


(Maybe, I should consider buying the cool gun that just dropped in last night)

What are the risks that you face?

NFTs are still a relatively new idea that has begun to make its way into the headlines with the recent trades of Tweets and a $70-million painting. Still, it is a novel idea and there are risks associated with it till it makes its way into mainstream trading.


1. Demand

The price for any commodity depends upon what someone is willing to pay for the product and how many people want to buy it. Trading of digital commodities is a new idea and there are two problems associated with it:


i.) You may not find enough buyers for your NFT.

ii.) The buyers you find are not willing to pay enough.


Both of these aspects somewhat reduce your chances of making a profit of your possession.


2. Acceptability

While there may be a lot of people who love to improve and learn new ways of living, there might be schools of thought who would not appreciate the idea and create hindrances in its successful development.


Major Uncertainties Associated with NFTs


3. Laws and Regulations

This aspect of NFTs should be considered very keenly because it is built very closely with blockchain and cryptocurrency technologies. While governments around the world have finally begun to acknowledge their existence and importance, there are still countries where they are legally banned.


NFTs also might have to face such sanctions before it is appropriately recognized.


4. Uncertainty

The uncertainty of the crypto market is also an important aspect to consider here. Bitcoin as the first cryptocurrency is the primary trendsetter and all others including Ethereum, Dogecoin, and many others follow suit.
Similar can be the case for NFTs. Additionally, there have been instances of digital thefts in the past when people’s wallets were emptied. Though digital security on these wallets has improved lately, there still are threats and it will be important as to how NFTs wallets cater to those risks.


In short, NFTs are a novel idea even in the digital world. Many of us were astounded by the idea of a $70-million-dollar digital painting when we first heard about it. Let’s keep our fingers crossed and see what this new unit in the digital world has to offer us.

Ready to Take the Next Step?


Rahul Singh

Sr. App Developer

Rahul has been associated with the apps industry for more than 9 years now. He has seen the apps economy grow from its nascent days to a full fledged industry with its complete ecosystem as of today. His interest lies in pursuing and getting to know the best app development technologies, processes and platforms. He is truly an app enthusiast. In his free time he loves playing console games and reading history.

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