How does the Non Fungible token (NFT) work? And from where it derives its value from
Non-fungible tokens or NFTs are attracting a lot of attention these days. On March 11, 2021, a digital image composed of 5000 digital pictures was put up in an auction conducted by Christie’s and was sold for US 69 million dollars. An artist nicknamed Beeple (real name Mike Winkleman) made this form of digital art. When it was put forward for sale by the creator himself, the bid started at just US 100 dollars, and the rest of it is now history.
Similarly, the iconic GIF Nyan Cat was sold as a piece of art. The first-ever tweet was turned into an NFT for selling. Like this, there are many instances of turning digital substances into NFTs for sale. So, where do the underlying values of NFT come from? The answer is that the NFT marketplace is purely speculative. The value of these products are the result of speculation and is not determined accurately, nor is it decided using any legal terms. The sole purpose behind the actual price is how much a person or buyer is willing to pay for it.
After seeing through all the stuff that has been sold or auctioned as NFT, the requirement to sell an NFT is two: it needs to be something unique and secondly, proving the ownership. And the same process is applied when it comes to cryptocurrencies, where different strings are attached together to turn into virtual coins. And all of the whole things ends up in cryptography.
A very short History of NFTs
NFTs first came into the limelight in the year 2017, when a game called CryptoKitties authorized their players to buy and breed limited edition kitties or virtual cats. From then on, game developers adapted this concept of NFTs and allowed the avid gamers to collect digital shields, swords and other in-game items as collectables. The tokenization of gaming collectables and items proved to be a real game-changer among people because it allowed trade and transfer of tokens between different games through NFT verified blockchain marketplaces.
Apart from gaming items, NFTs are being used to buy and sell different collectable items such as NBA virtual trading cards, video clips, GIFs, virtual images and music. NFT has allowed people to buy virtual land in a virtual world like DEcentraland.
According to nonfungible.com, a website that tracks and estimates different types of NFT projects and their marketplaces, the total market value of the NFT market is around US250 million dollars. It is negligible compared to the crypto market, but nevertheless, it is an attractive and beneficial proposition for content creators. And the token of contract, which is based on the ERC-271 standard, can be modified so that the content creators can continue to earn royalties and a percentage from successive sales.
It is highly likely that the NFT marketplace is going to grow in terms of market value because artists and content creators can easily sell their art and creations. All of the digital information can be coined into an NFT, and it is also highly secured as well as an efficient way to manage an asset.