What is an NFT and how does it work

What is an NFT and how does it work

Claudia Roca

Nov 30, 2022

Nov 30, 2022

Nov 30, 2022

What is an NFT and how does it work
What is an NFT and how does it work
What is an NFT and how does it work

Have you ever wanted to have your own artwork and earn money through this hobby? Well, thanks to NFTs you could make your dream come true. 

With NFTs you can buy any asset with its certificate of authenticity without having to leave your home, which makes it a unique opportunity. 

It's terrifying to see how inflation eats away at people's savings, so it's time to look for new alternatives to protect your wealth. 

The good news is that NFTs are an option within your reach to stabilise your accounts and, why not, obtain new income. 

Can you imagine yourself as an artist being able to give a seal of authenticity to your work and auction it on a platform until you find the value you like the most? 

Well, that is already a reality with these assets, to the point that hundreds of millions of dollars have been paid for these products. 

Forget the crisis and open the door to the new economy. Will you join us? 

What is an NFT?

Let's first define what an NFT is and then get into more sophisticated aspects. 

NFTs come from the acronym "Non Fungible Token". Tokens are units of value that are added to any project such as cryptocurrencies. However, these values are used by apps and even much more specific platforms. 

NFTs are defined as unique and original assets that cannot be modified or exchanged for another asset of similar value. This is because no two NFTs are the same, just as no two pieces of art are identical.

In fact, works of art are a great way to understand NFTs. If you want to buy Da Vinci's Mona Lisa, you will have to go to the museum where it is and pay a significant sum of money. Now, can you buy a copy? Of course, but it will have a much cheaper value. 

That's how NFTs work, only on digital platforms. So if you want to buy one, you have to buy it from someone who is selling it or you can create your own, which is like painting your own artwork. 

This has led to the tool becoming associated with digital artworks, sculptures and illustrations. Its rise in popularity has led to as much as 260,000 dollars being paid for a drawing of a rock, demonstrating the potential of this trend. 

What are non-fungible goods?

In order for you to fully understand NFTs, you must first understand what non-fungible goods are. 

In the market there are fungible and non-fungible goods. Fungible goods are those that can be exchanged and have a value according to their weight or size. Non-fungible goods, on the other hand, cannot be exchanged under any circumstances. 

The greatest example of a fungible good is money. If you open your wallet right now, you will probably see a 5 or 10 euro banknote. Well, you can exchange these banknotes for others of the same value without any problem, the value will always be the same. 

Meanwhile, an example of a non-fungible good is any work of art. Yes, again, but there is no better way to explain how it works. 

Think about it, you cannot exchange one painting for another or consume it over time. The reality is that they are unique assets that are practically non-transferable. In other words, it's a non-fungible asset. 

How do NFTs work?

NFTs work through the blockchain.

This is a network of computers distributed around the world and connected by nodes or blocks. The security comes from the cryptographic system itself, which protects you from possible cyber attacks. 

In this sense, each block links to a previous one along with the date and transaction data, a feature that makes it resistant to data modification.

In addition, NFTs have an authentication certificate, which is a set of metadata that prevents the information from being modified. This is where the value of the asset and the acquisitions made over time are recorded. 

That is why if you buy an NFT token, there will always be a record of the value it had when you acquired it. Most projects of this type currently use the Etherium infrastructure, which makes it easy to buy and sell because it is a standard that is known to all. 

Key characteristics of NFTs

As you will see, NFTs have very specific characteristics that differentiate them from any other asset today. Let us look at some of them below: 

1. They are indivisible

And yes, NFTs are indivisible, which means that you cannot divide them into smaller parts for later sale. 

When you buy such an asset, you buy the whole piece, image or drawing, and thanks to cryptography you cannot modify it under any circumstances. 

This way, you ensure that you have the original product, something that will help you to auction it at the best possible price. 

2. They are rare and even exclusive

Due to the details we mentioned in the previous section, NFTs can be scarce and exclusive, because they are patented digital works that are difficult to make. 

Also, if you look at it as an investor, the fact that it is unique and exclusive increases the likelihood that you can get your capital back in a short time. 

4 Steps to investing safely in NFT

Are you determined to get in on one of today's most powerful trends? Find out how you can invest in NFT in the following list: 

Step 1: Do your research

The most important job an investor has is not to inject his resources, but to research where he plans to invest.

The world of cryptocurrencies is highly volatile and NFTs are no exception. Therefore, it is essential that you read up on the project that has just been proposed to you to determine whether it is a good option for you. 

Analyse the founders, the value of the NFT, its usefulness and possible future boom or bust. 

Step 2: Choose the platform 

After you've made your decision, it is crucial that you choose the right platform to invest in. 

The good news is that there are now a number of different sites that allow you to buy and sell NFTs. Most of them are supported by authorities in the field, so forget about investing in unknown platforms. 

Among the options you have to choose from are: OpenSea, Sorare, Rarible and Minthana. 

Step 3: Analyse the project

Take the time to analyse the project in detail. Find out who is behind it, what their reputation is, what community they want to attract and the interest they have generated in the last few months. 

This will help you make a kind of projection of what will happen in the short and medium term, which will help you increase your chances of making a profit. 

Step 4: Decide how long to hold the asset for

One of the biggest attractions of NFTs is the revaluation they can have over time. This is why it is essential to buy and sell at the right time to achieve high returns.

When analysing the project, determine at once whether it is time to invest or whether it is advisable to wait a little longer. If so, calculate how long you need to stay with the NFT to recover the investment. 

Invest NFT

4 Examples of NFTs around the world

Want to see some of the NFTs that have had the greatest impact around the world?  Discover some of them in the following list:

1. The first tweet in history

Have you ever wondered who issued the first tweet in history? Yes, today millions are posted every second, but at some point the platform started from scratch. 

It was Jack Dorsey, the company's founder who posted the first text on the site back on 21 March 2006. The message read: "Just setting up my Twitter", something very genuine for something that was just starting up. 

Now, the interesting thing is that the entrepreneur remembered this milestone and turned it into an NFT that he managed to sell for no less than 2.9 million dollars.  Not bad for a simple text, right?

2. King of Leon

Second on the list is the rock band Kings of Leon, who recently sold their new album via NFT, making them the first band to do so. 

It is an NFT album with a unique design. The fan who bought it will be assured of a good return if the demand for the product increases over time, which is likely to happen. 

There are many fans of the genre who will want to own this material, so just wait a little while for the price to triple. 

3. FC Barcelona

Barca is one of the most important teams in the world and now you will be able to own some of their historical symbols thanks to the NFTs. 

Just as you read it, the institution decided to celebrate its 122 years of history through a series of digital assets that commemorate the most important moments since its foundation in 1899. 

So, do you consider yourself a true Culé? Get your NFT from the club and don't miss out on its birthday. 

4. Hollywood NFT

Cinephiles are one of the most important communities on the planet and now you can show just how much of a fan you are of your favourite franchise. 

It turns out that NFTs have penetrated the world of cinema and now you can find different assets related to some of the biggest blockbuster movies in history. 

So you can find everything from the car from Back to the Future, the ship from Star Trek or the broomstick from Harry Potter. Imagine what you can get with them, so take a look, maybe you could be the next owner.

NFT examples

Incredible advantages of NFTs

Still have doubts about the potential of NFTs? It's time to take a look at some of the advantages they offer so you can make the best decision. Grab pen and paper: 

1. Standardisation

Standardisation is a big advantage that NFTs offer you. 

Blockchain technology has made it possible to exchange digital assets with just a few simple steps. This ensures interoperability between apps, making everything much simpler. 

It's time to log in to the platforms to revel in their simple and intuitive interfaces. 

2. Easy to market

At first it seems complicated, but once you understand the process you realise that selling or buying NFTs is quick and easy. 

This works under the free market economy, so supply and demand is what drives the price of any NFT. In addition, you can now earn money in multiple ways, from bidding, auctions or selling in different currencies. 

3. Liquidity

There are times when you need liquidity to make other types of investments. Well, if you want to have your money available in a short time, a good option is to inject it into NFT. 

Currently thousands of people are interested in buying this type of content, so if your asset is in demand you will be able to get money quickly. 

4. Immutability

NFTs are immutable thanks to smart contracts. These elements set limits on both the creation of the project and its subsequent modification. In fact, such is the level of security that you can program it never to be modified, which is very useful in the art sector. 

The truth is that NFTs are one of the most important inventions of recent years and they are just getting started. Until recently it was unimaginable that you would have the possibility to digitise a product and auction it at the best possible price. 

Now it is time for you as an entrepreneur to make the most of it and start earning money with this alternative. 

What are you waiting for to get started? 

Don't forget to stop by our school to see the options you have to become an expert in digital marketing. 

We're sure we can give you a hand!