NFTs are one of the newest trends in the crypto world. Since 2021, the number of available NFTs as well as the number of investors who want to buy NFT tokens has exploded. But what is the NFT meaning, what are NFTs actually and how can you buy and trade an NFT? We want to get to the bottom of these questions in detail in our guide.
NFT Meaning Explained
NFT stands for “Non Fungible Token”. Regular cryptocurrencies like Bitcoin or Ethereum are fungible – meaning they can be exchanged and traded for one another. NFTs are unique digital tokens that are not represented by an equivalent or cannot be replaced. They therefore function as a kind of digital proof of ownership or authenticity – stored on the blockchain.
Images, music, text, digital trading cards, documents, even furniture or real estate – almost anything can be represented by a Non Fungible Token.
For investors, NFTs offer an exciting new way to invest in the growing crypto market. However, if you want to succeed, you must first understand the meaning of NFTs and how exactly NFTs work and what they can be used for.
In the world of blockchains, tokens are digitized assets. Usually, each crypto token has the same value and is completely interchangeable with any other coin of the same cryptocurrency. Each individual bitcoin always has the same value as all other bitcoin tokens, just as each physical coin always has the same value as any other coin of the same denomination. This makes coins interchangeable (fungible). Any crypto token can be replaced by any other token of the same type.
The record of each NFT on the blockchain contains comprehensive information about a specific digital object. This can be an image, a piece of music, a text file, a document or simply any other object that can be digitized. Another NFT meaning ist that NFTs assign a label to virtual goods and use it to prove ownership of the digital asset in question.
Digital assets such as images or pieces of music can be reproduced online at any time. However, Non Fungible Token can be used to limit how many versions of a virtual item can exist. Due to the nature of the blockchain on which NFTs are stored, it is not possible to change or duplicate the Non-fungible Tokens. Each NFT is unique in itself, just as an original work of art is unique.
How do NFTs work?
NFTs are based on the same principle as the traditional collectibles market, with the significant difference that the items are intangible because they are digital assets. Here, blockchain technology is used to secure and verify transactions in a transparent manner to uniquely determine the ownership of an item. Due to the unforgeable nature of the individual data blocks of the blockchain, each NFT can be assigned a unique owner.
Similar to regular crypto tokens, NFTs also have their own value. However, unlike traditional crypto coins, Non Fungible Tokens do not serve as currency. Rather, they are images, videos, texts, songs, or something else that is unique and non-exchangeable. Unlike cryptocurrencies, which have an identical value from token to token, NFTs are unique and therefore not interchangeable.
The market determines the value of a product through scarcity, which means that the lower the supply and the higher the demand, the higher the price. Consequently, as long as the creator of the product can guarantee that his work is a unique and unrepeatable product, and offers it on the marketplace, its value will increase depending on the interest of the market.
The NFT market is based on the exclusivity of ownership. Since there are only a limited number of copies of each NFT – or even only one copy – Non Fungible Tokens are suitable as collector’s items and can be valuable investments.
What does an NFT actually look like? Here are The Top 10 Examples of NFTs.