Home General What Are NFTs And How Do They Work?

What Are NFTs And How Do They Work?

NFT or Non-Fungible Token is probably one of the most heard terms in the last year and also one of the most difficult to understand. What are these non-expendable assets? Why have they created a small-big revolution? What impact can they have on our economy?

To understand how these NFTs work, it is critical to know the difference between expendable and non-expendable property. NFT มีอะไรบ้าง? The first are those that can be exchanged, that is, they have a value based on their number, size or weight. The seconds, on the other hand, are not replaceable.

Money is an example of a fungible good, since a 50-euro bill is interchangeable with another of the same kind. In exchange it never loses its value. Also, the ticket is something that is consumed when you use it. A work of art, however, is an example of a non-expendable good, since a painting is not consumed when it is used and it cannot be replaced by another painting of the same type. A work of art is not equivalent to another, so it can never be exchanged, as is the case with a 50-euro bill.

What are NFTs?

The NFT (non-fungible token), therefore, will represent a non-exchangeable or non-consumable value. Now, what does that mean by token?

Tokens are units of value that are assigned to a business model, such as cryptocurrencies, with the exception that they are fungible assets. That is, an NFT and a bitcoin are tokens in that they can be bought and sold, like gold. And like this one, they raise their price when the number of buyers increases and lower it when it decreases.

But a bitcoin in the end is a bitcoin, and can be exchanged for another without problem, like a gold nugget. However, a good made of gold, such as a necklace, is unique, which is why it is assigned a particular price. An NFT is like that well done in gold. A unique asset that cannot be modified or exchanged for another that has the same value because no two NFTs are the same, just as no two Giocondas or two Hearts of the Sea are the same.

If you wanted to get the Mona Lisa, you would have to go to the Louvre, and only to the Louvre, and you could only buy it if it was for sale. You could get a copy, but it would have another value, since it is not the original. And that is exactly what the NFT does, but digitally.

NFTs are often attached to some digital works or artwork. Its price is really what people want to give it, and now that they are at a peak of popularity, we can find people willing to pay 260,000 euros for the drawing of a rock attached to an NFT.

How NFTs Work

The other great similarity of NFTs with cryptocurrencies is the use of blockchain technology, that large decentralized network of computers, with blocks or nodes linked and secured through cryptography. Each block links to a previous one, as well as to a date and transaction data, by design, resistant to external modification.

NFTs are assigned a kind of digital certificate of authenticity, a series of metadata that cannot be modified. In these metadata its authenticity is guaranteed, the starting value and all the acquisitions or transactions that have been made are recorded, as well as the author.

This means that the purchase of digital content tokenized with NFT will at all times record the first value it had, and how much it was purchased for. In general, most tokens or NFTs are based on the standards of the Ethereum network and its chain of blocks, which facilitates buying and selling operations from the use of cryptocurrency wallets.

Why Do People Buy NFTs?

All in all, an NFT is not as easy to buy as a Bitcoin as it is not fungible. So why do people spend so much money on them? Well, it’s simple: because they believe that their value will increase over time and later they can sell them for more money. Nobody spends 260,000 euros for a kitten meme because they like cats, but rather for the value that the artifact may have in the future as an NFT, as a unique asset.

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