What is NFT and how does it work?

NFT or non-fungible tokens are a new type of cryptographic asset that is unique and unlike any other token on a blockchain.

While fungible tokens like Bitcoin can be replaced by another identical token, NFTs are completely unique and cannot be replicated.

This makes them perfect for representing digital assets or virtual goods.

In this blog post, we’ll take a closer look at what NFTs are and how they work.

NFTs, or Non-Fungible Tokens, are a relatively new trend in the cryptocurrency world.

In this article, we will break down all the information needed to know about them!

Structure of NFTs

As you may already know, ERC-721 tokens are unique collectibles based on the Ethereum blockchain.

Each one is different from another and can’t be replaced with another token.

This means that they have a fixed supply and that each one of them has its own metadata (provenance among others).

If you want to read more about how to promote an NFT in general, check out this article: Promote an NFT project

Also, if you want to find out more about how NFTs work, read our blog post:

What Are the Advantages of NFTs?

When we think about creating an economic system on top of Ethereum we can’t avoid thinking about tokens and fungible assets.

However, there are only specific use cases for which they make sense like standard currencies or any other kind of tradable good.

The biggest issue with Fungible tokens is that they don’t represent ownership over something unique; one doesn’t care too much if their wallet contains a certain number of tokens or not because they can be replaced with any other token.

In this regard, NFTs are the perfect solution as each one is unique and different from another.

The main advantages of NFTs are:

– Each asset is unique and cannot be altered

– Can represent ownership over digital assets or virtual goods that don’t have a fixed supply (like a concert ticket)

– They allow developers to program complex relations between different tokens through functionality such as sub assets and multi-signature wallets

– They make possible new types of markets like decentralized exchanges for trading virtual goods or fractional property sales

As we mentioned earlier, ERC721 stands out among all Ethereum token standards due to the fact that it allows developers to create tokens with a completely different structure for each one.

If you want to find out more about ERC721, check our article: [What is an ERC 721 Token]

Disadvantages of NFTs

Of course, no system is perfect and there are some issues that have been raised regarding the use of NFTs as well.

One of the main arguments against them is that they can lead to centralization as exchanges would be able to list all the available assets and take a fee from transactions.

In contrast, other people argue that this extra liquidity could make them more attractive for investors increasing their value which in turn would make them less centralized.

One other problem with NFTs is that they can’t be divided like fungible tokens which makes them more expensive to store.

– Some of the most important disadvantages of NFTs are:

– High barriers to entry due to the non-fungibility factor

– Markets for trading virtual goods can lead to centralization as large exchanges could list all of them and take fees from transactions.

On the other hand, more liquidity would make them less centralized since more people would find out about these new markets increasing their value.

Conclusion

As time goes by there will be more different types of tokens used for many different purposes.

Thanks to ERC721 developers have the chance to create unique tokens which open up a whole new world of possibilities when it comes down to representing and trading virtual goods and other unique assets.

However, we must bear in mind that not every token needs to be a non-fungible one; it all depends on what you want to do with the token.

Some tokens like fungible ones are already perfectly fine for most use cases but NFTs can also find their place when it comes down to representing digital items that cannot be divided (like concert tickets) or creating decentralized markets for virtual goods where each asset is unique.

Leave a comment

Your email address will not be published.