What is an NFT, and how does it work?

NFT stands for Non-Fungible Token, a type of blockchain token with unique features and use cases. 

These tokens are also called AppCoins, Crypto Collectibles, or ERC-721 tokens. But what are they, exactly? And how do they work? Read on to discover more about the power of this new token type.

What does NFT mean?

For example: If we have 2 tokens, one being a dog token with grey fur and another being a cat token with white fur, these are non-fungible tokens because they are not interchangeable. 

It means no matter what, you cannot change one cat token for another. In other words, if I give you my cat token, I do not expect to receive your dog token in return. 

It is important to note that there can be fungible tokens as well - these are interchangeable assets such as Bitcoin or Ethereum, which can be exchanged at any time.

What are NFT coins?

There are two main types of digital tokens: fungible (or fungos) and non-fungible (or NFTs). 

The most famous example of a fungible token is bitcoin, which can be exchanged for any other bitcoin. Ethereum, on the other hand, supports dozens of fungible tokens that you can use to buy access to a network, such as Golem, or trade energy on a network like Electrify Asia. 

Non-fungible tokens, by contrast, represent unique assets or items in games—think CryptoKitties—and they can't be substituted for each other. 

You could own 10 CryptoKitties with slightly different attributes, but they're all still CryptoKitties; they have somewhat additional features. Because of their uniqueness, NFTs are sometimes called crypto-collectibles or non-currency blockchain assets.

Why do people buy NFT?

The first reason why people buy NFT is that they want to support their favorite artist or game. 

It's a way for players to donate money to their favourite game developer, streamer, or musician. 

Every time someone buys a Non-Fungible Token, part of that revenue goes back to whoever created that Non-Fungible Token. 

It creates a virtuous cycle where creators are incentivized to make more quality content.

Is NFT a Cryptocurrency?

No, non-fungible tokens are not a cryptocurrency. They are powered by Ethereum's smart contracts (ETH), but they are only available on a few exchanges and platforms. 

NFT cannot be mined as cryptocurrency tokens can; they do not have individual values like cryptocurrencies or trade as highly valued assets. 

All in all, there are many fundamental differences between non-fungible tokens and cryptocurrencies.

How do you make money with NFTs?

There are two ways to make money with non-fungible tokens. The first way is to create a game or entertainment platform, like Cryptokitties. 

The other option is acting as a middleman on trades between different parties by providing market liquidity. 

Anyone can participate in transactions, but only market makers can profit from fees generated by trade execution. 

In both cases, if you start your platform, it will be challenging to grow since there aren't many users of blockchain games yet.

Are NFTs a good investment?

Each blockchain has its cryptocurrency that runs on a network. However, each token has different properties, whether a security or utility token. 

As such, there's no hard-and-fast rule about whether or not these tokens are good investments for you. 

Some people look at price charts and predict whether a certain token will increase in value over time. Others examine market cap and team size to determine if a particular token is viable. 

Ultimately, it comes down to your risk tolerance and willingness to lose money (which can be substantial). 

If you're considering investing in a new token, do your research first—but don't let the fear of losing money stop you from taking risks.

What is an example of NFT?

An example of NFT might be a digital version of your dog. It looks like your dog, moves, acts like your dog, but isn't your dog. 

You can take care of it; you can play with it; you can even give and get items from it —but in reality, you don't own that thing anymore. 

Instead, you have what amounts to a license for its use. In many ways, non-fungible tokens are similar to video game items: they have real value (in some cases), are unique (they aren't copyable), and can be traded or sold on open marketplaces. 

But while video games may use them as part of their internal economies, non-fungible tokens are not limited by any platform or game.