How do NFTs Work?
Non-Fungible Tokens (NFTs) represent unique digital assets on a blockchain, primarily utilizing Ethereum's blockchain, although other blockchains also support them. Unlike cryptocurrencies like Bitcoin or Ethereum, which are fungible and interchangeable, NFTs have unique properties that distinguish one from another.
Creation (Minting)
NFTs are created through a process called minting, where digital content is converted into a token on the blockchain. This process involves uploading the digital file (artwork, music, virtual real estate, etc.) and generating a unique token that signifies ownership and provenance.
Ownership and Provenance
Once minted, each NFT is recorded on the blockchain, providing proof of ownership. The blockchain's decentralized nature ensures that this information is tamper-proof and transparent. The NFT's metadata, including ownership history and characteristics, is securely stored on the blockchain.
Buying and Selling
Ownership can be transferred through a marketplace where users can buy, sell, or trade NFTs. This ecosystem enables artists and creators to monetize their work directly, often using cryptocurrency for transactions.
Smart Contracts
NFTs also leverage smart contracts, which are self-executing contracts with terms encoded directly into code. This allows for features such as royalties where creators can earn a percentage of future sales.
In summary, NFTs work by providing a unique, verifiable ownership model for digital assets, which is enabled through blockchain technology.