How do NFTs Work?
NFTs, or Non-Fungible Tokens, are unique digital assets that represent ownership of a specific item or content on a blockchain. Unlike cryptocurrencies like Bitcoin or Ethereum, which are fungible and can be exchanged for one another, NFTs are distinct and cannot be replaced by an identical item.
The creation of NFTs involves a process called tokenization, where digital representations of assets are recorded on a blockchain. This process ensures authenticity and ownership, as blockchain technology provides a transparent and immutable ledger. When an NFT is minted, it is assigned a unique identifier and metadata that distinguishes it from other tokens.
Smart contracts, self-executing contracts with the agreement terms directly written into code, govern NFTs. They outline the terms of the sale, transfer, and royalties for creators. This feature empowers artists and content creators, allowing them to earn recurring revenue from future sales.
NFTs can represent various digital items, including artwork, music, gaming items, and virtual real estate. The appeal of NFTs lies in their ability to provide verifiable ownership and provenance, making them highly sought after in the digital economy.