What is NFT?
In many ways, NFTs are not very similar to traditional digital currencies such as Bitcoin, Ethereum, and Dogecoin. This is because NFTs are represented as digital assets and operate on blockchain networks.
This will allow NFTs to be transferred from wallet to wallet quickly, securely, and cheaply. Also, being built on a blockchain network, NFTs are auditable in a transparent manner. However,
NFT differs from the above digital currencies in that each token can be identified via a unique transaction hash. Simply put, this means that no two NFTs are the same.
As such, NFTs are ideal for storing real-world values. On the other hand, virtual currencies like Bitcoin are fungible. In other words, exchanging 1 BTC for 1 BTC does not change much. This means that the wallet still has 1 BTC worth.
However, in the case of NFTs, tokens are said to be non-fungible as they have no relation to other circulating digital assets. How do
How do NFTs Work?
Now that we've covered the basics, let's dig a little deeper into how the best NFTs work.
If you're thinking of buying his NFTs yourself, it's important to understand exactly how this niche blockchain sector works before you take the risk.
Fungible vs Non-Fungible
The section above briefly explained the difference between fungible and non-fungible tokens, but here are some more details. In short, the physical dollars and cents we buy every day are interchangeable.
Example:
Let's say you have a $20 bill, but need a machine change. You only need one dollar bill for this.
So have someone change his $20 bill for a smaller denomination. Instead, you receive 5 $10 bills, 5 $5 bills, and 5 $1 bills.
In the end, you will see a different bill than the original $20 bill, but the value has not changed.
This is because there is still a total of $20 available.
As in the example above, cold cash is a viable asset class. And the same can be said for almost all cryptocurrencies in circulation today.
However, as we have discovered, NFTs are not a viable asset class. This means that one NFT cannot be exchanged for another and is expected to maintain the same value - as each token is unique.
Example:
An artist creates a new physical painting.
The artist then decides to create her NFT representing the value of that painting.
This means that the NFT is unique to the painting and cannot be imitated or copied.
Again, this is because the unique transaction hash verifies the authenticity of each NFT.
Of course, more on this later, but NFTs can represent just about anything with perceived value. Whether it's virtual paintings, homes, cars, or sports moments, NFTs allow you to store your assets digitally.
Blockchain Protocol
All the best NFT tokens are hosted on blockchain protocols. To date, many NFT creators prefer his Ethereum blockchain. Especially since it supports ERC-721 tokens. In short, this particular subset of the Ethereum blockchain is perfect for NFTs as each ERC-721 token is unique.
Apart from that, several other blockchain networks have started supporting his NFTs, such as Binance Smart Chain. Many argue that the latter is the better choice for buying and selling the best NFT tokens, especially since Ethereum transaction fees are often very high.
NFTs vs Cryptocurrency
The terms NFT and cryptocurrency are often used interchangeably. Finally, both phenomena are represented in digital form, built and stored on blockchain protocols.
However, in most cases, crypto assets are virtual currencies. In other words, you can use it like Dogecoin.
In other words, if he buys $100 worth of Dogecoin from two different brokers, there is no difference between the two sets of tokens he receives. Because two separate Dogecoin tokens will always have the same value at the current market value.