How do NFTs work? And how to buy/sell them?

Sunday morning. You get ready to attend one of the most beautiful events in modern football. Barcelona playing against Real Madrid at the Camp Nou stadium. You have your tickets, everything is ready. They are good tickets, close to the field. The game is full of excitement and Barça wins by a goal scored by Messi.

When you are about to head back home; Messi throws his shirt to the crowd, and you catch it. Not only that, Messi had signed this shirt. It is unique, unreplaceable, no way someone else can come up with the same shirt that Messi wore that day and signed by himself.

Credits: grays.com

NFTs, or Non-Fungible Tokens, are unique assets like Messi’s signed shirt. More formally, NFTs are cryptographic assets that live on a digital ledger (blockchain). And similar to Messi’s sign on your shirt, NFTs contain metadata that is unique and allows differentiating the asset from another one. That’s what “non-fungible” is about.

If we continue with Messi’s shirt analogy and without stretching it too far, you would be able to re-sell it later. Same happens with NFTs. The difference is that NFTs also contain ownership details for easy identification and transfer between token holders.

How do NFTs work?

Any digital file can be easily duplicated. So, in order to achieve uniqueness, we need to add something that makes it unique. In NFTs, the token is the non-repeatable part. It is a certificate of ownership that can be bought and sold. And stored securely in a digital ledger, so everybody knows who owns it. [4]

How can I buy/sell NFTs?

This is the most interesting question, and the one that brings more complex concepts to the table. There are 3 key concepts to understand.

First, you need money, but not any kind of money; you need a cryptocurrency. This is a medium of exchange represented digitally in 1s and 0s (called binary data) [2]. There are many cryptocurrencies, and the first one to support NFTs was Ethereum.

Alright, once you have Ethereum’s. Secondly, you require a way to store it to be able to transact. Here is where it comes, the digital wallet. It is a place where you can store your private and public keys to be able to buy and sell.

The third concept to grasp is the NFT marketplace. Similar to what happens in real life, you require a place where buyers and sellers meet. The marketplace takes care of digital items whose ownership is managed by the blockchain. Some well known are OpenSea, Rarible, and SuperRare.

An NFT transaction explained

Finally, we put all ingredients together. How do you buy/sell NFTs? Open an account in your preferred NFT marketplace and pay with your crypto’s from your digital wallet.

Copyright

Ownership of an NFT does not inherently grant copyright or intellectual property rights to whatever digital asset the token represents. In that sense, an NFT is merely a proof of ownership that is separate from a copyright. [1]

Technology applications

Some of the most prominent applications are digital art, music, in-games assets, films and some others (e.g. internet memes).

The most expensive NFT ever sold so far is the NFT associated to the following image (Everydays: the first 500 days by Mike Winkelmann). It was sold for $69.3 million.

Everydays: the First 5000 Days by Mike Winkelmann (a.k.a. Beeple)

References

  • [1] Non-fungible token by Wikipedia
  • [2] Cryptocurrency by Wikipedia
  • [3] Non-fungible tokens (NFTs) by Investopedia
  • [4] The NFT handbook by Stefano Fit

Disclaimers

This is a personal article. The opinions expressed here represent my own and not those of my employer. It may contain affiliate links. If you use these links to buy something, I may earn a commission. Thanks.

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Pablo Iorio

Pablo Iorio

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I enjoy thinking and writing about Software Architecture. To support my writing you can get a membership here: https://pablo-iorio.medium.com/membership