7 min read


What are NFTs and how do they work?

NFT stands for "Non-Fungible Token”, and it refers to a system that allows the certification of the existence and ownership of a digital asset within a digital registry.

In our previous article, we explained what Blockchain technology is and briefly touched upon what NFT is. However, in this article, we will delve deeper into the subject.

Before we get technical, we need to understand two core elements. Firstly, we must understand what we mean when we say that a good is "non-fungible" and what a token is. Once we have established this, we can move on to more complex topics.

In this article:

The differences between fungible and non-fungible goods

To understand NFT meaning, we must first understand what a fungible good is and provide examples. Fungible goods can be substituted by equivalents based on their number, measure, or weight, and they "run out." For example, money is a fungible good because a $100 bill can be replaced by another $100 bill or two $50 bills, and if you buy something with it, the money is used up.

Similarly, flour, sugar, and wine are fungible goods because they can be replaced by other flour, sugar, or wine. Once these goods are utilized to make a pizza or a cake, they are used up. Clothing is also a fungible good because it deteriorates or wears out, but we can replace it with another item of the same kind.

According to Article 232 of the Argentine Civil and Commercial Code, "fungible goods are those in which every individual of the species is equivalent to another individual of the same species, and can be replaced by others of the same quality and in equal quantity."

Now, let's consider what non-fungible goods are. Something is non-fungible when it cannot be exchanged for an equal because it is unique, and there is no identical item. Therefore, there is no "agreed" value, but the owner can assign a value to it. Non-fungible goods are also non-consumable, they do not wear out, nor are they exhausted with use.

NFT examples include works of art, houses, a soccer jersey signed or worn by Messi, and even memes or tweets. According to the NFT Bible, the main difference between fungible and non-fungible goods is whether or not they can be replaced in case of destruction. In that sense, fungible goods can be replaced, but non-fungible goods cannot.

What is an NFT?

After understanding the concept of "non-fungible," let's explore what a NFT security token is and what it implies. Once we deconstruct these concepts, we can reconstruct the meaning of NFTs.

A token is a digital asset that is conceptually similar to a bond or shares in the stock market. It is non-physical money that can be exchanged for paper or held in a bank account. However, it has no inherent value and requires a specific context to determine its worth.

A Non-Fungible Token, or NFT, is a digital asset that does not have value in the traditional market but is determined by the context in which it exists. It is unique, and no matter how many copies are made, there will only be one original owner. The value of an NFT lies in the idea of possessing the original asset.

Typically, those who purchase NFTs are art collectors, or individuals invested in a project, real estate, a club, or a particular brand.

What is the difference between a token and a cryptocurrency?

The primary difference between NFTs and crypto is that the former do not have their own network and are instead added to an existing network, while the latter works from their own network. They generally operate through Ethereum networks created for smart contracts.

Besides, digital currencies can be operated by individuals, while tokens are issued by private entities for a specific purpose, such as a trust, club assets, etc.

Furthermore, cryptocurrencies have inherent value, while tokens' value depends on the context in which they are registered. They can be compared to casino chips: within the casino, they have value; but outside of it, they do not.

If you still have questions about cryptocurrencies, we recommend reading our first article on the subject.

How do Non-Fungible Tokens work?

NFTs work similarly to cryptocurrencies, utilizing blockchain technology. As we explained in a previous article, hacking the system would require altering millions of records on the blockchain, which is incredibly difficult and expensive, since there are millions of computers guaranteeing it cannot happen.

What makes NFTs unique is their author, much like a work of art. Even if an exact copy is made, it loses context, such as the creator, history, original materials, etc.

In the case of Non-Fungible Tokens, the blockchain registry shows that the asset belongs to a specific person, and although it is duplicated, it is not the original. The identification code of a replica will be different because NFTs are unique and unrepeatable, and any modification, no matter how small, will change the token.

Blockchain technology ensures that NFTs are original and impossible to alter or copy.

How much is an NFT worth?

There is no single answer to this question. An NFT is worth as much as its creator considers it to be worth. Nowadays, many people invest millions of dollars in Non-Fungible Tokens, which tokenize digital goods.

Some of the most well-known NFT examples include virtual works of art, music, electronic games, and GIFs. The most popular platforms to purchase these assets are Enjin Coin, CryptoKitties, Flow, and Decentraland. The latter is not discussed in this article, but we recommend exploring it as it offers various commercial possibilities, such as job opportunities, land purchases, and event organization.

It is not necessary to be an acclaimed businessman to invest in NFT. In fact, former basketball player Michael Jordan and actor Will Smith invested millions of dollars in Dapper Labs, the manufacturer of NBA Top Shot, to buy NFL games. Similarly, Cristiano Ronaldo wanted to have his own NFT; Steve Aoki created virtual teddy bears that emit their own music; and Ozuna did not lag far behind them.

Where to buy Non-Fungible Tokens?

There are over 100 platforms to buy NFTs. Thus, there is no official NFT marketplace to buy from, but you must visit the website of the token you want to purchase.

Some of the best-known NFT markets include OpenSea, CryptoKitties, Decentraland, Rarible, Mintable, and Makersplace.

To acquire an NFT, you can either buy an existing token or create your own. In either case, you must have a virtual wallet with funds in dollars or cryptocurrencies.

How to buy NFTs? To buy NFTs, you must visit one of the sites mentioned above and create a user account. The purchasing process will depend on the platform you are using. Generally speaking, you must link your virtual wallet beforehand to purchase an NFT.

We hope this information has been useful, and if you have any questions about NFTs or want to learn more about XOOR, please contact us at hola@xoor.io, or through our LinkedIn, or Twitter.