What Is An NFT? How Do Non-fungible Tokens Work?
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What Is An NFT? How Do Non-fungible Tokens Work?
Investing Basics
September 12, 2022

What Is An NFT? How Do Non-fungible Tokens Work?

So you know what a blockchain is, and you know that it's changing the way we do things – but what exactly does that mean? What are the individual parts of a blockchain, and how do they work together?

We're going to take a look at one of our favorite types of tokens: non-fungible tokens (NFTs). NFTs can be used for all kinds of things; for example, they're often used in video games to represent in-game items or other items with value. But how do they work? And how do they fit into the broader picture of blockchains?

Let's start by defining NFTs.

What Is an NFT?

Non-fungible tokens are an exciting development in cryptocurrency. They allow for the creation and ownership of unique digital assets and provide a glimpse into how we could own our personal information in an increasingly digitized world.

When you buy a non-fungible token, you're buying ownership of an asset that can't be duplicated or copied. It's like buying a piece of art: once you own it, no one else can have it. Each token is unique and tied to its owner through blockchain technology.

How Do NFTs Work?

NFTs offer various use cases, depending on their type and what they do. For example, you could use one type of non-fungible token to secure access tickets or concert passes that are only valid for a specific individual. Another type might represent ownership over a piece of art. 

The possibilities are endless!

A good example of everyday use for NFTs is in video games. For example, you might buy an item with a specific number that represents your character's value. You can then sell or trade that item with others, but only once it’s used.

A non-fungible token (NFT) is a digital asset with unique value. No one can copy it, so an NFT cannot dispute its owners. NFTs are like collectibles, but they're digital. They can serve as rewards or as currency in games and apps.

As mentioned earlier in this article, non-fungible tokens are usually related to blockchain technology, which means they're decentralized and distributed across the internet. Since no central authority can control them, they're thought of to be more secure than traditional currencies like dollars or euros. Having said that, at the moment, it is very unclear whether NFTs will ever replace conventional money as the primary way we pay for goods and services.

NFT stands for non-fungible token. Non-fungible tokens are unique digital assets that anyone cannot replace with something of equal value. They hold many types of value, including financial value or other forms of digital ownership.

Is An NFT Investment Legit?

It depends on who you ask. If you're a cryptocurrency enthusiast, non-fungible tokens are legitimate. They're another digital currency that can be used for trading or investing. An NFT investment is not a scam. 

However, other types of NFTs are usable for different purposes. For example, NFTs (non-fungible tokens) can represent authentic world items like art and property. Tokenizing these tangible assets makes buying, selling, and trading them more efficient – while reducing the risk of fraud. 

NFTs are also used to create unique identities for people or their possessions.

Why Do People Buy NFTS?

People buy non-fungible tokens for many reasons. The most common reason is that they believe that the value of their NFTs will increase over time.

Since only one person can own an NFT, these serve as collectibles and limited edition artwork. Some people partake in auctions and bid for limited edition NFTs for costly bids.

What does an investment in NFTs entail?

You could theoretically make money from NFTs in two ways. First, you could trade them in exchange for other cryptocurrencies or fiat currencies such as USD or EUR; this is the most common way because they are liquid assets that you can use in many places.

An NFT exchange is similar to how stocks work, where you hold onto them and receive regular dividends. If you're interested in more passive income streams, you might consider investing in NFTs like Axie Infinity and Decentraland.

Another way to make money off of NFTs is by trading them. There are many different types of NFTs, so the market for these assets constantly fluctuates. If you're an excellent market observer who can predict which trends will come to dominate the financial world, then trading is worth considering.

The other way to make money off of NFTs is by collecting them. There are many different kinds of NFTs, and each has its unique appeal. For example, if you have a favorite game or franchise, you might want to collect some of its NFTs.

Recommended: Pros and Cons of Investing in NFTS

Where Can I Buy, Sell and Trade an NFT?

Many different websites allow you to buy and sell non-fungible tokens. Of course, the official marketplace for any game featuring NFTs is the most popular option among crypto asset traders, but there's also a growing secondary market on platforms like OpenSea. 

Should I Start Investing in an NFT?

While we lean towards a solid yes, you must take into consideration your financial goals and see how an investment into an NFT would affect your overall portfolio. NFTs offer a level of interactivity that traditional investment option lack and will only grow in popularity as we move forward into the future.

If you want to invest in NFTs, you should start with gathering more information, for eg: you could look for NFT projects that back a cause you relate to. Read reviews and articles about specific NFTs and look into how they developed and what makes them unique. Although investing can be intimidating, researching the field and finding out what's most likely to bring a return is the best way for beginners to get started. 

Like any investment option, there are also some risks associated with NFT investments. NFTs are available for sale on many platforms, be sure to always check and re-check the legitimacy of it before buying one in order to not be scammed. When an investor buys an NFT, the hope is of course that the price of it will increase over time, but also consider the other possibility - NFTs are a volatile asset and prices keep fluctuating very often, so it is also possible for an NFT holder to lose money with this investment. 

Having discussed NFTs, their risks, and what they can bring to you - it is now time for you decide whether NFTs should be a part of your investment portfolio. NFTs have just started to bloom, and we are positively hopeful that of seeing some upgrades in order to counter the above-mentioned risks.


This blog is for educational purposes only. The information we offer does not constitute investment advice. Please always do your own research before investing. 

Any views expressed in this blog and by BOTS do not constitute a recommendation that any particular cryptocurrency (or cryptocurrency token/asset/index), portfolio of cryptocurrencies, transaction, or investment strategy is suitable for any specific person.

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