A Beginner’s Guide to Nonfungible Tokens (NFTs)

If you’re not familiar with the term “nonfungible tokens,” don’t worry; you’re not alone. NFTs are a relatively new concept that is still in its early stages of development. However, they are revolutionizing the marketing industry as we know it. In this blog post, you will find a guide to what nonfungible tokens (NFTs) are, where they originated, and how they can benefit your business marketing strategies.

An Introduction to Nonfungible Tokens (NFTs)

NFTs are a type of cryptocurrency that is unique and “non-fungible,” meaning they are provably unique. They are used for digital collectibles, digital art, and other digital assets because the application of NFTs gives these assets their own distinct identities and makes them unlike any other. Since their inception, NFTs have exploded in popularity and are now being used for a variety of different digital applications, including, but not limited to: collectibles of all kinds, artwork, and music, gaming items, and even voting.

Before going further into what NFTs are, it’s important to understand the basics of what blockchains and keys are, as they are the technology from which NFTs are born.

Blockchains & Keys

Blockchain is the crucial technology behind NFTs and, in simple terms, is a digital ledger of transactions called blocks that cannot be changed once a block has been verified and added to the chain. The verification process for adding new blocks is called mining, and it requires quite a bit of computing power.

Blockchain technology was first introduced in 2009 with the release of Bitcoin and is what gives NFTs their unique identity. Applying cryptography, a string of unique characters called cryptographic hash, links a newly-verified block to the previously-verified block. This creates an unrepeatable chain that is nearly impossible to be tampered with.

Transaction record blocks are chained together with these provably unique hashes and stored as a Merkle tree, a type of digital data structure. NFTs are created when a new block is added to the blockchain. Blockchains make NFTs so secure because of how difficult, if not impossible, it is to change past transactions without breaking the entire chain, damaging its authenticity.

There are two keys involved in a blockchain-based transaction that allows for the authenticity of a digital artifact to be verified and its past records to be quickly retrieved: a public key and a private key.

The public key is essentially the address of the digital asset, is used to encrypt messages and verify ownership, and can be shared with anyone. The private key is used to sign off on a transaction, similar to a signature on a paper document, and should never be shared with anyone. Only the private key owner can sign a message with it, proving they are the true owner of an asset. Without both keys, it’s impossible to verify whether or not an artifact actually exists and has not been altered or stolen.

Now that we have a basic understanding of blockchain let’s take a deeper look into NFTs.

What Are NFTs?

As briefly mentioned above, NFTs are created when a new block is added to a blockchain. Each token is linked to a specific block, and when it is transferred, the new owner has to verify the transfer on the blockchain.

According to Merriam-Webster, NFTs are “a unique digital identifier that cannot be copied, substituted, or subdivided, that is recorded in a blockchain, and that is used to certify authenticity and ownership (as of a specific digital asset and specific rights relating to it).”

In other words, NFTs are distinct and cannot be replicated. This is what makes them so valuable. They can be used to reliably certify and protect the authenticity and ownership of any digital asset.

A Brief History of NFTs

NFTs were first created on the Ethereum blockchain in late 2017. At the time, there were no digital assets that couldn’t be copied or subdivided. In an attempt to create digital scarcity for an online game called Cryptokitties, NFTs were introduced. The game allows players to breed, buy, sell, and trade one-of-a-kind digital cats and became immensely popular from the day it was released.

Cryptokitties was a huge success, with over $12 million in sales during its first month and at its peak, had over 25,000 active users. What made Cryptokitties so unique was that each 256-bit genome digital cat could not be replicated and, when bred with another, gave way to approximately four billion possible unique offspring.

The Cryptokitties application of NFTs makes them authentically unique digital assets that cannot be divided. Since then, the technology has been applied to many other types of digital collateral, such as artwork, event tickets, social media posts, and newspaper columns.

The Application of NFTs Today

Today, NFTs are being used for a variety of purposes outside of digital collectibles, including identity verification, secure file storage, and marketing. They are seen as the next step in the evolution of digital assets and hold a lot of promise for the future.

Paying for an NFT means the token is yours, and the original copy of a digital file can be transferred to your personal digital wallet. The public key is the certificate of authenticity for the creator of the digital asset, and the private key is the proof of ownership of the original copy of said digital asset. The interaction of the public and private keys prevents theft and fraud of digital assets and what ultimately determines the value of the token.

The Value of NFTs is Speculative

Unlike other cryptocurrencies, the value of any NFT is based on simply what someone is willing to pay for it. Therefore, an NFTs value is not set but rather determined by a variety of factors, including but not limited to:

Rarity – If there are only a few copies of an asset in existence, it will be more valuable than if there are many.

Use Cases – How the token is being used affects its value. For example, tokens that are used for digital collectibles will be worth more than tokens that are only used for identity verification.

Supply and Demand – The amount of a token in circulation and the demand for it also affects its value.

How Businesses Benefit from NFTs

NFTs are digital assets that cannot be copied, subdivided, or replicated and because of this, they offer businesses a new way to securely store, transfer, and manage digital assets.

They provide an extra layer of security and authentication that is not found with traditional digital assets. For example, if you were to send a digital asset like a PDF to someone, you would be trusting that they will not be able to make copies of it. However, with NFTs, the file is stored on the blockchain and can only be accessed by the owner of the private key associated with it.

Additionally, NFTs can be used for marketing purposes to create unique and one-of-a-kind experiences for customers. With this revolutionary technology, businesses can create limited edition products that can only be purchased with NFTs – giving customers a sense of exclusivity and can increase demand for the product.

The Takeaway

Nonfungible tokens offer a number of unique benefits that make them well suited for a variety of different applications. Their uniqueness makes them perfect for digital collectibles, while their proof of ownership and portability makes them ideal for digital assets. NFTs are quickly becoming one of the most popular types of cryptocurrency, and it’s easy to see why.

About Lisa | Spherical Strategies Content Creator & Copywriter Lisa works with Spherical Strategies as a content creator and copywriter. She brings a deep understanding of human motivation to her mastery of writing by utilizing her education in market psychology. She has worked over the past several years as a private contractor, providing industry-specific content and editing for companies of all sizes. Outside of her work as a content creator, Lisa is passionate about caring for her young son and is only slightly obsessed with gardening.

If you’re looking for more ideas on how to use digital marketing and nonfungible tokens for your business in 2022, be sure to check out our website! Not only do we have information about new digital trends and NFTs, but we also offer free consultations to see how Spherical Strategies can help you achieve your digital marketing goals in 2022!