A simple and comprehensive guide to understanding NFTs

Posted by EIS Blogger, in E-commerce

Recently if you have not come across the term NFT, you might be living under a rock. Based on blockchain technology, NFTs can prove to be a game-changing phenomenon across multiple industries.

Witnessing tweets and digital art of apes selling out for millions of dollars sounds bizarre, but there is much more to it. In this blog, we are going to uncover it step by step. 

What exactly is an NFT?

NFT is an abbreviation for Non-Fungible Token that represents a distinct and non-interchangeable component of data saved on a programmed ledger through blockchain technology which creates ownership proof. Blockchain technology lies at the core of all cryptocurrencies.

It assures that each NFT is unique and has authentic ownership proof. NFTs have a license that denotes the digital asset but does not necessarily indicate copyright ownership. Currently, a large chunk of NFTs is Ethereum-based, but eventually, NFTs supported by other cryptocurrencies like FLOW and Bitcoin Cash are surfacing.

An NFT is minted from using digital items that illustrate both tangible and intangible objects like:

  • GIFs
  • Graphic Art
  • Videos
  • Avatars
  • Video game Skins
  • Audio files
  • Designer merchandise
  • Collectable art pieces
  • Literature
  • Social media posts.

(Forbes Advisor)

Market conditions and demand broadly influence the value of each NFT. Hence, the transactions are similar to any other form of digital art. 

How do NFTs work? 

NFTs are non-fungible which means that, unlike physical money or cryptocurrency, one NFT is not exchangeable with another. For example, the value of $1 gives a customer $1 worth of purchasing power. This property of physical currency makes it fungible.

The same goes for items like mutual funds or precious metals; they are interchangeable with one another. NFTs are unique as every single one exists in its original form with unique properties that cannot be modified or exchanged for something similar. For instance, a unique piece of digital art is the only one in the world. The element of rarity and the community acting as their driving force determine the value of NFTs.

What is the connection between blockchain technology and NFTs?

Understanding the mechanism

Blockchain is the base technology for any cryptocurrency. A blockchain is a decentralized ledger that records transactions shared across multiple computers connected through a peer-to-peer network. DLT (Distributed Ledger Technology), the core technology behind the concept of blockchain technology, records each transaction on the blockchain with an irreversible cryptographic signature referred to as a hash.

Once the NFT datum or piece of information is recorded in the blockchain, any user on the blockchain can trade these NFTs. The digital ledger keeps a record of all the transactions on a specific blockchain, which includes transactions related to NFTs. A blockchain does not necessarily store these digital assets but only records ownership proof. Creators or copyright owners of an NFT can freely place their digital assets at any location of choice.

What influences the price of an NFT?                  

The price of an NFT precisely depends on demand and supply. Apart from the properties of rarity, utility and tangibility as dictated by Binance, several other factors influence NFT prices. Some of them include investment potential, cultural significance and popularity of the creator.

In layman's terms, it is the build-up buzz around the NFT, the interest of bidders and the popularity of the NFT. Creating, maintaining and consistently generating a positive hype play a critical role in adding to its value. A few years back, it would have been impossible to imagine the value of a tweet to be in millions. Jack Dorsey, the founder of Twitter made that happen when he sold the first tweet as an NFT for a value of over $2.9 million to Sin Estavi, the CEO of Bridge Oracle.

As baffling as it may sound, when you inspect Mr Dorsey's tweet in light of the factors determining the price of NFTs, it meets each criterion. His rationale was to press upon the strongly emerging potential of NFTs in the world of cryptocurrency and technology.

Why are people investing millions in NFTs?

As NFTs started to gain prominence, they were digital creations already present in some format at some location. For instance, video clips of legendary NBA games or the securitized renditions of digital art. Later, artists like the boy band- Kings of Leon released their album called "When you see yourself" as an NFT on the very day of the launch. It generated 820 ETH- $1.45 million then.

The NFT came with possessing an exclusive version of the album, alongside exclusive digital art pieces and concert passes for a lifetime. The very popular Bored Ape Yacht Club (BAYC), commonly known as Bored Ape, is an Ethereum-based NFT that features privileges like access to a private online club, exclusive events, and intellectual property rights for using the image. Some of the notable owners of this Bored Ape NFTincludes Paris Hilton, Madonna, Snoop Dogg and Justin Bieber.

The legendary digital artist Mike Winklemann, famously known as "Beeple" created an art piece called Everydays: The First 5000 Days’ by accumulating 5,000 day-to-day sketches. This piece proved groundbreaking as it was sold at a whopping $69.3 million, marking the most expensive NFT deal as reported by Binance.

The question that emerges at this staggering figure is why would anyone spend multi millions on an image that can be downloaded and zoomed in from various internet locations? It all makes sense when we view it in the light of blockchain technology, as it is what grants exclusive ownership right for digital art to an art collector, similar to any physical art piece. It gives immutable ownership proof to the collectors. This ownership proof is immensely significant to a collector. At times, more than the art piece itself.

What does the future hold for NFTs?

Are Non-Fungible Tokens a fad? There are plenty of opinions on the subject. Fintech News shortlisted multiple scenarios whilst forecasting what the future of NFT seems to be.

Steady market stabilization- It is human nature to resist change. We once resisted switching from physical keypads to touchscreen mobile phones. Similarly, there is a strong probability that apprehensions toward currency and NFTs will diminish with time. 

NFTs take over as the most preferred digital assets- We are on the brink of yet another web revolution, colloquially called Web 3.0. The era of the metaverse is beginning, and at this pace, the popularity of virtual real estate and virtual stock transactions is likely to rise in the years to come. 

Gaming becoming mainstream- Online gaming holds immense potential when we see it in the light of exploiting NFTs. The skins, the avatars, the arsenal and other rare assets have a huge demand in the online gaming industry. It holds phenomenal implications if the players pay for monetary benefits instead of mere leisure.

NFT market plummets and crashes down-  A vast majority of people feel that a JPEG file or a GIF can never replace the feel of owning a classic physical art for a collector. Hence, they believe that NFTs and for that matter, Cryptocurrencies are a fad that will become extinct with time. 


It would be too rash to call NFTs a mere fad. Our interpretation is not based on the role NFTs are playing in transforming the concept of collecting art pieces. Keeping in view the element of security they offer and the vast avenues they pave in terms of online transactions. NFTs will thrive eventually, as their purpose will diversify commercially. 

They are a breakthrough in the world of digital assets, unaffected by the prices of other cryptocurrencies and a consistent increase in the number of use cases. Moving ahead of art, NFTs can influence mainstream businesses. It can reform ownership proofs of business transactions, real estate, stocks and more through an authentic and glitch-free channel. Like all innovations, NFTs will become mainstream with technological enhancements and diversification with respect to utility.