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What is an NFT? What Businesses Should Know about Non Fungible Tokens

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Last editedMay 20223 min read

If you’ve been following cryptocurrency payment trends lately, it’s likely you’ll have seen and heard about non fungible tokens, or NFTs. What is an NFT, and could investing in this type of digital asset benefit your business? Here’s a breakdown of NFTs, their pros and cons, and how to invest in NFT technology.

What is an NFT?

NFT stands for "non fungible token". NFTs can be thought of as the certificate of ownership for any unique digital asset, be it a piece of art, a game, specific text, or even a meme.

From video clips to gaming avatars, an NFT can take on many forms. To better understand what an NFT is, it’s helpful to first look at the difference between the terms ‘fungible’ and ‘non fungible’. Fungible tokens include digital assets or cryptocurrencies like Bitcoin and Ether. These are secured using blockchain technology and are interchangeable with one another. For example, you might borrow one Bitcoin from a friend and then repay it later – it could be a different token provided it was still Bitcoin.

Non fungible tokens, on the other hand, are individual and unique. Each NFT is an individual piece of code unlike any other NFT. While fungible tokens have value assigned to them, NFTs only reflect what someone is willing to pay for them. Fungible tokens can be interchanged like currency, while non fungible tokens must be bought and sold like property.

Non fungible tokens explained

No matter the form it takes, the NFT is stored on the blockchain. That means that anyone can view an NFT’s ownership, which is part of what gives it value. NFT traders can buy and sell their non fungible tokens using digital marketplaces like SuperRare and Nifty.

The value associated with NFTs fluctuates widely, with a fast-paced trading market online. Digital artwork can be particularly lucrative. A prime example is artist Beeple, who sold his NFT entitled Everydays: The First 5000 Days for a staggering £50 million.

How to create non fungible tokens

What does this mean for your business? Can your brand cash in on the NFT trend? It’s simple to produce your own NFTS, but you’ll need to officially mint them using a service like Rarible or OpenSea. You’ll usually pay a fee to mint your NFT and get it on the blockchain for sale. Simply list the digital asset at the price you think it might be worth, and hope to make a profit.

A variety of companies have used non fungible tokens as part of their business plans, from artists like Beeple to musical artists like Kings of Leon and sports organisations like the NBA. The format has come into its own in the world of fashion and gaming as well, from branded clothing labels to custom avatars from brands like Nike and Lidl that can be used on gaming platforms.

The pros and cons of NFT investment

Whether you’re thinking about buying and selling NFT investments or creating your own digital assets, there are a few pros and cons to keep in mind.

Advantages include the ability to attract attention to your brand by creating a unique product that doesn’t exist in the physical world. If you work in a visual industry, this can immediately get eyes on your talent.
For those buying and selling NFTs, the potential for a lucrative return on investment is also a possibility – particularly if you do your research first. For example, Sorare has raised £498 million by selling virtual football trading card NFTs.
Another advantage is security, as NFTs are secured using the blockchain. They’re also bought and sold using Ethereum, a trusted digital currency.

However, the major downside of NFT investment is its risk.

Acquiring NFTs and selling them at a profit involves a high level of risk in comparison to other investments like real estate or foreign currency. Similarly, you might spend time and money creating your own brand’s NFT only to find there’s little demand for it.
Another factor to consider when it comes to NFT investment is the fact that anyone can still access your NFT artwork, even if you own the digital certificate accompanying it. Digital files can still be duplicated by others even if you own the original. This makes them different from original works of art.

Is NFT investment right for you?

While there are major NFT success stories out there, there are also millions of other creators who haven’t made such an impressive return. Before jumping into the world of NFT investment, it’s important to really understand how non fungible tokens work and keep in tune with the latest digital trends. As a promotional tool alone, minting your own NFTs can help you connect with new audiences and increase followers. Be sure to figure out the best market fit for your product first, to find the right price point, NFT platform, and format.

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