What is an NFT?
An NFT, or Non-Fungible Token, is a unique digital certificate of ownership representing a specific asset, built using blockchain technology. Unlike cryptocurrencies such as Bitcoin, each NFT is distinct and cannot be exchanged on a one-to-one basis with another token.
Key characteristics of NFTs include:
- Uniqueness: Each NFT has a distinct identifier that makes it one-of-a-kind, much like a unique piece of art in a physical collection.
- Indivisibility: NFTs cannot be divided into smaller units. You must buy, sell, or own them as a whole item.
- Immutability and Transparency: Once recorded on the blockchain, the ownership history and authenticity of an NFT are permanent and can be verified by anyone, preventing forgery or unauthorized changes.
In essence, an NFT acts as a decentralized digital deed, providing proof of ownership for both digital and physical assets.
Major NFT Trading Platforms
The NFT ecosystem is supported by various online marketplaces where users can create, buy, sell, and trade these digital assets. Here are some of the most prominent platforms.
OpenSea
As one of the largest and most well-known NFT marketplaces, OpenSea operates as a decentralized exchange (DEX). It allows users to trade a wide variety of digital items peer-to-peer.
Key Features:
- Low barrier to entry: Anyone can create and list an NFT.
- No gas fees for minting: Creators only pay a fee when an item is sold for the first time.
- Business Model: The platform charges a 2.5% service fee on all sales.
- Trading Options: It supports fixed-price sales, timed auctions, and allows buyers to make offers on listed items.
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Foundation
This platform employs a curated, invite-only model for artists, aiming to maintain a high standard of quality for the NFTs listed.
Key Features:
- Community-driven invitations: Artists receive invites after their first successful sale or through community votes.
- Focus on digital art: The platform is known for its emphasis on artistic creations.
- Business Model: It charges a 15% fee on primary sales and a 5% royalty fee for the artist on all secondary market sales.
- Trading Options: Sales are primarily conducted through auctions.
SuperRare
SuperRare positions itself as a marketplace for high-quality, scarce digital art. It has a rigorous application process for artists seeking to join.
Key Features:
- Highly curated: The platform selectively invites digital artists to ensure exclusivity.
- Social network features: It includes social elements for collectors and creators to interact.
- $RARE Token: The platform has its own governance token, empowering the community to participate in decision-making.
- Business Model: A 15% fee is applied to primary sales, with a 3% fee on secondary sales.
- Trading Options: Similar to others, it offers fixed-price listings and auction formats.
How NFT Platforms Make Money
The core business model for most NFT marketplaces is to charge a commission on transactions. However, the fee structures can vary significantly based on the platform's focus and services.
- Transaction Fees: This is a percentage taken from the final sale price of an NFT. It's the primary revenue source.
- Minting Fees: Some platforms charge users a fee to create (or "mint") a new NFT onto the blockchain.
- Secondary Sales Royalties: A revolutionary feature of NFTs is the ability to program royalties for the original creator. This means the artist automatically earns a percentage every time their work is resold on the platform, creating ongoing revenue.
The choice of platform often depends on the user's goals. OpenSea offers breadth and accessibility, while Foundation and SuperRare offer curation and exclusivity for high-end digital art.
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Frequently Asked Questions
What does "minting an NFT" mean?
Minting is the process of publishing a unique digital asset on the blockchain to make it an NFT. This process verifies the asset's authenticity and creates a permanent, unchangeable record of its existence and ownership.
Can I create an NFT for free?
Some platforms, like OpenSea, allow you to create (or "mint") an NFT without an upfront fee using a process called "lazy minting." You only pay a gas fee (the cost of the blockchain transaction) when the item is first sold. Other platforms may require an upfront payment to mint.
What kind of files can be turned into an NFT?
Almost any digital file can be tokenized as an NFT. This includes images (JPG, PNG, GIF), videos (MP4), audio files (MP3), 3D models, and even text documents. The NFT itself is a certificate of ownership that points to where the file is stored.
Are NFTs bad for the environment?
This was a significant concern for NFTs built on blockchains that use Proof-of-Work (PoW) consensus mechanisms, like Ethereum originally did. However, with Ethereum's transition to a more energy-efficient Proof-of-Stake (PoS) model in 2022, the environmental impact of creating and trading NFTs on that network has been reduced by over 99%.
What is the difference between buying an NFT and just right-clicking-saving the image?
When you right-click and save an image, you have a copy of the digital file. When you buy an NFT, you are purchasing a verified, immutable certificate of ownership that is recorded on a public blockchain. It is the difference between owning a mass-produced poster of the Mona Lisa and owning the original, authenticated painting.
How do creators earn from secondary sales?
A key feature of NFT smart contracts is that the original creator can embed a royalty percentage (e.g., 5-10%). This royalty is automatically paid to the creator's wallet every time the NFT is resold on the marketplace, ensuring they benefit from the future success of their work.