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NFT stands for non-fungible token, and NFTs are assets that have been tokenised via a blockchain. These tokens are created from metadata via an encryption function and serve as unique identification codes. NFTs are stored on the blockchain while the assets they represent are stored elsewhere. It is the connection between the asset and the token that makes each NFT unique.

An NFT can be exchanged or traded for cryptocurrencies, money or other NFTs; the amount depends on the value the owners and market have placed on them.

What Can NFTs Represent?

NFTs can represent real-world assets (such as property or artwork) and digital assets, as well as individuals’ property rights, identities and more. NFT experts such as Volker Hartzsch, the co-founder and director of Block Prime, know that in terms of real-world assets, tokenization in the form of NFTs can make buying, selling and trading these assets more efficient and reduces the probability of fraud.

Buying NFTs

There are several steps required to buy NFTs. An individual must first open an account on a cryptocurrency exchange or platform. Next, a cryptocurrency wallet needs to be opened; these wallets store the keys that will grant access to digital assets. A crypto wallet may be hosted on an exchange or operate independently.

There are two types of crypto wallets: hot wallets and cold wallets. The former are software, web-based and available as a desktop or mobile app, an in-browser extension or both. This type of wallet is more vulnerable to cyber attacks than a cold wallet. Considered a more secure option, cold wallets are hardware wallets – i.e. physical devices not connected to the internet.

Once an NFT exchange has been selected and a crypto wallet opened, Ethereum needs to be transferred into this wallet. Following this, NFTs may be purchased.

Benefits of NFTs

Market efficiency is one of the most apparent benefits of NFTs – by tokenising a physical asset, sales processes can be streamlined and intermediaries removed. Sellers are also able to connect directly with their target audiences.

NFTs can streamline investment and have proved to be very useful in identity security. Furthermore, they can serve to democratise investing, as tokenisation fractionalises physical assets. For example, a painting can be owned by multiple people, each of whom owns a share of it.