What is an NFT and How Does It Work?

Elis Özokur
Elis Özokur

Artworks, tweets, rainbowy space cats, memes, and videos: If anything can be an NFT, what exactly is an NFT and what is it that makes an NFT worth millions of dollars? Today, we are here to answer every NFT-related question you might have, so buckle up and let’s get started!

What is an NFT? What Does NFT Stand For?

If at any point in time and space, you have wondered what an NFT is, you probably know that NFT stands for “non-fungible token” – and our guess is seeing this for the millionth time without a comprehensible explanation is the last thing you need right now. 

For starters, to better understand NFTs and how they work, we need to talk about the terms “fungible” and “non-fungible”. Basically, a fungible asset is something that can be exchanged for something similar. The US dollar can be exchanged with other fiat currencies like the Japanese yen, euro, and British pound, or cryptocurrencies like Bitcoin, Ethereum, and Tether. 

If you have two five-dollar bills and you exchange them for one ten-dollar bill. The value of your money is still ten dollars, regardless of the change in the number of dollar bills you have. However, being “non-fungible” tokens, NFTs are unique in value and cannot be exchanged for something similar – namely, another NFT. 

Each NFT is a unique token with an authentic digital signature stored on a blockchain that verifies ownership of virtual assets. As blockchain’s secure decentralized ledger network publicly stores transactions, NFTs can’t be forged or duplicated, proving a buyer’s ownership of an NFT. 

The concept of NFTs can be difficult to grasp for those who are new to blockchain technology, and this is exactly why the Mona Lisa example has become a classic to illustrate the unique value of NFTs. The original painting cannot be exchanged for its replicas or the posters down at the museum’s gift shop as those do not hold the same value. Well of course, it is the Mona Lisa, but what this analogy also tells us is that the original painting is authentic and scarce – it can’t be substituted, making the core idea behind an NFT scarcity and authenticity.

What is NFT Used For?

NFTs can be used for a wide variety of purposes, such as digital art, photography, gaming, sports collectibles, profile pictures (also known as PFPs), virtual realities, music, and ticketing – you name it! 

While NFTs can provide remarkable returns of profit for collectors over time, they also open up an alternative space for artists, creators, and musicians to make a living with the product they put out in the world. When creators mint their NFTs on an NFT marketplace, they can choose a percentage of royalties (payments) they will get through an NFT smart contract each time a sale takes place on the blockchain. 

As this allows creators to earn a perpetual income off their work, buying NFTs originally minted by your favorite artists and creators is a great way to support them financially, as well as encourage them to put out authentic works more freely. The less they are burdened with limiting contracts, the more they can resonate with their creative vision.  

Furthermore, NFTs can make supporting your favorite creators more interactive than ever before by giving you, the minter, exclusive access to perks and rewards. For example, here at, buying from your favorite creators CreatorPass collection means having a golden ticket for a private Discord chat with the creator all the while you can keep on getting rewards based on channel engagement rate through your CreatorPass purchase.

How Does NFT Work?

When an NFT is minted, it gets written and stored on the blockchain, where every new transaction is recorded on a public ledger that is visible to everyone who can get access to the network. 

NFTs typically exist on the Ethereum blockchain, it is also possible for an NFT owner to bridge NFTs from Ethereum to Polygon and vice versa. The buyer of an NFT gets a very long digital receipt that stores who have owned it before, including the original owner. The cryptographic consensus, algorithms, and digital signatures on the blockchain ensure that NFTs and NFT smart contracts remain tamper-proof and secure.

How does an NFT work in relation to smart contracts, you ask? Basically, smart contracts create certain rules for how an NFT can be created, transferred, and managed. The transparent decentralized cryptographic mechanisms of blockchains authorize the rightful owner of an NFT and make sure that the smart contracts are not tampered with to keep your NFT secure.

Examples of NFTs

Feels like it’s a good time to take a break from all that technical language for a bit, doesn’t it? Here are some popular examples of NFTs that appeared in headlines in recent years:

  • Digital artist Mike Winkelmann, also known as Beeple, whose work Everydays: The First 5000 Days was sold as an NFT for over $69 million at Christie’s auction house.
  • A video of LeBron James dunking during the 2020 NBA Finals was sold as a trading card on NBA Top Shot collectibles for $230 million. 
  • Twitter CEO Jack Dorsey’s first tweet was sold for $2.9 million and has been recently relisted for $48 million.
  • In March 2021, Kings of Leon released their album “When You See Yourself” as an NFT. With overall sales worth $2 million, the band auctioned golden tickets which gave the holder access to exclusive perks for a lifetime of the band’s concerts.

Keep in mind that getting exclusive perks and rewards like golden tickets through NFTs is not only reserved for alternative rock fans! If you’d like to take your place in your creator’s success story, get your voice heard among millions of other fans, and get access to private creator Discord channels of your favorite creator as well as claim perks, rewards, and discounted SMX tokens; may be just the perfect platform for you. Check out our CreatorPass collections today to not miss out on your type of golden ticket to the unique world where creators and fans connect with each other.

How Do You Pronounce NFT?

NFT is pronounced as “en-eff-tee”.

How Can I Buy NFTs?

If you’ve been asking yourself “How can I buy NFTs?” all this time, you can follow the steps below: You can buy NFTs by following these steps:

1. Set Up a Crypto Wallet

To buy NFTs, you need to set up a crypto wallet and buy crypto coins first. You can choose an Etherum-compatible wallet like Metamask to get started. 

2. Choose an NFT Platform

You can choose an NFT marketplace or an NFT project website/platform to buy from. Some popular NFT marketplaces include OpenSea, Rarible, Nifty Gateway, SuperRare, and Foundation. 

3. Connect Your Wallet to an NFT Platform

After you fund your crypto wallet with crypto coins and connect your wallet to the NFT platform of your choice, you can start buying, minting, and selling NFTs. While you can use your credit card to buy NFTs on some platforms, you will still need to set up a wallet and connect it to the platform.

Why Do People Buy NFTs?

People buy NFTs for a variety of different reasons – but one thing to note is that the idea of collectibles (and spending money on them) has always been around! People have been collecting artworks, sports trade cards, postage stamps, comic books, and game toys for ages, and the list goes on. So, even though the NFT world seems relatively new, it is a way of digitizing collectibles that were once physical.

On the other hand, when someone owns an NFT, they are in possession of an authorized certificate of a unique digital asset that is non-fungible. In this sense, the reason why people buy NFTs varies from hoping to sell them for a higher price in the future and enhancing their in-game player experience to getting tickets for real-life events without the need for third-party trustees or supporting their favorite artists, musicians, and creators.

Are NFTs Safe?

While cryptographic consensus, algorithms, and smart contracts on a blockchain system secure NFTs, it is possible to encounter NFT scams and frauds in the market if you are not using a reliable NFT platform for minting, buying, and selling NFTs.

For this reason, you should be alert to do your research and only buy NFTs from marketplaces, sellers, and websites. If the gateway website crashes, you will risk losing your NFTs. 

No need to worry, we will be talking about how to avoid NFT scams in detail later in this article. Just keep in mind that keeping your NFT purchases safe does not only involve steering clear from NFT scams, you also need to keep your crypto wallet safe as well! 

Here’s how to keep your crypto wallet safe:

  • Keep your wallet’s recovery phrase safe: This includes keeping it in a safe place where nobody can get access, but you. Reliable NFT platforms will never ask you to share your recovery phrase.
  • Be creative with your password: Try not to use a password that you have been using on other platforms and websites on your crypto wallet. Set up a password that is hard to guess and that you have never used anywhere else before.
  • Make sure that you are using a verified wallet app: When you download your wallet app, double-check that you are getting your download link from the official website.
  • Avoid clicking suspicious links and set your limits: Please be aware of broken links and feel free to set a spending limit on your crypto wallet if you must. For maximum safety, you can opt for cold wallets and hardware wallets as well.

What Does Non-Fungible Mean?

Non-fungible means that something is unique and cannot be exchanged for another item. In the case of NFTs, each token represents a unique digital asset and cannot be exchanged for another NFT.

What’s the Difference Between NFTs and Cryptocurrency?

NFTs vs crypto, if both of them are written and stored on a blockchain, what is it that sets them apart? The main purpose of an NFT is to secure the authorization of the rightful owner, functioning as a digital certificate of ownership. 

While NFTs are non-fungible digital assets unique in value, cryptocurrencies are fungible and can be exchanged for other assets such as fiat currencies and other cryptocurrencies. As cryptocurrencies are fungible, they can be divided into units, whereas NFTs can’t. 

Furthermore, even though both are stored on a blockchain, what makes them different in that regard is the possibility of creating your own guides and rules for NFTs, such as setting amounts of royalties. 

What’s an NFT Scam?

Even though blockchain technology is designed to keep NFTs tamper-proof and secure, it is possible to encounter NFT scams. To learn what kind of precautions you can take to protect yourself and your crypto wallet from NFT scams, you can check out the list below. 

  1. Before you buy or mint an NFT, get on the web and do some old-style research. Look out for fake NFTs, check the seller’s social media, and make sure they are not trying to pass popular images or artwork as authentic NFTs. As each original NFT has its own unique value, fakes do not hold any real value and will cause you to waste your time and money.
  2. Keep an eye out for phishing emails and links shared through social media messages. If a link seems suspicious, broken, or comes from an unreliable source, do not click it.
  3. Protect your wallet’s seed phrase, and choose a password that is hard to guess, one that you have never used before. You can also use cold wallets and hardware wallets for extra security. 
  4. Only buy from reliable platforms and artists. You can also contact the original creator and ask for the NFT’s token ID to check if it matches the information on the NFT platform or marketplace.