https://messari.io/article/explain-it-like-i-am-5-nfts

Recently, your Twitter feed has probably been flooded by the likes of Gary V, Grimes, Jake Paul, Chamath Palihapitiya, and Mark Cuban all talking about a hot new trend called NFTs. The total value of NFT transactions quadrupled to $250 million last year, according to a study from NonFungible and L’Atelier.

Why is there such speculative fever around them - spending up to millions of dollars on individual pieces of art, trading cards, and more?

In this ELI5 – explain it to me like I’m five – report, we break down what NFTs are, how they work, why they are important, use cases, and actual successful applications being used today.

NFT stands for non-fungible tokens. It’s easiest to think of NFTs as a file format. People use file formats – like jpeg, png, or gif – to transfer information or value on the internet. NFTs are a file format that transfers data and value on blockchain networks like Ethereum. Since NFTs exist on blockchains, these tokens (or files) contain properties similar to bitcoin, primarily digital ownership (a token in a person’s wallet) and transparency (all activity is recorded on a blockchain). We’ll get into some of the other noteworthy benefits that come with NFTs further below.

The term non-fungible refers to the concept of fungibility. A good is said to be fungible if it is identical and interchangeable. For example, one dollar is worth one dollar. You would happily swap dollars with me since we all agree they have the same value. Comparatively, an item is said to be non-fungible if it is unique. Lots of items are non-fungible including diamonds, houses, and baseball cards. No two of these items are the same, diamonds have different colors and cuts while houses even in cookie-cutter neighborhoods have different locations which affect how light comes into the house.

An NFT is simply a token (or piece of information) that is unique. A common example of an NFT might be a digital trading card or piece of digital art.

While NFTs are simply a way to transfer information (data), they provide various benefits because they are created on blockchain networks.

While the value of an NFT can vary depending on how it’s used, generally speaking, NFTs provide the following characteristics:

• Unique – The hallmark trait of non-fungible tokens is that they are unique and this can be verified on a blockchain.
• Permanent – NFTs have permanent information and data that is stored within the token. This information can include a message, image, music, signature, or any other piece of data.
• Programmable – An NFT is just a piece of code on a blockchain. This means it can be programmed to have various qualities. One of the most useful qualities of NFTs to date is that royalties can be programmed (or built-in) to the tokens. This means an artist obtains a royalty on all secondary sales of their artwork.
• Permissionless – NFTs can be used in multiple ways if they exist on a permissionless blockchain like Ethereum(not all NFTs are on Ethereum). For example, Sorare – a sports trading card game – has third-party games (not built by the Sorare team) that use Sorare trading cards.
• Digital Ownership – whoever possesses an NFT in their wallet, owns and controls the NFT. Digital assets like domain names (Google.com) aren’t actually owned by Google, but instead by middlemen like GoDaddy or Verisign even though they control the rights to the asset.

1. First, you’ll start by getting your media in order to decide what you want to make an NFT. NFTs can support an array of files, like visual files (JPG, PNG, GIF, etc.), music files (MP3, etc.), 3D files (GLB, etc.), and beyond. Once your traditional file is ready, you’ll move onto the next steps.

2. Next, you will need to set up an Ethereum Wallet. You need to create a digital wallet where you'll securely store the cryptocurrency that is used to buy, sell, and create NFTs. The wallet also allows you to safely sign in and create accounts on NFT marketplaces.

3. After you have your Ethereum wallet, you will need to purchase a small amount of Ethereum to cover the costs of creating your first NFT. The reason being, there are fees associated with turning your content into an NFT on most major digital art marketplaces.

4. Then, you need to connect your wallet to an NFT Marketplace. One notable and easy-to-use NFT marketplace is called Rarible. Once you’ve connected your wallet, click the “Connect” button in the top right corner of the screen. After connecting a wallet, your Rarible account is instantly generated. You now have everything you need to create, mint, and sell your first NFT.