Understanding Non-Fungible-Tokens (NFTs) And How They Work

Before we dive into how non-fungible-tokens (NFTs) operate, let’s have a clear understanding of what non-fungible assets are, relative to the world about us. 

To know the price of a lined collection of 5-inch Chinese porcelain bowls, you only need the price of one bowl, from that collection, which is somewhere within the $20-$30 price range.

On the contrary, the Ru Guanyao Brush Washer Chinese porcelain Bowl, which is also about 5 inches, was sold for $37.68 million in a 2017 auction. Yes, it is no ordinary porcelain bowl. It is a rare, teal glaze and ice-crackle patterned bowl, well preserved from over 900-years. 


Many factors beyond its physical state, size, and material component are now associated with its monetary value. Those factors can not be replicated in a porcelain bowl factory or even a laboratory. 

It is the same way we value genius paintings, pets, vintage artifacts, and all. This class of assets is called non-fungible assets. It is why antiques are somewhat disproportionately priced or why great artists’ original paintings are extremely more valuable than counterfeits.

On the contrary, the ability of equal mass and material components to share the same price is called fungibility. As such, they can be exchanged one for another without affecting the values of the new holders. It is the same quality of precious metals like gold that makes them share similarities in value.

Similarly, assets like the USD, the GBP, Bitcoin, Ethereum share the same quality. Even more, currencies are more widely accepted, making them far more liquid or more fungible. 

So, while the gaming chip used in a casino is fungible within the walls of a casino, it most likely won’t be accepted outside the walls of the issuing casino for transactions, making its fungibility partial. 

The birth of NFTs: how they evolved

Online gaming paved the way for sharing and flaunting virtual collectibles, like game skins, virtual cards, and so on. With online gaming, players could now flaunt their unique game items in the social circle of the game players. It, however, required the game provider to control the creation and supply of these items within their game ecosystem. Fortnight games skins are a perfect example.

The possibility to create a unique identity, similar to a fingerprint with smart contracts, on an open-source blockchain network lit the flame of what is now a multi-billion dollar NFT market.

Digital arts, collectibles, ownership, and all could now be created on decentralized networks like Ethereum and still retain their isolated identity and value. 

Cryptopunks was the first NFT smart contract, setting the stage for NFTs executed as smart contracts. As of the time of writing, the entire NFT market cap is worth over 2 billion USD. With new projects unfolding by the day, the numbers are likely going to rise.

In the remaining part of this article, we will be looking at very significant NFTs, which laid the groundwork for what is possible in this space today. Also, we will be walking you through getting your first digital collectible, which exists on a permissionless blockchain network.



Also, since Cryptopunk predates the ERC 721 standard, there is now a wrapped Cryptopunks’ protocol, which allows Cryptopunks to be auctioned in exchange for other NFTs on NFT auctions sites. This is partly the reason why Cryptopunks have seen a huge surge in value in 2020. So although only 10,000 punks were generated, there has been over $2.5 million worth of punk traded since inception, that is at the time of writing.

There are over 1000 unique character variations with these punks, with an image format of 24 X 24 pixels, with each having a unique private key, hence its ownership. Some of these characters include- Aliens, Zombies, Do-rag, and so on.

One drawback with Cryptopunks is that Larva lab can modify ownership or even revoke your license to own a Cryptopunk character, which is antithetical to the absolute sovereignty paradigm that open blockchain networks like Ethereum provide. 


Following the release of Cryptopunks, Dapper Lab -a Canadian-based tech company- launched Cryptokittes with a beta version of the ERC721 standard. Following its release, Cryptokitties was a huge success, to the point of congesting the Ethereum network at the time of its launch and raising gas fees significantly.

One major genius behind the Cryptokitties is the use of genetic algorithms to produce new virtual Cats, which were raised virtually. Also, to create some form of rarity with these cats,  only 50,000 Generation 0 kitties (that is the pioneer cats of the Cryptokitties race) making them the rarest breeds of cats on the network. This became a huge incentive for earlier investors. By October of 2018, Cryptokitties reached 1 million bred virtual cats with $3.2 million worth of transactions on the Ethereum network.

One limitation of Cryptokitties is that you do not get to choose the outcome of your cat’s breeding.


Launched in 2017 with an ICO, which raised over $24 million, the Decentraland team took NFTs to another level, as the first virtual real estate ecosystem, built on a blockchain network. In other words, it is a marketplace where users can purchase and sell virtual lands, build and monetize virtual properties, like houses, spaceships, and several other virtual simulations of real-life properties.

Decentraland uses two tokens for its operation, which are MANA and LAND. There is a fixed supply of approximately 2.6 million MANA. On the contrary, to get some LAND token, users will have to burn their MANA token using the Decentraland smart contract. Overall, Decentraland contains 90,000 parcels of LAND, which by the way, are 16 X 16 meters each.


It is the first and largest NFT auction market. Think of it as the eBay of NFTs. On Opensea, users can auction out their NFTs; across various categories: digital arts, collectibles, trading cards, domain names, and several others. Every week, new NFTs are uploaded on Opensea. 

Opensea allows users to bid, sell and buy collectibles. You can also create different types of listing that will serve different purposes and behavior. For example, Spanish auction, English auction, and so on. 

The opensea interface is constantly being updated with new features coming on board, frequently. This project since its inception has made NFTs far more liquid, encouraging investments in NFTs.

Owning your first NFT

Most NFTs are Ethereum based, meaning; you can store your collections in an ERC wallet like Metamask, MyEtherWallet, or Mycryptowallet. For this guide, we will assume you want to own an ERC NFT using a Metamask wallet. Also, we will use the Opensea auctions site for the example, all in the following steps:

  • Create a Metamask wallet.
  • Head to My Profile at the top-right profile menu button on the Opensea header Menu. You will be taken to the account page to sign up.

  • If you have the Metamask wallet extension on your browser, an opensea account is automatically generated for that Metamask wallet if you click on signing. But first, you will have to sign in to your Metamask extension and connect to the Opensea account.
  • On the contrary, if you don’t or if you do not want to use a Metamask wallet, proceed with using a different wallet.
  • Once your wallet is linked, you can now buy any listed NFT. Simply proceed to the item of your choice. 
  • Click on “Buy now” or scroll down to make an offer. The seller will see your request on their dashboard and will decide on selling.


The world of NFTs has paved the way for a whole new era of collectibles. At the moment, NFTs are limited within the walls of virtual items. However, as the world of IoTs evolves with the representations of physical collections on the blockchain, we may be seeing the virtual representation of and sales of physical supplies as NFTs. So far, this space is still evolving, and there is a lot to expect going forward. 


Views and opinions expressed are solely those of the author and not of The DeChained or any affiliated party. Views or opinions expressed in this article (or any article on the website) are not financial advice. Articles are for informational purposes only. The author and The DeChained may hold positions in assets discussed in this or other articles.
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