NFTs are Non-Fungible Tokens. They can represent anything, ranging from art, music, real estate, etc. and have amassed massive interest recently.
There are lots of questions about NFTs and whether they are worth the money spent on them lately. Some experts say they’re simply bubbles poised to pop. Others are of the opinion that NFTs are here to stay and that they will change the order of investing.
What is an NFT?
NFTs are digital assets that represent real-world objects like music, art, videos, games, and collectibles.
Although NFTs have been around since 2014, they only started gaining traction recently, with a wider adoption this year. Enthusiasts have splurged over $174 million on NFTs since November 2017.
NFTs create digital scarcity and are essentially one of a kind or at least one of a very limited item. This is in contrast to most digital creations, which mostly have an infinite supply.
Many NFTs are digital creations that already exist in the form of video clips, physical art, etc. They present artists and content creators with a unique opportunity to monetize their work. Artists do not necessarily need to rely on galleries or auction houses to sell their art (although some NFTs have been sold through acclaimed auction houses). Rather, in most cases, they can earn more by selling them directly to the consumer on an NFT marketplace. What’s more, for every subsequent sale to a new owner, artists receive royalties.
Digital artist Mike Winklemann crafted a composite 5,000 daily drawings to create perhaps the most famous NFT of the moment. The “EVERYDAYS: The First 5000 Days” sold at Christie’s for a record-breaking $69.3 million.
Anyone can actually view individual images or even the entire collage of images online for free. So why are people willing to spend millions on something they can easily download?
This is because NFTs allow the buyer to own the original item. They contain built-in authentication, which serves as proof of ownership. Some collectors cherish those “digital bragging rights” more than the item itself.
A striking benefit of owning a digital collectible versus a physical collectible like a Pokémon card is that each NFT contains distinguishing information that makes it both distinct from any other NFT and easily verifiable. This makes the creation and circulation of fake collectibles pointless since we can trace each item to the original issuer.
How Does an NFT Differ from Other Tokens?
As mentioned, NFTs stands for non-fungible tokens. Physical money and other cryptocurrencies are “fungible”, meaning that they can be traded or exchanged for one another. They’re also equal in value. One bitcoin is always equal to another bitcoin, and one dollar is always worth another dollar. Cryptocurrency’s fungibility makes it a trusted means of conducting transactions on the blockchain.
Each NFT has a digital signature that makes it impossible for NFTs to be exchanged for or equal to one another (hence the term “non-fungible”). For example, one top shot clip from a football match showing a classic goal is not necessarily equal to everyday football matches or goals simply because they’re both NFTs.
How Does an NFT Work?
NFTs are mostly minted on the Ethereum blockchain, though some other blockchains support their creation. They are developed from digital objects that represent both tangible and intangible items, including collectibles, sports highlights, arts, GIFs, music, fashion apparel, and even tweets.
How to Create an NFT?
Anyone can create an NFT. All that’s needed is a digital wallet, some ETH (or another cryptocurrency that supports NFT creation), and a connection to an NFT marketplace where you’ll be able to upload and turn the content into an NFT or crypto art. Simple, right?
How To Buy NFTs
You can purchase any digital image as an NFT. There are a few things to consider when buying one, particularly if you’re a newbie. You will need to decide the marketplace to buy from, what type of digital wallet is required to store it, and what kind of cryptocurrency you will need to complete the transaction.
Some of the most common NFT marketplaces include OpenSea, Mintable, Nifty Gateway, and Rarible. There are also niche marketplaces for more specific types of NFTs, such as NBA Top Shot for basketball video highlights or Valuables for auctioning tweets.
When buying an Ethereum-based NFT, there is a charge rate also called a ‘gas’ fee. It is simply the fee required to complete the transaction on the blockchain. Other fees include the costs of converting fiat currency into Ethereum.
How To Sell NFTs?
Essentially, NFTs are sold on marketplaces too, and the process can vary from platform to platform. You will need to upload your content to a marketplace, then follow the instructions to convert it to an NFT. You will include specifics such as a description of the work and suggested pricing. Anyone can purchase NFTs using Ethereum and other ERC-20 tokens such as WAX and Flow.
Some NFTs are also created and sold exclusively within a crypto eco-system like Enjin.
Who Verifies that the NFT is Legitimate?
NFT creators have a signature code that authenticates the token on any server, browser, or platform, making it verifiable in a decentralized way.
The primary marketplaces for buying and selling NFTs are OpenSea, Rarible and Nifty Gateway.
These marketplaces act as an eBay for crypto where people can either place bids for or buy NFTs. Vendors usually auction off NFTs with limited quantities while they place NFTs with no minting cap on direct purchase.
NFTs can be a financial investment, a collectible item, a sentimental purchase, or an avenue that makes the buyer feel more connected to the NFT creator. We can liken it to how people cherish the autographs of their favorite celebrities. It could also be a desire that is tied to brand affinity. For instance, loyal fans of a product will patronize their brand because of particular interest or sentiment.