NFT (Non-fungible tokens) have exploded over the years. People are now spending millions of dollars on NFTs. Twitter founder, Jack Dorsey, put up his autographed first tweet for sale as an NTF that created a lot of buzz about these digital assets.
So are NFTs worth the money? Are they even worth the hype? To answer these questions, you must first understand what NFT means and how they work.
NFTs gained the world’s attention after Christie’s auction house, which sold the first-ever NFT artwork- a collage of images by digital artist Beeple, for $69.3 million.
An NFT could also be a digital representation of a painting like a Mona Lisa, which is a one-of-a-kind asset in the digital world.
NFTs use the same blockchain technology that powers cryptocurrencies, but they are not a currency. They are speculative assets that are not for every investor.
What Is An NFT, And How Does It Work?
In simple terms, an NFT is a digital asset that links ownership of unique physical or digital items such as music, art, or real estate.
NFT stands for Non-fungible token. Non-fungible means that something is unique and cannot be replaced with something else. Cryptocurrencies such as bitcoin are fungible- meaning you can trade one bitcoin for another.
NFTs are cryptographic assets on a blockchain with unique metadata and identification codes that distinguish them from each other. They, however, cannot be traded or exchanged for their equivalency like other cryptocurrencies.
NFTs cannot be used as a medium of commercial transactions like other cryptocurrencies. Every NTF has a distinct construction. They are used to represent physical assets like real estate and artwork digitally.
NFTs are blockchain, hence used to remove intermediaries and connect artists with their audiences. They simplify transactions, remove costs and create new marketplaces for artists.
Many NFTs marketplaces are centered on collectibles such as sports cards, digital artwork, and rarities. The most hyped space is the NBA Top Shot, an NFT marketplace for tokenized NBA moments in digital card form. Some cards sell for millions there.
How Do NFTs Work?
Cryptocurrencies like physical money are fungible. This means they can be exchanged or traded for another.
For example, each bitcoin has the same value as another bitcoin. In the same way, a single unit of Ether is equal to another Ether unit. This characteristic is known as fungibility, which makes cryptocurrencies a secure medium of transaction in the digital market. Find out the best crypto exchanges in Singapore.
NFTs are, however, different. They shift the crypto paradigm by making each token irreplaceable and unique. This makes it impossible for one non-fungible token NFT to be equal to another.
NFTs are digital representations of assets that have been likened to digital passports because each has a unique, non-transferable identity that distinguishes it from other tokens. NFTs are extensible. This means you can combine one NFT with another to develop a third NFTs.
Like Bitcoin, NFTs contain details of ownership to identify and transfer between token holders quickly. Owners also add metadata or attributes regarding the asset in NFTs. For example, an artist can sign their digital signature on the NFT as the metadata.
NFTs were originally ERC-721 standard. They were developed by the same people who developed the ERC-20 smart contract.
ERC-721 has minimum interface ownership details, metadata, and security. The ERC-115 standard, on the other hand, reduces the storage and transactions costs required for NFTs and batches multiple non-fungible tokens in a single contract.
One of the most famous uses of NFTs is that of cryptokitties that was launched in November 2017. Cryptokitties is a digital representation of virtual cats with unique IDs on the Ethereum blockchain.
Every kitty is unique and has a unique price in Ether. Within the first few weeks of being launched, cryptokitties has a fanbase that raked over $20 million worth of Ether.
NFTs have been used in more serious business transactions such as private equity transactions like real estate deals. Enabling different types of tokens in a contract will allow other types of NFTs from real estate to artwork, all in a single transaction.
NFTs are an evolution from the usual concept of cryptocurrencies. Today, financial systems consist of complex loan and trading systems for different types of assets, lending contracts, real estate, and artwork. They enable digital representation of physical assets that is a step forward for infrastructure reinvention.
The apparent benefit of NFTs is market efficiency. Conversion of physical assets to digital form streamlines transactions and removes intermediaries. NFTs remove the need for agents and allow artists to connect directly with their audiences.
Examples of NFTs
NFTs are anything that is unique and needs proof of ownership. Here are some examples of NFTs that exist today to help you get an idea.
- An in-game item
- A unique digital artwork
- A unique sneaker in a limited-run fashion line
- A digital collectible
- A domain name
- An essay
- A ticket that gives you access to a coupon or event
- Virtual trading cards
- Video game skins
Is NFT Different from Cryptocurrency?
Yes.
Most NFTs are built on the same kind of programming as other cryptocurrencies; however, that is where their similarities end. Cryptocurrency is fungible, meaning that it can be exchanged or traded for another.
NFTs are different in that each of them has a digital signature that makes it impossible for any of them to be exchanged for or equal to another hence non-fungible. For example, one NBA Top Shot clip is not equal to EVERYDAYS because they are both NFTs.
What are NFTs Used for?
NFTs offer content creators and artists a unique opportunity to monetize their work. This means an artist can no longer rely on galleries and auction houses to sell their art.
Instead, they can sell directly to their audience using NFTs. This helps them keep more of the profit since there are no intermediaries.
Artists can also get royalties if the new owner sells their art. This is an excellent feature since most artists do not receive proceeds after first selling their art.
Other than art, brands such as Taco Bell and Charmin have auctioned off themed NFT art to raise funds for charity. Taco Bell NFT art sold out in minutes, with the highest bid coming at 1.5 wrapped ether (WETH), equal to $3,723.83 as of this writing. Charmin dubbed it as NFTP (non-fungible toilet paper).
IN FEBRUARY, a GIF of a cat with a pop-art body, Nyan Cat, sold for $600,000. Even celebrities are now jumping onto the bandwagon and selling their moments and artwork as securitized NFTs.
How to Buy NFTs?
Any digital image can be purchased as an NFT. However, there are a few things that you must consider before buying one, especially if it is your first time.
First, you must decide which marketplace you will buy from and consider the digital wallet required to store it. You will also need to know the kind of cryptocurrency you will need to complete the sale.
Some of the most common NFT marketplaces include Mintable, OpeanSea, Rarible and Nifty Gateway. You can also look at niche-specific marketplaces such as NBA Top Shot for basketball video highlights or Valuable for auctioning tweets like Jake Dorsey, which is currently up for bid.
Be on the lookout for the fees. Some marketplaces will charge you a “gas fee.” This is the energy required to complete the transactions on the blockchain. You will also incur fees for converting dollars in Ethereum, the currency used for buying NFTs, and closing expenses.
How to Sell NFTs?
NFTs can only be sold in the same market, but the processes may vary depending on the platform.
You will need to upload your content on a market place then follow instructions to turn it into an NFT. You must include specifics such as the suggested pricing and description of the work.
NFTs are purchased using Ethereum but can be bought with ERC-20 tokens such as Flow and Wax since they also support NFTs.
There are NFT creators who have sold millions by selling NFTs.
Popular NFT Marketplaces
Here are the top ten NFT marketplaces:
1. Rarible
An NFT marketplace for video clips, art, collectibles, and music. You will need to own their token Crypto-Rari to buy and sell on the platform to trade here.
2. NBA Top Shot Marketplace
A marketplace for collectible items such as play highlights and video clips. The platform also has the world’s premier basketball leagues.
3. OpenSea
One of the largest NFT marketplaces houses all sorts of unique digital assets. The platform is free to sign up and browse with an extensive offering. It supports artists and creators and has a straightforward minting process.
4. Axie Marketplace
An online marketplace for Axie Infinity, a video game with a considerable following. Axie Infinity tokens, known as Axie Shards, are built on the Ethereum blockchain.
5. Larva Labs/CryptoPunks
Known for cryptoPunkss NFT project
6. SuperRare
A platform is a marketplace for digital creators. The site has videos, art, and 3D images, each stored as a digital file. Collectors purchase the work using Ethereum.
7. Foundation
It is a simple, no-frills way to buy and sell digital artwork. The platform makes sales using Ehtereum.
8. Mintable
Backed by Billionaire Mark Cuban, Mintable is similar to OpenSea. The platform uses Ethereum and supports creators of all types to sell their work as digital assets.
9. Nifty Gateway
Facilitates the sale of increasingly popular digital artists such as Beeple and Grime. Gemini, a cryptocurrency exchange, powers it.
10. Theta Drop
The platform is built on the decentralization of TV and Video on the internet.
Closing
NFTs are digital assets that represent real-world objects such as in-game items, music, art, and videos. They are bought online often with cryptocurrency. Before you buy an NFT, ensure that you conduct your research. Remember that NFTs’ future is quite uncertain since we lack their performance history.
If you are risk-averse, you might want to invest a small amount in NFTs to try it out. But investing in NFTs is a personal decision because you invest in them if the items hold meaning to you. Remember, the value of an NFT is based on what someone else is willing to pay for it.
Key Takeaways
- NFTs are cryptographic tokens that cannot be replicated and exist on a blockchain.
- NFTs are used to represent real-world items such as real estate and artwork.
- Converting real-work items into NFTs allows them to be bought, traded, and sold more efficiently while reducing the chances of fraud.
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