Non-fungible tokens or NFTs! The recent fabulous digital assets that have transformed all aspects of our modern societies, from art to shopping and mainly finance. Everyone may ask about it and probably want to own an NFT. Let’s provide all you need to know about NFTs in this article.
What is NFT?
Non-fungible token or NFT first was developed in 2014 by Kevin McCoy and Anil Dash who were the first to introduce non-fungible, tradable blockchain linked to a unique piece of art.
Simply put, a non-fungible token (NFT) is a unique unit of data living on a blockchain that is linked to digital and physical objects. It uses a smart contract to provide an irreversible proof of ownership. An NFT contains data that can be tied to digital images, songs, videos, avatars, real state, etc. Besides, an NFT can give its owner access to exclusive merchandise, tickets to live or digital events or even physical assets like cars, ships, etc.
Considering the function of blockchain technology, individuals are allowed to create, buy and sell NFTs in an easily verifiable way while they do not need a third party to sell them. But bear in mind that NFTs are one-of-a-kind and cannot be replicated. This explains how NFTs are different from cryptocurrencies. Let’s have a closer look.
If some of these expressions related to NFTs make you confused, you can check out a complete list of words here.
How are NFTs different from cryptocurrencies?
It is already known that both NFT and cryptocurrency make use of blockchain technology. However, they are different in nature as well as usage.
Cryptocurrency is used for all transactions on the blockchain. Crypto exchanges make it possible to purchase or convert cryptocurrency into fiat currencies (dollars, euros, etc.). In this respect, cryptocurrencies are fungible tokens.
In contrast, an NFT is a unique and irreplaceable digital asset that is traded using a cryptocurrency determined in a marketplace; therefore, an NFT’s value is independent of the currency used to purchase it. Therefore, NFTs are non-fungible.
To clarify the case, imagine someone asks you to lend him $100. It would be silly to take out a bunch of bills and tell the person to choose one, since each $100 bill represents the same amount and is equal and exchangeable to any other $100 bill. Cryptocurrencies do the same, one Bitcoin is equal to any other Bitcoin. So, cryptocurrencies are all fungible because they are not unique and can easily be traded and replaced.
On the other hand, as said above, NFTs are one-of-a-kind meaning that no two NFTs are the same. Each NFT is a unique unit of data that has no identical version. Therefore, they are non-fungible and cannot be replaced by another one.
Different types of NFTs
Lots of attention to non-fungible tokens (NFTs) has led to a hype to create different types of NFTs. Some of the most popular NFT use cases are art, collectible, finance, gaming, music, real-world asset, etc. Let’s discuss them in more details.
refer to digitalized and monetized artwork into the blockchain. Art NFTs get their value from two main factors: the ability to verify the authenticity digitally and proving the ownership of the particular digital asset.
are unique digital assets minted in the blockchain, which users can collect or trade. Some special collectible NFTs are limited-edition and can be particularly rare and valuable.
are created when an artist attaches music or audio to an NFT. It provides a certificate of ownership for a unique audio or a musical piece that can be bought or sold.
Video NFTs are digital assets in the form of moving pictures. Video NFTs have been popular among investors due to the ability to own digital assets like unique videos by favorite creators, personal taste and collection.
NFT avatars are the most popular NFTs that present images of a character in a “headshot” digital profile picture format. Each avatar is individually unique and generated by an algorithm with different traits. These NFTs are usually launched in large numbers and are supported by their communities. Avatar NFT are mostly used in Metaverse as a ticket to exclusive events.
Game NFTs present the weapons, skins and all other assets used in a game which help player win a battle. They follow rules, mechanism, and player interactions. For example, a game can offer a rare game skin as an NFT, and the player who unlocks it first takes ownership of it. These NFTs can be sold in NFT marketplace.
can be a new way for meme creators to monetize their memes. The value of these NFT memes will be heavily dependent on the originality, and the authenticity of the digital asset.
Why does an NFT have value?
A non-fungible token is basically a certificate of possession for digital assets. The value comes from not only collectability of the asset, but also its uniqueness and scarcity. The rarity increases an NFT’s appeal as well as desirability. Since They are encoded in blockchains, they could be easily tracked which allow for transparency and verification of their authenticity, along with the entire history of all the owners in the past and the present.
Besides, owning digital assets is valuable if the market knows it as precious. Therefore, the value increases if the NFT has a clarified usage, for example a weapon or an asset in a game or an avatar. That could explain why almost all physical assets can be turned to NFTs.
Why do people want to have NFTs?
NFTs has brought lots of changes to both physical and virtual worlds. They provide various advantages for their creators and owners. Here are the main reasons why people choose to own NFTs.
NFT artists can mint and sell their work independent from a third group. NFTs allow them to retain the IP and creative control. NFTs empower creators to earn royalties from all secondary sales of their work. Besides, since NFT market is one of the biggest in content, NFT creators have no limits to produce their art.
Most of us had the interest to collect cards, coins, stamps as a hobby. Some even made some money by selling their collections. NFTs can be, in many ways, the digital version of all physical collectables. NFTs and blockchain technology allow individuals to build a collection of digital assets. It creates a unique opportunity that hasn’t existed outside of traditional collectibles and art markets ever before.
Some NFT owners simply look for an asset that will increase in value and makes profit. NFTs can be a kind of investment in short or long term. A good example of such profit is Beeple: The First 5000 sold for $69 million in March 2021.
NFT owners have turned their NFTs into vibrant communities. NFT projects are supported by the owners through social media, specifically Discord. A good example of community support for an NFT project comes with The Bored Ape Yacht Club. For many, owning an NFT means socializing with friends and a matter of identity.
Such community support also helps NFT artists be independent from galleries and exhibitions and sell their NFT art directly to customers. They receive more benefits as well as loyalties from later sells of the piece. The feature sounds attractive as artists basically receive no future advantages since they sell their piece of art for the first time.
What are some NFT blockchains?
Blockchain technology allows the creation of NFTs. A blockchain is essentially a distributed database for recording and storing information. It is also referred to as a digital ledger, and its decentralized network ensures that data cannot be hacked or manipulated. In the following, we will discuss some of the popular NFT blockchains. for a complete this read this article.
Ethereum is a decentralized, open source blockchain platform powered by its native cryptocurrency, ether (ETH). Ethereum smart contracts allow participants to develop all sorts of decentralized financial services and applications. A large number NFT marketplaces make use of Ethereum blockchain.
Solana is a public, open-source blockchain built in 2017 to host a wide array of scalable decentralized applications (dApps). Solana supports smart contracts for NFTs. This blockchain provides lower costs and faster transaction speeds compared to other blockchains like Ethereum and Bitcoin, especially when blockchain networks get congested, like during a popular NFT launch.
To do so, Solana introduced a hybrid consensus model integrating a novel PoH (Proof of History) algorithm with PoS (Proof of Stake), which gives the network a throughput claiming to rival TradFi payment processors such as Visa. Therefore, the blockchain project is capable of scaling to global demand; in numbers, Ethereum averages 13 transactions per second, while Solana has a theoretical throughput of 65,000 transactions per second.
Founded in 2017, Tezos is an open-source platform for assets and applications. It also creates smart contracts and build decentralized applications (dApps). Tezos uses a proof of stake (PoS) consensus algorithm to create a secure network for its users.
Tezos blockchain is unique for its ability to self-amend so that it can improve itself over time by using a formalized process to upgrade its protocol. It uses its on-chain mechanisms for proposing, selecting, testing, and activating protocols. These features as well as encouraging developers to build dApps on the platform has positioned the blockchain safe and reliable. Tezos’ native cryptocurrency is XTZ.
Build’ N Build, or BNB, Chain is the next decentralized blockchain on the list. The BNB Chain aims to increase interoperability and develop the underlying infrastructure of the “world’s parallel virtual environment,” which levels up Binance’s recent MetaFi efforts.
Polygon is specifically tailored to the Ethereum ecosystem and offers developers a framework for creating Ethereum-compatible blockchain networks and scaling solutions.
How to create, buy and sell NFTs?
The NFT market, like any other market, has its own rules and regulations. Everyone can join the market easily taking few steps. First of all, individuals know that they need cryptocurrency to create and trade NFTs through owning a crypto wallet. A crypto wallet allows people to safely store both cryptocurrencies and NFTs. They also need to learn about NFT marketplaces and how to work with them. Here is a guide about creating, trading, storing, and managing NFTs:
Create and Sell NFTs
1. Get a crypto wallet
A crypto, or digital, wallet is a program that allows you to store and transfer all types of digital assets. You can have software or hardware wallets. A hardware wallet is much safer than the software one to store valuable digital assets.
A software wallet can be downloaded and installed on your device. They are easier to use and accessed as they are always connected to the internet. Though, these wallets are at higher risk to attacks and easier to hack. As a result, they usually offer less secure.
On the other hand, a hardware wallet is a physical device just similar to a USB stick you connect to your computer. It is used to store crypto and NFTs. These wallets offer more security as they can be completely isolated from the Internet and networks.
2. Fund a crypto wallet
Ether (ETH) is the leading cryptocurrency used for NFT transactions. ETH the native currency of the Ethereum blockchain. It can be purchased via major trading platforms like Coinbase and Gemini. Users can buy ETH with a bank account or credit card.
There are also other cryptocurrencies that support NFT transations, including Solana (SOL), Tezos (XTZ), Flow (FLOW), and Binance Smart Chain (BSC). You need to check about the cryptocurrency required to create, buy or sell NFTs in an NFT marketplace.
3. Find your NFT marketplace
NFT marketplaces allow people to mint, create and sell their own NFTs or trade the NFTs available in the market. Some of the most popular NFT marketplaces are OpenSea (the most popular NFT marketplace with over 1 million active user wallets), Rarible (famous for having the rarest NFTs), Foundation, SuperRare, etc. Each marketplace provides special orientation and services to its users.
NFT marketplaces charge their users with some fees which varies from market to market. Minting comes with an initial cost called a gas fee (transaction fee). NFT trades also include some fees. Users need to check the fee rate before each transaction.
4. Mint an NFT
Minting is a procedure of creating an NFT; the process of connecting certain data to a specific asset or object using the blockchain technology. NFT creators must own the copyright and intellectual property rights for the item they want to mint or they face legal troubles.
The first step is to choose a marketplace and create an account. The latter can be slightly different for each marketplace. Creators need to upload the file they intend to associate with their NFT and fund the transaction using the required cryptocurrency. The marketplace also asks for all the relevant information regarding the new NFT, and that NFT will be registered to the digital wallet connected to the account. The NFT is there in the market.
Buying and selling NFTs can take place in NFT marketplaces or official websites of NFT projects. CryptoPunks, as an example, were sold through the Larva Labs website rather than through a public marketplace.
When you find your favorite NFT, you may have the opportunity to buy it outright. However, sometimes the item is on a bid and you need to wait until the auction closes. The top bid wins the auction. Once the transaction completes, the ownership of the NFT will transfer to your wallet.
The selling process for an NFT follows a similar process. You can set up an auction for your NFT on the marketplace. Check for the fees and different kinds of auction methods available. Once the item is sold, the NFT is automatically transferred from your wallet and the crypto is added to your wallet.
Most popular NFTs in 2022
NFT marketplaces are filled with various NFT projects and the list grows longer every day. However, some NFT projects have been shown to be more successful in the market and have attracted more investors. NFT projects such as CryptoKitties, CryptoPunks, Bored Ape Yacht Club, Axie Infinity, etc. are among the most popular ones since the run of the market.
Features such as the developer team, community support, celebrity ownership and individual’s interest have made these project financially successful, too. Some of the well-known NFT developer companies are Yuga Labs (Bored Ape Yacht Club), Larva Lab (CryptoPunks) and Dapper Labs (CryptoKitties).
Some of the best NFT projects have also been launched in 2022. You can read about the most popular ones here.
The strangest NFTs ever minted
Since any asset can be turned to NFTs, strange things also can be choice to create NFTs from. Here is a list of the strangest NFTs ever existed.
1. The first tweet
The former CEO of Twitter, Jack Dorsey, sold his first tweet, “just setting up my twitter” for an extraordinarily ridiculous $2.9m. This NFT is only a screenshot of the tweet from 2006.
2. X-rays of an attack victim
In a symbolic case, a French doctor Emmanuel Masmejean minted the X-ray of one of the survivors of the shooting at the Bataclan theater in Paris in 2015 as an NFT.
3. Taco Bell NFT collection
The first Taco Bell NFT sold for $6.9 million. All the profit from the sale went to Taco Bell Foundation, a charity for youth scholarships.
4. Digital Toilet Paper
NFT Toilet Papers with flowers or emoji printed on them are on sale for $4,100. The NFTs belong to a toilet paper brand Chairman. It has sold a record of $4k.
The list goes on with the weirdest ideas you may imagine, even NFT rings for a marriage in a blockchain. It can be a reason why NFTs are so exciting.
NFTs and copyright
Based on the description of NFTs, we understand that most non-fungible tokens are a metadata file encoded in a blockchain and may or may not be subject to copyright protection. Since NFTs can be the digital version of anything around us, the original work is only needed in the first step of the process to create the unique combination of the tokenID and the contract address. Therefore, NFTs have very little to do with copyright.
However, many are asking for copyright with NFTs, in part because the volume trade of NFTs has been significantly increased and it is believed that works of art, as an example, need to be protected by copyright. Besides, many question the lack of clarity about what it is exactly that you get as an NFT.
The future of NFTs
Although NFTs have caused a great wave in the digital market, they are still in their infancy. As the digital world expands and modern technologies are designed to form the virtual world, there is no doubt that NFT is going to be a certain part of the metaverse and play a key role in the metaverse of the future, as NFTs mainly act as digital representations of the physical objects people possess.
The metaverse also requires its user to present themselves with a digital avatar. It is believed that items and skins with an avatar can be moved between all games or metaverses that use the same blockchain.
Therefore, it seems to be far from mind to see NFTs merely as a passing fad that may shortly be pretermitted. All we need to do is to wait and see.