The concept of a non-fungible token (NFT) can get quite complex to try and get your head around. The NFT market has soared in the last few years, with more and more big names/companies/celebrities hopping on board…but why? What’s the attraction?
This article explains what an NFT is, how it works, how it is different from cryptocurrencies, and how you can buy and sell NFTs. Some people look at NFTs as an investment opportunity, while others see them as a digital canvas to create works of art. We answer everything you need to know so you can attack the space with a solid knowledge base.
What is an NFT?
An NFT (also referred to as a nonfungible token) is a digital asset generally representing works of art, including photos, videos, in-game assets, and music.
NFTs are purchased and sold online, usually powered by cryptocurrency. They are similar to cryptocurrencies like Bitcoin and Ethereum in the way they are exchanged.
NFTs began in the early 2010s, but their popularity has soared in the last few years because they serve as the best way to exchange digital artwork online. The “non-fungible” aspect of NFTs means that they are one-of-a-kind. Each NFT has a unique code that matches each piece of artwork. NFTs get their value from the concept of digital scarcity.
So, are NFTs here to stay into the distant future? They have been around for over a decade, and their popularity continues to rise. COVID-19 was an engine behind the recent craze, which resulted in a $250 million market valuation in 2020. The rise in cryptocurrency also powered this. Ethereum saw a huge spike in this time because of its ability to power the NFT marketplace (though GAS prices also skyrocketed, essentially blocking access for the majority of the population… it was just too expensive).
How do people profit from NFTs? There are three primary strategies for people to make money off NFTs: investing, scalping, and creating. At the time of writing, OpenSea is the most popular marketplace for NFTs, with the majority of investors using MetaMask to connect & start buying/investing/trading.
We think NFTs will continue to grow in value behind the concept of uniqueness and digital scarcity. The idea that you can hold a digital asset that no one else can is attractive for many people. You can copy physical prints of baseball cards, art, and paintings easily. However, NFTs deliver supreme ownership to online creators, buyers, and sellers.
NFTs also come with potential additional functionalities like airdrops of more NFTs as long as you hold a specific type of NFT (Lazy Lions and BAYC come to mind here). Some creators even create and airdrop cryptocurrencies to the ones that own their NFTs.
How is an NFT Different from Cryptocurrency?
There are some critical differences between NFTs and cryptocurrencies, but it is also important to outline the similarities. Both NFTs and cryptocurrencies contain digital records that are stored on a blockchain, which includes transactions and a digital ledger.
NFTs and cryptocurrencies are also not yet super regulated by central banks or governments (at the time of writing at least).
Cryptocurrencies and NFTs are also very volatile. Prices can fluctuate quickly, but there is a key difference in how we assess value. With NFTs, the value is related to the asset’s value, whereas cryptocurrency’s value is more determined by the fluctuation of the market, use, and news surrounding specific projects tied to a given cryptocurrency.
Besides the similar programming and coding language, NFTs are far different from cryptocurrency. Cryptocurrencies and physical money are considered “fungible,” which means a unit of currency can be exchanged for the same unit of currency. Fungibility is what makes cryptocurrency secure and accurate. All transactions recorded on the digital ledger are accounted for.
For example, one bitcoin will always be exchanged for another bitcoin that is equal in value.
Some of the top examples of cryptocurrencies include:
- Bitcoin – developed in 2009, Bitcoin is the largest valued cryptocurrency that people can buy in sell in many different bitcoin exchanges and marketplaces
- Ethereum – blockchain software that allows developers to build and execute smart contracts
- Litecoin – a peer-to-peer, open-source currency that enables people to complete payments and transactions without a third party or bank
With NFTs, every unit has its own unique value, or perceived value, which makes it non-fungible. Every NFT contains a digital signature that will not allow one NFT to be exchanged for another NFT.
So, which is the better investment between NFTs and cryptocurrencies? It all depends on your goals and risk tolerance. If you are passionate about things like art or artistically gifted, you may want to start with NFTs. However, if you like to study the market as an analytical thinker, cryptocurrencies may be right for you.
How Does an NFT Work?
Blockchain technology powers NFTs, usually Ethereum. Other blockchains can establish their own networks of NFTs, but Ethereum was the first mover here.
NFTs are minted. These objects could be a mix of intangible or tangible items, including:
- Music – such as Grimes’ NFTs which recently picked up around $6 million
- Designer or specialty sneakers – such as those recently released by Nike
- Video game skins
- Video clip
- Virtual avatars
- GIFs – including the one-of-a-kind Nyan Cat NFT
- Sports highlights and other videos – like the famous Lebron James NFT which sold for over $200,000 on NBA Top Shot
The list expands far beyond here because people have sold tweets or written posts as NFTs. Jack Dorsey, the Twitter CEO and co-founder, put his first tweet up for sale as an NFT for $2.9 million.
Much like you would go to a physical brick-and-mortar collectibles store, NFTs are “digital collectibles.” Instead of buying a physical jersey, picture, or object, NFT buyers receive a unique digital file. NFTs can also have one owner at a given time, which provides sole ownership rights to the buyer.
So, how do NFTs work after someone buys them? What are they used for? NFTs and blockchain technology enable all types of content creators and artists to earn income from their hard work.
Instead of listing a piece of art in a gallery, artists can monetize and sell it straight to the customer as an NFT. By cutting out the middleman, the artist can also keep a higher percentage of the profits. The artist can also earn a sales percentage when their artwork is resold to a new NFT owner. Much like royalties, this feature allows artists to continue to receive proceeds for their hard work.
Many large companies will also auction off NFTs for charity. Celebrities and other prominent figures are starting to get into the game by releasing moments, unique memories, and other highlights.
Where Can I Buy NFT Tokens?
You may wonder “where to buy an NFT,” and it starts with owning an Ethereum wallet. While another blockchain technology is starting to offer NFT commerce, many of the non-fungible tokens are running on the Ethereum blockchain network because of the smart contracts.
Smart contracts do not involve legal or physical paperwork. Smart contracts involve a program that is powered on the blockchain. When NFT transactions take place, the smart contracts can properly organize and store digital tokenized data. This information includes the person or entity that initially owned it, when it was sold, and for how much.
Most Popular Marketplaces
So, what are the top marketplaces to buy NFTs? Below we are a list of places that have established themselves as a reliable online hub to buy and sell NFTs:
- Rarible – NFT marketplace that is community-owned, and users can receive the ERC-20 RARI token for being active on the platform.
- OpenSea – self-proclaimed biggest NFT marketplace that offers digital tokens like trading cards, art, sports highlights, virtual worlds, and domains that are resistant to censorship.
- SuperRare – focuses on allowing people to buy and sell single-edition, unique pieces of digital artwork.
- AtomicMarket – allows users to purchase multiple websites through an NFT market that is shared liquidity (all listings are also showing on the other markets).
- Foundation – formed in August 2020, it is a platform specializing in digital art that connects collectors, crypto fanatics, and creators.
- BakerySwap – serves as a decentralized exchange and automated market maker within the Binance Smart Chain, which offers DeFi services, NFTs, and a cryptocurrency launchpad.
- Myth Market – a collection of online marketplaces that power digital trading card NFTs.
- KnownOrigin – a marketplace that allows buyers and sellers to list unique and authentic digital artwork.
- Portion – a marketplace that enables anyone to become a collector by investing, owning, and selling collectibles and art with 100% transparency.
- Enjin Marketplace – a mechanism that allows trading, exploring, and investing of blockchain assets, including gaming products and collectibles.
- Async Art – allows users to collect, create, and trade art in the form of “layers” and “masters.”
How to Buy an NFT
Buying NFTs is like using eBay in that it is an online auction house and marketplace. You submit a bid and wait to see if you are awarded your selected NFT. NFT marketplaces also list their items in decimals, and the value can fluctuate because of the cryptocurrency volatility at that specific time.
For this specific example, we will show you how to buy an NFT using a Meta mask wallet on the OpenSea marketplace:
- Navigate to Google Chrome’s web store and purchase the Metamask wallet Chrome extension.
- Add an Ethereum balance by purchasing it straight on Meta (you will need to buy enough to satisfy your desired NFT cost, plus the Ethereum gas fee).
- Navigate to OpenSea and select the marketplace, where you will be able to browse through over a million NFTs, filter on category, and evaluate prices.
- Once you see an NFT you are interested in buying, click on it.
- Assess the price, which will view in both ETH and USD.
- When you are ready to move forward, you will need to sign into or access your Metamask wallet.
- After the window for checkout opens with the NFT total price, you must click the box that says “terms of service.”
- Select the “checkout” button, and then a Metamask window will show up providing information about the Ethereum gas fee and NFT retail price.
- If you agree with everything, select “confirm.”
- From here, you will be redirected to a page that constantly updates you on the progress of the transaction (some transactions take minutes, hours, and sometimes days).
How to Make an NFT
Making your own NFT is simple. Rarible and OpenSea currently lead the way for NFT creation, so these are excellent marketplaces to get your start. Both platforms enable creators to build and sell NFTs by following a few steps:
- Create a wallet with Metamask – this software wallet will house your NFT and will allow you to pay fees for ETH blockchain gas (wallets do not house the NFTs or cryptocurrency, but they are maintained on the blockchain with the specific digital wallet ID that serves as your proof of ownership).
- Setup your canvas – within OpenSea, click the “create” option in the menu, connect the Metamask wallet, and then start work on your crypto art.
- Tokenize/mint the art – designate a name for your collection of NFT art, click the “add new item” selection, and then upload the specific file you would like to tokenize. Here, you can assign different properties to make it unique from the rest of your collection, decide on the number of copies, and then set the retail price.
- List your NFT on the marketplace – Allow OpenSea to sell NFTs and digital items from your account, which will require a transaction from the blockchain and an ETH gas fee.
- (optional) Put your NFT up for sale – there’s a few options here, check out our guide on selling NFTs for more information.