What are NFTs Exactly?
September 1, 2023
What are NFTs Exactly?
On September 1, 2023 by adminThe year is 2014, and the first NFT “Quantum” is minted by a digital artist named Kevin McCoy.
Almost a decade later, everyone’s talking about NFTs.
From the rise of CryptoPunks in 2020…
To the word ‘NFT’ being named word of the year by Collin’s Dictionary…
To celebrities like Snoop Dogg and Eminen showcasing their Bored Ape avatars at the 2022 VMA’s…
And now the world’s biggest companies like Starbucks, Visa, Instagram, Twitter and Nike are involved in NFTs…
Nike Sold An NFT Sneaker For $134,000.
Source:https://www.nytimes.com/2022/05/26/style/nike-nft-sneaker.html
But as popular as they are, “what are NFTs” still remains a common question.
Only 1 in 4 people actually know what an NFT is. The aim of this article is to fix that.
Below, I’ll answer every question you’ve probably asked yourself about NFTs – Are they a scam? Where do you buy them? And so much more…
Let’s begin.
The Big Question– What are NFTs?
Beeple’s ‘Everydays – The first 5,000 Days’ sold for $69 million on Christie’s auction.
NFTs (or non-fungible tokens) are a way of registering data like an image, video, or any form of digital, or physical item on a blockchain.
A blockchain is a distributed public ledger that records transactions…
And it’s the underlying technology that makes cryptocurrencies & NFTs possible.
NFTs are created, or “minted” from digital objects that represent both tangible and intangible items like…
- Graphic art
- JPGs & GIFs
- Videos and sports highlights
- Digital collectibles
- Virtual avatars
- Video game skins and assets
- Designer sneakers
- Music and so much more.
NFTs are like physical collector’s items, only digital.
So instead of getting an actual painting to hang on the wall, the buyer gets a digital file.
They also get exclusive ownership rights.
NFTs can have only one owner at a time, and thanks to blockchain technology, it’s easy to verify ownership and transfer NFTs between owners.
Creators can also store specific information in an NFTs metadata…
For example, artists can sign their artwork by including their signature in the file.
But NFTs can do way more than just store information.
They can also give the creator royalties when traded…
Or give the holder access to a community and membership perks – the rabbit hole goes deep, and we’ll unpack everything for you here…
As a result of these uses, NFTs have become collectable digital assets that hold value, just like how physical art holds value.
NFTs can be made from any kind of photography, art, music or video file… Even tweets and memes have been made into NFTs…
…like that time Jack Dorsey, the former CEO of Twitter auctioned an NFT of the first Tweet and it sold for $2.9 million!
This piece of digital history right here👇
What NFTs Are Not
Some people think owning an NFT is as simple as right-clicking and saving the image on your computer…
But… the image associated with an NFT is simply a copy, JPG form of the original work.
What you’re really buying is a non-fungible token’s smart contract.
Smart contracts are rapidly changing the world… To learn more about how they work, read this article. They’re what give you all the benefits of owning the NFT.
Here are some examples…
The Board Ape Yacht Club artwork is cool and all, but the community you get access to when you own one is what’s valuable.
Gary Vaynerchuk’s “Empathy Elephant” isn’t the greatest art. But it sold for over $16,000 because you get access to the VeeFriends community, events and perks when you own this NFT.
Gary Vee’s “Empathy Elephant” NFT sold for 10.555 WETH ($16,426.43)
Why do people buy NFTs?
People buy NFTs for many reasons…
Investors, as you may guess, see them as investments…
“Early adopters” genuinely love the art or the technology behind NFTs, and like to experiment with how blockchain technology can be used…
And more and more people are now seeing NFTs as a way to launch products…
Raise funding…
And advance diversity, equity and inclusion in historically inequitable spaces.
How do NFTs work?
NFTs can represent any form of digital file, whether that’s a jpeg of a piece of art, a video, or even real estate.
Turning these files into ‘tokens’ and securing them on a blockchain make buying, selling and trading these files efficient and reducing fraud.
The unique identity and ownership of an NFT can be verified via the blockchain ledger.
NFTs with utility were first launched on Ethereum’s blockchain, but now you can build using other blockchains like Solana, Wax, and Polkadot.
Whether the original file is a JPG, MP3, GIF or anything else…
The NFT that identifies its ownership can be bought and sold just like a regular piece of art…
Like with physical art, the price is largely set by market demand.
If you wandered into a gift shop of an art gallery, you’d find a number of replicated prints of famous masterpieces…
Some NFTs act the same way…
There are parts of the blockchain that are totally valid, but they wouldn’t hold the same value as the original.
NFTs will usually come with a license to the digital asset it points to, but this doesn’t automatically grant copyright ownership.
The copyright owner may reproduce work, and the NFT owner gains no royalties.
How can I buy an NFT?
First you’ll need a crypto wallet specific to the platform you’re buying on (and some cryptocurrency in that wallet to cover gas fees).
To learn how to set up crypto wallets, read this article.
The most common way of buying and selling a non-fungible token is on an NFT marketplace.
These are auction platforms created specifically to showcase NFTs.
The most popular ones are OpenSea, Rarible, SuperRare, Nifty Gateway, Magic Eden and Foundation.
Public Mints
Public mints allow you to buy NFTs before anyone else.
“Minting” an NFT is the process of putting a unique digital asset on a blockchain, so it can be bought, sold or traded.
Let’s look at the public minting of Bored Ape Yacht NFTs in 2021…
People who were first in line were able to snag Bored Apes at a price of $217 each.
At the time of writing this, the floor price of BAYC NFTs is $70,210.
Now this is an extreme example– but demonstrates the power of buying a great community/project NFT at a public mint.
Here’s another way to buy NFTs early…
Whitelists
A whitelist is literally a list of wallet addresses that can buy an NFT before its public launch.
You might be wondering how you get on the whitelist– and it’s actually pretty simple!
NFT teams use an application process to handpick the best fits.
Here are some tips to get picked for the whitelist:
- Be an engaged member
- Become a recognizable face in the community
- Be a champion of the project on social media
That’s how you increase your chances of getting on the whitelist.
Simple right?
Let’s move on…
Who’s buying NFTs?
Right now millennials are the largest group buying NFTs…
While Gen-X is the highest spending group…
And Gen-Z trails close behind.
Older generations are staying clear, for now– but more and more corporations like Visa are picking up NFTs as investments.
Are NFTs legit?
NFTs are absolutely ‘legit’.
But there are a lot of scams out there.
These show up as rug pulls (founders disappearing after selling NFTs)…
Or people that fool you into handing over your NFTs…
Here are some good rules of thumb to avoid getting scammed:
- Do your research
- Never accept free NFTs
- If something sounds too good to be true it’s best avoided.
- Never share your private keys.
Why are NFTs controversial?
There are a few reasons…
The environment problem
One reason is the ‘proof-of-work’ system blockchain networks like Bitcoin, and the old Ethereum use are notoriously bad for the environment.
This process requires solving a complex series of puzzles to keep the financial records of users secure…
A process that consumes a massive amount of energy.
Investopedia.com said…
“Minting a single NFT using a proof-of-work blockchain uses the same amount of electricity an average American household uses in about 47 days.”
ArtStation was so worried about the impact on the climate that it recently reversed its decision to sell NFTs after a huge backlash…
This is why Ethereum recently shifted its network from away from proof-of-work to a proof-of-stake system…
Which brought energy consumption down by 99.9%.
That’s like shrinking the Leaning Tower Of Pisa down to the size of a screw!
There are also low energy & carbon neutral blockchains such as Palm, Flow, and WAX…
WAX even plants trees to offset the carbon emissions generated by blockchain usage.
But there’s another reason NFTs are controversial…
The Royalty Fee Problem
There’s been a growing trend in the NFT space of removing creator royalties from major NFT collections, marketplaces, and platforms.
The NFT artist decides on the royalty fee, which is usually between 5% and 10% of the secondary sale price.
Removing these royalties has upset a lot of artists.
Especially since NFTs were originally made to give them control by proving digital ownership.
But not every NFT marketplace is following this trend.
OpenSea is one NFT marketplace that continues to enforce royalties.
But digital artists aren’t the only ones talking about NFTs…
NFTs And Gaming
Ah, NFT games.
It all started with CryptoKitties.
The story behind NFT games
CryptoKitties was the first to combine the features of gaming with NFTs in 2017…
Soon other projects followed that allowed NFTs to show up as all sorts of collectible items.
Like skins…
Land…
Avatars…
A classic example of one of these ‘next gen’ NFT games is Axie Infinity.
Axie Infinity: The NFT game that broke the internet
In 2020, Axie Infinity broke records when it became the first NFT game to hit $1B in sales.
In this Pokémon-style game, you collect, breed and fight with collectable monsters called ‘Axies’.
With innovative NFT tech, you owned these digital collectibles just like IRL collectibles.
Why are NFT games so controversial?
Right now, NFTs are a polarizing topic in the gaming community.
Some love them, some hate them, and some are open to trying them out. But let’s just say, NFTs had a rough start with the gaming community.
2020-2021 were years marked by overpriced, underdeveloped NFT games… giving a terrible first impression of the technology.
Take Ubisoft for example…
Or EA Sports…
Gamers were already fed up with monetization tactics in their favorite video games…
Like in-game purchases, battle passes, and other monetization tactics–but overpriced NFTs took this to the next level…
At its peak, it cost well over $200 just to play the NFT game Axie Infinity.
However…
The gamers that were open to NFTs became early adopters–and some even die-hard supporters.
The Axie Open Manila 2022 Esports Tournament.
These people see a bright future for NFTs in video games, and are a part of early communities in games like Axie Infinity, Star Atlas and DigiDaigaku.
The future of NFT Games
NFT games used to require a lot of money to play, but that trend is starting to fade.
Now you can play Axie Infinity for under $20…
And other NFT games like Big Time (listed below) are free-to-play.
Even mobile gaming giants like Zynga (the creators of Farmville) are working on the next generation of quality, free NFT games.
The most exciting feature of these new NFT games is the idea of ownership.
In traditional games, you grind or pay for items in a game, but you don’t get to own your items in return.
This means if you ever get banned, the game company can take everything you ‘own’ away from you. Not good.
In NFT games, your game items exist on the blockchain.
For the first time, this puts your game items 100% in your control…
You can even sell or trade your items to other players when you no longer want them!
Pretty cool huh?
So what are some of the best NFT games you can play now?
5 NFT games you can play now
1. Big Time (PC)
Big Time is a free-to-play, multiplayer action RPG game that combines fast-action combat and adventure through time and space, and the world’s first AAA NFT game!
2. Axie Infinity (PC & Mobile)
It’s like Pokémon with NFTs as you breed and collect adorable creatures while exploring a unique world.
3. Townstar (Mobile)
Town Star is a competitive farming game from one of the co-founders of Zynga, the company behind Farmville. Grow, gather and craft your way to building the most efficient and productive town imaginable!
4. Gods Unchained (PC)
Gods Unchained is another free-to-play tactical card game that allows you to own your cards and mint new ones as NFTs. Start with a welcome deck of cards and rise through the ranks!
5. ArcheWorld (PC)
Speaking of World of Worldcraft… fans will love ArcheWorld, a free-to-play NFT MMORPG where players own their in-game assets.
Sports NFTs
Sports NFTs provide a new way for fans to connect with their favorite clubs and athletes…
And give athletes, clubs, and sports brands a new monetization avenue.
Owning limited edition virtual memorabilia of one’s favorite basketball team…
Or a rare collectible card of a favorite baseball player…
Is something that a lot of fans are willing to pay good money for.
As a result, sports NFTs often trade for thousands of dollars (or more)…
And the value of some of the rarest pieces has increased substantially since they were minted (similar to baseball cards)…
The sports industry is also facing a lot of problems, such as counterfeit tickets and goods…
Since NFTs are recorded on the blockchain, we can verify originals, and prevent counterfeit collectibles and tickets.
Fashion NFTs
From Dolce & Gabbana to Gucci, Louis Vuitton, and Burberry…
Burberry recently launched a collection of virtual vinyl toys within the game Blankos Block Party, becoming the first luxury brand to be featured in the game.
Luxury brands are actively exploring ways to introduce NFTs to their product ranges and marketing efforts.
Fashion NFTs can show up as virtual garments that customers can wear within virtual worlds…
Digital content that owners can interact with…
Or digital copies of physical creations.
More and more brands combine AR with NFT technology…
For instance, Nike and RTFKT recently launched Nike Dunk Genesis Cryptokicks…
A collection of 20,000 NFT sneakers that owners can showcase in the real world through a Snapchat filter!
How do NFTs relate to crypto?
NFTs are secured on cryptocurrency blockchains, trading using Ethereum, Solana, Wax and other tokens.
This means they are tied to the ebb and flow of cryptocurrency values, which is a positive and a negative…
Since crypto is volatile – so are the prices of NFTs.
Which means holding one can either make you a bunch, or lose you a bunch of money.
What are the best ways to make money from NFTs?
Here are the four of the best ways to make money with NFTs:
1. Play-to-Earn games: These games allow you to earn NFTs through gameplay. These show up as game items like swords, avatars, skins etc. Sell these on NFT marketplaces when you’re done playing.
2. Flipping NFTS: Many people collect NFTs and hold them long-term with the goal of selling when their value increases. This is a high-risk, high-reward strategy.
3. Investing in new NFTs: if you’re early to some NFT projects you can get on their ‘whitelist.’ This lets you mint NFTs before anyone else
4. Create your own NFT: anyone with a computer can create an NFT, or an NFT collection–even for free (with restrictions). This is the route many creators have gone.
Can anyone make an NFT?
Yes. Anyone can create a piece of art, turn it into an NFT on the blockchain (a process called ‘minting’) and put it up for sale on a marketplace of choice.
You can even attach a commission to the file– which will pay you every time someone buys the piece through a resale!
Like when buying NFTs, you need to have a wallet set up, and it needs to have enough cryptocurrency in it to cover gas and conversion fees.
These prices fluctuate depending on the time of day…
This will get easier as NFT marketplaces place the fees on the buyer and not the creator….
And projects enable people to buy NFTs with fiat via credit and debit cards (like Reddit does).
Future outlook
The NFT market exploded in 2021, but has since cooled.
According to Chainalysis, monthly spending on NFTs from January to April of 2022 fell from a peak of $12bn+ to less than $8bn
However, while growth has slowed…
Both spending and the number of active buyers in the market remain far higher than at the start of 2021.
This is a good sign & suggests that people are still interested in NFTs.
Since they’re so new, it may be worth investing small amounts to try it out for now… It’s largely a personal decision.
But if you have money to spare, it may be worth it, especially if a piece holds meaning for you.
Just remember– an NFT’s value is based entirely on what someone else is willing to pay for it. i.e. These aren’t stocks.
That said, approach NFTs just like you would any other investment…
Do your research…
Understand the risks—including that you might lose in the end…
And if you decide to take the plunge, proceed with a healthy dose of caution.
Thank you for reading. I hope this article helped you get clear on what NFTs are, their use cases, and how to buy them.