Just about anyone in the crypto-verse has been talking about the new digital sensations. But very few actually understand what they are all about. Things get even more intimidating if you’re a noob to the space. And the lengthy articles with complicated terms don’t make things any easier.
Well, you’re in luck. Stick around as we talk about all things NFTs, how they work, and whether they are just ‘dumb images on the internet.’
NFTs explained: what are NTFs?
Non-fungibles came to light in 2021 and have since been a source of confusion and dramatic hype in the crypto space. This created a buzz in the crypto world as more people were curious to know what these tokens were all about.
We bet that you are really yearning to find out what these digital items are. Let’s delve into it.
Since their inception, NFTs have so far caused a paradigm shift in every industry from finance to marketing, art to sports, and tech to fashion just to name a few.
So, what exactly is an NFT? An NFT is a unique unit of data on a blockchain that is linked to physical and digital objects to provide secure proof of ownership. The data that comprises an NFT can be tied to songs, online images, avatars, videos et cetera.
These tokens can be used by an owner to gain access to tickets to live or digital events, merchandise and physical assets. Physical assets include yachts, property, cars, fashion and much more. Therefore, NFTs allow users to buy, sell and trade using blockchain technology. They enable easy verification of transactions through proof of ownership. Understand that this process does not entail buying intellectual property rights, copyrights, or commercial rights for assets.
Creating and selling NFTs is simple as we’ll show you in the sections below. An individual or organization selects a unique asset that can be sold as an NFT. The unique asset is added to a blockchain that supports NFTs in a process called NFT minting.
Minting enables the creation of non-fungible tokens. Minting is the equivalent of the mining process of crypto except that in this case, we are mining non-fungible tokens. Minted NFTs can be traded, bought and sold as a private collection of assets in the marketplace. These assets include physical assets such as real estate and virtual assets like digital content and digital art.
How do NFTs work?
NFTs are created on other smart contract-based blockchains with non-fungible token support and tools. NFTs are individual tokens with valuable information stored in them. The digital token proves that you have authority over the artwork and NFTs make this possible. The collectibles and art spaces are being taken over by NFTs worldwide. Just as Bitcoin took over the crypto world, NFTs took over the collectibles.
Artists seem to be the biggest benefactors of the NFT boom as they become even more popular in the art scene.NFTs open the door for artists to trade their art on a global scale with greater autonomy, lower barriers to entry, and increased monetary benefits.
Most NFTs are hosted under the Ethereum cryptocurrency blockchain. Key examples of non-fungibles are; domain names, games, collectibles, essays, and shoes in a fashion line among others.
What’s the difference between NFTs and cryptocurrencies?
The main difference is that Cryptocurrencies are by their very nature fungible, while NFTs are not. One Ethereum equals another Ethereum but one NFT is not equivalent to another NFT. Each NFT is unique and valued differently based on its perceived demand and value.
Fungibility is the capability of assets to be easily interchanged for another asset of a similar kind such as currency exchange. Interchangeable assets of different kinds such as artwork and currency are non-fungible.
The non-fungible-based tokens cannot be copied, subdivided, or copied in a blockchain. NFTs, just like bitcoin and other cryptocurrencies, also contain ownership details. Tagging ownership details to NFTs makes it easy for identification and interchangeability between token holders.
Token holders can add metadata or certain attributes pertaining to the asset tagged to NFTs. For instance, digital artists can sign their artwork with their own signature in metadata. These attributes are classified based on the type of digital items for example flowers can be classified as fair trade.
Types of NFTs
Digital Artwork
The most popular form of NFTs is digital art while others include pixel art, 3D sculpting and digital drawings and paintings. The story of NFTs started with artwork which can be anything from drawings to photographs.
William Shatner released a collection of NFTs of personal memorabilia spanning his 60-year career. He sold 125,000 units in 9 minutes, which included some of his early headshots, a photograph of Shatner hugging Star Trek co-star Leonard Nimoy, and an X-ray of Shatner’s teeth.
William Grant and Son recently sold 15 bottles of 46-year-old Glenfiddich whisky for $18,000 each, each with its own NFT artistic impression of the bottle. The NFT enables the owner to display their purchase while also serving as a counterfeit-proof certificate of ownership.
Beeple’s Every day is the most popular artwork NFT example. The digital art sold for a whopping $69 million at the Christie’s Auction in May last year.
Music
Another form of NFT is music and music albums. Music artists will be able to release music directly to their fans through NFTs thereby eliminating music intermediaries and piracy cases in the industry. Euphoria, an Indian music band, joined the trend by promising to release an NFT-based album.
Memes, GIFs and Video clips
Since artwork NFTs are standalone images, then motion-incorporated aspects of these drawings and paintings can be turned into GIFs. These NFTs can also be football highlights, movie trailers and behind the scene clips.
In February, the Kobe-Lebron Tribute Dank video clip was sold for nearly $400,000. Memes have emerged to be a form of digital artwork in the last couple of years. The Doge meme in June 2021, sold for a whopping $4 million. This paves the way for memes to be sold as NFTs. Other examples are; Charlie Bit My Finger and Bad Luck Brian.
Avatars and Video Games
Profile picture collections and avatars like CryptoPunks, Bored Apes and Lazy lions are examples of NFT-incorporated virtual objects. One collection can include thousands of unique avatars, based on the rarity of their traits.
Blockchain games allow players to collect, buy and trade NFTs in the form of characters, weapons, skins, and game accessories. Virtual weapons are traded in GTA and Mortal Kombat. Axis from the Axie infinity game was among the most traded NFTs in 2021.
Trading Cards
The traditional collectible cards have now been replaced by digital trading cards. Users can either trade them with others or store them as a collectible that can be bought and sold. Sorare card and Base card are good examples of the trading card NFT projects.
Metaverse Land
Metaverse allows users to socialize, interact, trade and earn within a virtual ecosystem and exist as virtual avatars. In the metaverse ecosystem, users can buy, sell, trade and own virtual assets. Virtual assets include; virtual land, virtual real estate and properties.
Although there are questions on whether the metaverse land is a sustainable NFT, platforms such as Sandbox and Decentraland have made progress in the space.
Virtual Fashion
Virtual fashion skins, as well as accessories, will be needed for an online virtual identity through avatars. A fashion wardrobe consisting of new skins, sunglasses, sneakers et cetera will be essential to every avatar. What are NFTs’ applications in the fashion industry? An example is Adidas hoodies offered by the bored ape yacht club.
What are the uses of NFTs?
Real Estate
NFTs can be used in the rental properties sector to transfer land deeds and provide proof of ownership. They can also be used to keep track of value changes for different properties using the time-stamped NFTs.
These tokens are used in property management to speed up and simplify the transaction process. They can also enable decentralized rental services and smart contracts. They also protect sensitive data like credit card details.
NFTs enable users to know everything about the property they are about to acquire just from their phones. The details include previous ownership features, when the structure was built, and what modifications have been done.
Intellectual Property Rights
NFTs act as proof of ownership for any piece of content that can be classified as intellectual property or patent. Traditional intellectual property tools like copyrights and trademarks don’t allow owners to prove ownership.
With the incorporation of timestamps, copyright ownership of intellectual property is easily distinguished. NFTs can make the process secure/immutable hence proof of ownership can be revealed at any point in time.
As for patents, NFTs are used to certify and protect ownership rights of inventions or innovations. They also provide details for the verification process by creating a decentralized public ledger. This ledger is tasked with relaying transaction data related to the patent.
Academic Credentials
In the future, the issuance of a paper certificate may cease to exist. NFTs will be used as proof of academic achievement. NFT education tokens can be transferred to employers giving them proof that the candidate is qualified.
NFTs can be tailored to create secure records for courses taken. Through the issuance of tokens for each course completed and degrees earned secure records will be created. These credentials are then verified through a smart contract verification system.
Supply Chain
In the manufacturing sector, the supply chain is very important for ensuring the movement of supplies and products. The only problem with the supply chain is the inability to verify where the products are coming from and who owns the product.
By incorporating the blockchain system, manufacturers can attach NFTs to a product giving it a digital item identifier. The NFTs make it easier for companies to track their products from manufacturing all the way to delivery. This process will also give insight to customers regarding their spending patterns.
Gaming
Gaming and NFTs are intertwined sectors of the crypto world. NFTs can be integrated into the gaming world by allowing cross-platform playability. Game developers are given a new way of expanding their brands by incorporating NFTs.
NFTs allow for an easier trading time in games and provide an aspect of rarity. Owners don’t need to worry about scammers and middlemen in games. The transactions happen instantly on the blockchain and a public ledger is displayed to verify transactions.
Ticketing
In the near future, traditional tickets will become outdated and will be replaced by NFTs. Parking tickets will be replaced by virtual NFT parking tickets that will assign a unique ID to each user. This will be done when users enter a restricted area and will guarantee an effective validation process.
The use of NFTs in ticketing solves the issue of fraud cases and reduces paper usage. NFT owners will only require one token instead of multiple tokens. This method will also be utilized in other forms of transportation such as bus tickets in the form of bus tokens. Verification of transactions will be done across the transport sector through designated scanners.
Tracking of Artwork
Counterfeiting of artwork is a trend that has been going on for decades. Original art pieces of art are subject to theft by individuals, groups and societies and this creates a loophole for counterfeit artwork. Tagging of original art pieces for tracking through NFTs will make artworks more secure.
Physical art can be converted into an NFT, which can then be converted into physical art. This can be done while still maintaining the virtual token. NFTs can help in tracking the originality of a specific art piece and reduce cases of counterfeit artwork. This guarantees NFT owners that their artwork is genuine.
Voting Process
In many countries, the voting process requires voters to show a photo ID and proof of residence. Lack of any form of documentation and/or original IDs denies them the right to vote. NFTs can solve this problem by offering a virtual identity for people without physical documentation.
The digital identifier proves who the voters are and where they reside within the country. This method will also eliminate cases of voter fraud and cheating in the voting process.
Authenticity of Products
Since the blockchain system can permanently store information about a product, checking for authenticity will be crucial. NFTs can be used to store information regarding the manufacturing process of a product.
A key problem in the world at the moment is fake food and medicinal supplements. NFTs can solve this issue by tracking food products. Products can be labeled with a unique QR Code that will enable tracking from manufacturing to delivery. Fake products that are erroneously claimed to be made in a certain country will be exposed.
What are utility NFTs?
A utility NFT is where a user receives a physical piece of art that matches the digital NFT they purchased. It could be access to a given event, exclusive in-person membership, or the gaming world.
A project that defines itself in the utility range is its ultimate use. An NFT assigns a user to a virtual asset outside of owning a physical asset. In the gaming/Metaverse space, utility NFTs include the World of Freight (WOF) tokens.
The WOF tokens involve a real-world blockchain supply chain called Supplain. In the Gaming items section, Axie Infinity is a game that propelled the play-to-earn video games phenomenon. Zed.run is a digital horse racing game under blockchain that enables gamers to manage stables.
Jigen is an NFT gateway for luxury and fashion items in the Metaverse. It provides users with the ability to digitize and track a product’s entire life cycle. This eliminates the existence of counterfeit products in the fashion sector.
Eternal Royals is an art platform where NFT holders can get access to special discounts and art airdrops. Coin league is a fantasy gambling and NFT platform involving crypto usage. NFT holders receive a revenue share from the contest fees and perks.
Investing in NFTs
NFTs are bought, sold and traded on the NFT market that is built specifically to handle blockchain transactions. They can cost anywhere between a few dollars and millions of dollars depending on the digital asset. The NBA top shot is a marketplace where sports fans can buy, sell and trade basketball video clips.
Popular NFT marketplaces like the NBA top shot to offer a compatible wallet that syncs with crypto assets, digital items and NFTs. These features boost the computing power of buying, selling and minting NFTs.
To invest in non-fungibles, you must have access to any cryptocurrency and an investment NFT market. Most marketplaces use the Ethereum cryptocurrency. Other cryptocurrencies used include Polygon, Polkadot and Solana.
These tokens take the form of a physical certificate and guarantee ownership of unique physical assets and virtual assets. There are three steps to investing in non-fungibles. The first step involves in-depth research on NFTs and their value potential.
The second step is selecting a brokerage or crypto exchange to purchase cryptocurrencies. Most NFTs are purchased using Ethereum. The third step is to select a marketplace to purchase the NFT that you are interested in.
The marketplace is where the tokens are sold. You register and connect your crypto wallet to the marketplace before buying the NFT in the NFT space. Examples of marketplaces are OpenSea, Axie and Larva Labs. The requirements for trading NFTs are cryptocurrency, a digital wallet and a marketplace.
What to consider when choosing an NFT marketplace
The following are the factors to consider when choosing an NFT marketplace before trading:
- The token standard used – the most preferred standard is the Ethereum-based standard (ERC-721)
- Verification process – the process must be transparent and tight to avoid scammers and fraud cases.
- Price discovery – to estimate the right rates that will attract potential clients before buying NFTs.
- Token fractionalization – allows users to buy highly prized virtual assets partly instead of the whole collectible.
- Wallet compatibility – the market should be compatible with various wallets and integration should be seamless.
Top NFT marketplaces every new investor should know
- OpenSea
It is the leading marketplace for NFTs. It has all sorts of assets available on its platform. It is free to sign up as a user and browse the offerings. It supports creators and artists and has a friendly user interface. Users can create their own NFTs through minting.
- Axie
It is an online shop for Axie Infinity. Axies are mythical creatures that are bought in the Axie infinity game. Axie infinity tokens are based on the Ethereum blockchain and can also be sold on different crypto exchanges.
- Larva Labs/CryptoPunks
Larva Labs has sold NFTs for millions of dollars since 2017. Their tokens can be bid or bought from various third-party marketplaces. It hosts digital art projects such as Autoglyphs.
How to buy NFTs
In order to purchase non-fungibles, users need to open an account on a crypto exchange platform. The trader then needs to create a digital wallet account.
The digital wallet will store the crypto and tokens that will be purchased. Since Ethereum is the cryptocurrency that supports most non-fungibles, users are encouraged to purchase Ether. Ethereum can be purchased on crypto exchange platforms like Coinbase and Gemini.
After purchasing Ether, transfer it to your crypto wallet. Connect your crypto to a compatible marketplace such as OpenSea. Then, choose the type of collection you want from the marketplace and buy NTFs aligned to the collection.
How to sell NFTs
On the NFT marketplace page, there is a sell button. To sell the NFT listed on the marketplace, click the sell button. You will need to create a listing for a fixed price for all the non-fungibles that are listed on Ethereum or Polygon. As for Ethereum, you will be required to create a timed auction as well. Selling your digital work will cost you as there are Ethereum network and marketplace charges incurred. Given the market volatility, trading of NFTs can be uncertain. Each token is unique and can be sold as a way of proving ownership over digital assets.
Why should you consider investing in NFTs?
What are NFTs’ benefits?
Anyone can invest in non-fungible tokens; any individual can invest in NFT as an asset that can be transferred in terms of ownership. NFTs provide an opportunity for investors to learn more about tokenization and blockchain systems.
Blockchain incorporation also makes ownership of digital assets more transparent. NFTs ownership is secured through the blockchain-enabled ledger and smart contracts.
What are NFTs’ drawbacks?
NFTs are not considered to be an asset class and general misinformation regarding NFTs can cause devaluation. A decline in the value of tokenized assets through inflation is possible. The generation of tokens is highly energy-intensive due to the proof of work protocol.
One single token transaction requires the same amount of energy as that of an average home in 2 days. Investors wishing to buy NFT collections using fiat currency have limited options. Minting of NFTs is a high-energy-intensive task and increases the carbon footprint based on the amount of energy generated to mint NFTs.
Can anyone make an NFT?
It is possible to create an NFT but one must first do research and completely understand what NFT is. Choose a platform to sell your NFT on and make sure it does not use a lot of energy. The platform should support the Ethereum blockchain.
Rarible and OpenSea help NFT creators create tokens on the Ethereum blockchain. This is done through lazy minting which lets you create new NFT stands. First, buy crypto and create a digital wallet compatible with the NFT market. Connect your wallet to the marketplace.
Create a new NFT page and create a name for your new NFT collection depending on the type of digital asset. Once minted, click sell to put a price on it and place it in the marketplace.
NFT mainstream adoption- celebrities and big brands interested in the space
From music albums to art, NFT adoption has spanned the entire crypto world. Snoop Dogg’s NFT collection dubbed ‘A Journey with the Dogg’ features his memories from his earlier life. Lindsay Lohan minted her own token in Rarible which sold for $ 50,000 and sold her latest single ‘Lullaby’ as an NFT.
Deejay and producer Aphex Twin sold his first NFT in March for a cool $ 128,000.
NFTs, the Metaverse, and the future; What’s in store?
From play to earning gaming in virtual reality, investment opportunities like virtual properties, and NFTs are critical for the future. Innovative e-commerce, and digital assets in virtual reality will be spearheaded by NFTs.
NFTs will ensure authenticity, proof of identity, interoperability and decentralization. This will be shown through GameFi (Game Finance), DeFi (Decentralized Finance) and user-generated content.
