What are NFTs? What are key NFT features? How do they work? – This is your complete guide to NFTs
Non-fungible tokens have become the trending topic lately with many artists and sports teams looking to take advantage of this million dollar industry. The NFT market is said to be worth $350million and there is huge potential for the market to keep on pushing its valuation, especially when the NBA, DC Comics and Elon Musk are all getting involved in this new trendy trade.
However, many people are still trying to gain a proper understanding of NFTs, what they are, how they work and why they became so popular. We take a look at all these questions people are asking and break it down in the simplest of ways.
What is an NFT?
NFT stands for “non-fungible tokens”. The word non-fungible means that it is something unique and cannot be replicated or replaced on a blockchain. For example, an item that is fungible can be recreated or traded several times such as a dollar note or, in crypto terms, a bitcoin. This means that if you trade one bitcoin for another, then you will end up with the exact same thing.
On the other hand, non-fungible means there is only one like it. NFT usually comes in an art form, like a collectors card or memorabilia. Therefore, if you trade one card for another – you end up with something completely different. For example, you have a digital card of Zlatan Ibrahimovic and you trade it for a Cristiano Ronaldo one. Both are different and unique to each other.
Key features of NFTs
The key features of an NFT and what makes them attractive is that they are:
- Unable to communicate or exchange data with another system or device. Therefore, an NFT on a specific blockchain is not able to be used in a game on another blockchain
- Can not be divided into smaller values – like a cryptocurrency. NFTs can only be purchased, sold or traded as a whole item
- NFTs can not be destroyed. The data is stored on a blockchain through a smart contract which means that any token can not be replicated, removed or destroyed. Therefore, an individual will completely own the artwork / memorabilia purchased rather than the company that created them
- Since NFTs are on a blockchain and data ownership is stored, the original creator can be found with ease without need for any verification
How do NFTs work?
The beauty about NFT art is that anyone from any place can create them. It is not an exclusive club. NFTs are found on the Ethereum blockchain and are individual tokens with information stored in them.
The information stored is the important feature of NFTs. This is what determines how the NFT will pan out – either as an art, music or video. NFTs hold value, similarly to physical artwork, and just like normal physical art – the value is set by market and demand.
Furthermore, although NFTs are original pieces of art, there is the possibility to replicate unique digital versions since they will still be part of the blockchain, however, they will not hold the same value as the original.
How can you create, buy and sell an NFT?
- Determine which Blockchain to issue the NFT
- Examples of blockchains that service NFTs – Ethereum, Tron, Binance Smart Chain, EOS, Flow and Polkadot
- Since Ethereum is the most popular choice, we will take a look at how to utilise the Ethereum blockchain for NFTs:
- Create an Ethereum wallet supporting ERC-721 (MetaMask, Trust Wallet)
- $50-$100 in ETH
- Connect your wallet to a NFT focused platform such as OpenSea
- Open OpenSea, click “Create” and connect your wallet
- Once you complete the remaining steps on OpenSea, “Click Add New item”
- Upload your NFT image, audio or GIF.
- Apply special triats to make it more unique
This process varies depending on where the NFT is available. For example, Jack Dorsey’s tweet was available on the Valuables platform while NBA TopShot is available through their own platform. If you wish to buy NFTs, you will need a wallet that is associated with that platform. Use USDC stablecoin or fiat currency as options.
However, actually buying NFT art is not that easy. Many platforms are using “pack drops” or “art drops” in a bid to drive up demand by making NFT art more rare. You will have to act quick to beat the competition to get your hands on your desired NFT.
Once you created your NFT as outlined before, all you need to do now is locate your NFT and click the “sell” button. You will now encounter a pricing page where you decide the sale conditions. Would you want it to go through an auction or set a fixed sale price? The choice is entirely up to the artist.
Once the NFT is sold, artists are eligible to apply for a royalty program where they will receive royalties everytime the art is sold to a new person.
Different types of NFTs
Gaming in NFTs allow the player to gain full control of in-game items that they purchased or won. Each item will have a unique feature that will be connected to the players account as along as they own them. By doing this, the players are able to store their assets without any fear of theft while also enabling the players to monetise their assets, value them depending on their rarity and trade them in blockchain marketplaces.
The best way to describe NFT collectibles is through NBA TopShot. The NBA has partnered with Dapper Labs to introduce the NBA TopShot products. This is a blockchain trading card system which has generated over $230million in sales. The platform allows users to buy and trade digital collectibles of NBA moments. The popularity of these digital collectibles can be clearly seen through their demand with a Lebron James highlight recently selling for around $200,000.
NFTs can also be used for software licensing. It helps reduce piracy and enables users to sell their license for profit in an open market. NFT license defines the rights of both owners of ERC-721 NFTs and the artists working with NFTs.
NFT licensing creates a safe space for both users and developers.
NFTs popularity: bubble or not?
NFTs popularity has certainly been boosted by the sudden demand for crypto around the world. Blockchain and digital assets are changing the way we think and trade in the future. NFTs are at the center of this change. Furthermore, the amount of money that is being thrown around in NFT art deals is eye catching and with many celebrities joining in the NFT ecosystem, its popularity is looking like it will continue to rise.
However, there are concerns that the NFT industry is just one big bubble waiting to burst. Record breaking artist – Beeple – also believes in this theory by stating:
“I absolutely think it’s a bubble, to be quite honest. I go back to the analogy of the beginning of the internet. There was a bubble. And the bubble burst.”
It is yet to be seen whether NFTs are being used as a get rich quick scheme or whether the market will remain sustainable for many years.
Who has entered the NFT industry?
The question on market sustainability can wait. Many celebrities and influential people are joining the NFT craze. Namely:
The newly announced Technoking of Tesla had announced that he has put up a song about NFTs as an NFT.
The NFT features a rotating moon and rocket, diamond hands, group of Shiba Inu dogs and the famous crypto term “HODL”.
Even though Elon Musk tweeted about not wanting to sell the NFT, it still received a bid of $1,121,000million on the Valuables platform from Bridge Oracle CEO, Sina Estavi.
Dorsey offered to sell THE very first tweet as a non-fungible token. Jack Dorsey shared a link to a platform called “Valuables”, where his first ever tweet which is dated as March 21st 2006, was available for bidding. The highest bid for this tweet stands at $2.5million and that bidder is Sina Estavi, CEO of Bridge Oracle.
Blockchain company called Injective Protocol, bought artwork produced by Banksy for $95,000. The company proceeded to burn the original artwork live on Twitter and turned the original artwork into an NFT. They bought the “Morons (White)” from New York’s Taglialatella Gallery and live-streamed the burning of the artwork on a Twitter account called BurntBanksy.
The NBA partnered up with Dapper Labs to introduce the “NBA’s Top Shot products which is a blockchain trading card system which has already generated over $230million in sales. This platform allows users to buy and trade digital collectibles of NBA moments.
The world famous skateboarder listed his last ever Ollie 540 as an NFT via auction. The scary stunt will forever be on a blockchain and will be sold via NFT marketplace Ethernity Chain. The majority of proceeds will go to charity and it is expected to go for quite a large sum.
Grimes was able to sell around $6million worth of digital art after placing them on an auction. Grimes sold a series of 10 pieces with some of them being unique and others as copies on Nifty Gateway. The unique video called “Death of the Old” sold for nearly $389,000.
A first ever digital art auction was held by Christie’s with Beeple netting $69million. Making the artist rank among the top three most valuable living artists. Twenty-two million tuned in to watch the final moments of the auction, which caused a huge bidding war with bids shooting up from $10million to $69,346,250.
Kings of Leon
The US rock band are expected to release their album “When You See Yourself” as a non-fungible token, working with tech startup Yellowheart.
The rock group will release two types of NFTs:
Available for a limited time, serving as a deluxe version
Six limited ones will be sold at auction – acting as a lifetime ticket to all their shows
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