NFTs are unique digital assets with distinct ownership details stored within a Blockchain Ecosystem.
Considering this is a new market, people believe that they can earn money by owning assets such as a unique painting, a tweet, a video clip, or even an animated gif.
What are Non-Fungible Tokens (NFTs)?
Non-Fungible Tokens are digital assets that represent ownership of unique tangible and intangible items. In many cases, the items might be considered collectibles, such as images, video clips, gifs, game items, music, and other content and art forms.
NFTs are recorded via the Ethereum blockchain, which ascertains that you are the person who owns these assets.
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Each NFT is unique, and nobody can modify the record of ownership in the blockchain. In addition, no one can duplicate, divide, interchange, or replace NFTs with other items because each token contains unique information.
Alternatively, fungible items such as Bitcoin and ETH are exchangeable and divisible because they are identical. However, NFTs are unique, and they have individual characteristics.
How Do NFTs Work?
Non-fungible tokens are digitals assets that contain unique information such as the owner’s identity and history. The Item’s details are recorded on a blockchain that enables smart contracts such as Ethereum.
A wide range of NFTs tokens is built on Ethereum standards such as ERC-720 or ERC-1155 tokens. NEO, TRON, and many other blockchain support non-fungible token standards.
Non-Fungible tokens work as authentic certificates of digital assets. It proves that you are the only one who owns the item in the world. Unlike cryptocurrencies, no two NFTs can be exchanged with one another because no two NFTs are identical.
For Example, An Airline ticket is an example of a non-fungible token. Each ticket contains specific information about the Airline, owner of the ticket, point of arrival and place of destination, day, time, and date. Each ticket looks similar but contains distinguished information. Therefore, it is impossible to exchange with one another.
Another great example is the CryptoKitties phenomenal. Cryptokitties collectibles are non-fungible tokens. Each CryptoKitty token is unique and completely different from other CryptoKitties.
Based on the recorded information on the blockchain, NFTs are verifiable and can trace back to the original issuer.
How Are NFT and Blockchain Connected?
NFTs contain unique identifying info associated with the owner of the asset. To do so, NFTs are using ERC 721 tokens to embed distinct details about items on the smart contract-enabled blockchain.
ERC 721 contract contains Metadata that describes information about tokenized assets. Owners can add metadata or features to the asset in Non-Fungible Tokens.
For example, NFTs can represent the digital artwork of Artists. An artist can sign with his own signature in the metadata. The metadata will save all the relevant info that proves who is the owner of this art piece.
The NFT stores its attributes using the blockchain ERC 721 smart contracts, and by doing so, guarantees ownership authenticity to the asset and makes it a distinct digital asset.
NFTs Are Extensible: You Group Multiple NFTs Into a Single Contract
It is imperative to know that NFTs are extensible. It means the technology allows you to combine one NFT with another one to breed a third distinct NFT.
ERC-1155 standards can group multiple kinds of NFTs into a single contract.
How is an NFT different from Cryptocurrencies?
Cryptocurrencies are identical in characteristics. For instance, Bitcoins are 21 million identical coins. Alternatively, NFTs have individual characteristics. No two NFTs are alike.
NFTs are non-fungible tokens. They represent unique digital items that contain ownership details of digital assets. The identifying information of digital assets permanently stores on the token’s blockchain. NFTs is centered around artwork, collectibles, games, images or video clips. They are indivisible. You can’t split NFTs into smaller pieces. They are not exchangeable with any other asset. You can buy, sell and create NFTs on NFT marketplaces.
In contrast to this, Cryptocurrencies are fungible tokens. You can divide one Bitcoin into a smaller denomination and can buy or sell a little portion of it. They are exchangeable with a similar value to other assets. It is a digital currency that is protected by cryptography. You can buy, sell and trade cryptocurrencies through crypto exchanges.
What Are NFTs Used For?
Non-fungible tokens are used for different use cases. Here is a brief list of some of its most popular uses:
NFTs represent collectibles such as sports cards, CryptoKitties, songs, images, or any other pieces of original content. Each collectible is different from the other and it contains completely unique information. NFTs provide a certificate of authenticity to the collecting item that makes it only one of its kind.
NFTs could represent tickets. Think about festival tickets. Each ticket looks similar, but the details printed on them are different. Each ticket contains information about the ticket owner, venue, date and time of the event. The information about each ticket will be stored on the tempered proof blockchain that makes it unique. NFT ensures the digital identity of the ticket and that no one can exchange with one another.
NFTs are a great solution for gamers who are interested in owning in-game items. Thanks to NFTs, now it is possible to make them the non-disputable owners of their purchased or created in-game items.
What Does NFTS Mean in Art?
By applying the NFT technology, the information of each artwork can be stored within the token’s blockchain. By doing so, the artist can confirm his ownership over his creation. Therefore, the owner can now sell its original work in an auction through the NFT marketplaces and can earn commission every time on reselling of his/her artistic work.
The details about creating, buying, and selling artwork can be seen below in the same article.
Famous NFTs Representing Artwork That Sold for Millions of Dollars.
- The American digital Artist, Mike Winkelmann, professionally known as Beeple, sold the digital NFT based artwork “Everyday: The First 5000 days” (a jpg file) at an auction company, Christie’s for $69.3 million on March 11, 2021. It is considered the most expensive NFT ever sold in an online auction.
- In October 2020, Pablo Rodriguez Fraile bought 10-second video artwork of Beeple commonly known as Mike Winkelmann for $67,000 and sold this NFT linked digital artwork video for $6.6 million in the secondary market in February 2021.
Why are NFTs important?
Some significant reasons make NFTs much more important in the innovative world. These are:
NFT Improves Identity Management
The concept of digital representation of physical items using a tamper-resistant blockchain can solve the issue of identity management. In most cases, for example, individuals show their passports at every entry and exit terminal of an airport. The process of identity management could streamline the entire entry and exit processes instantly at terminals, by converting the passports into NFTs, with unique identifying information about each person.
NFTs Removes Intermediaries
NFTs represent artists' work on the blockchain and can remove intermediaries. Artists can directly connect with the target audience through tokenizing the painting and can make a lot of money without the interference of any middleman.
NFT Creates a New Form of Investment
Thanks to NFTs technology, it is easy to divide real estate property into many pieces of land, price them differently and sell to multiple owners. The best example of an operational project is Decentraland, a concept of the tokenized portion of lands on the Ethereum blockchain.
The players on Decentraland, a virtual land platform, purchase a piece of digital land rights of the item and resell them on the secondary market to make a lot of money.
Examples of Non-Fungible Tokens
Some popular sales of NFTs are:
Beeple’s artwork - Everyday: The First 5,000 days, sold at Auction company, Christie’s for $69,346,250 on March 11, 2021
Jack Dorsey’s First Tweet
Twitter CEO, Jack Dorsey, shared a link to a platform called “Valuables” sold his first tweet of March 2006 (just setting up my twttr) in an online auction with NFT for $2.9 million.
Nyan cat meme sold for $590,000 in an online auction in February 2021
Video Highlights of Basketball
On Feb 22, 2021, a user paid $208K for video highlights of basketball of a Lebron James slam dunk, NBA Top Shot, an NFT platform
Is NFT a Smart Investment?
Beeple's artwork: The First 5000 Days sold for $69.3 million and Jack Dorsey's NFT as a first tweet was auctioned for $2.9 million got the investors' attention. They rush into the NFT space.
The fever surrounding NFTs is rapidly moving up. The info about digital image documents on token's blockchain. NFT acts as certified ownership for the digital asset that can't be altered or changed.
Future Concerns About NFT
Entriken expressed his reservations about NFT marketplaces that they will exist even after 20 to 50 years or not, from today. Entriken is the creator of the ERC-721 standard that is used to build NFTs on the Ethereum blockchain. NFT marketplaces are relatively new. No one knows how regulators will act towards NFTs in the future.
The second biggest concern about the NFT is the storage of digital assets. If it could not be properly stored on the token's blockchain, the investors would not have access to their digital assets. In this case, they can lose their investment.
Every NFT contains a URL (the address of the website) that directs the interested buyers to the website where the digital image is hosted. If URL or web hosting breaks, the investors could not be able to access their digital assets.
Scammers are actively engaged in creating fake images. Currently, there are scammers that sell bogus digital assets as original work of famous artists to the buyers. So we do advise you to double-check the authenticity of the seller and the NFT before you spend a lot of money.
No Rule Exists for NFT’s Value Determination
Unlike the stock market, there is no rule for determining the value of digital assets in NFT marketplaces. Therefore, you can't determine how much someone will be willing to pay for it and for how much the investor will be willing to sell them.
In contrast to this, the popular use of NFTs in different use cases like collectibles, tickets, gaming, virtual real estate cannot be replicated with another item. Therefore, investors are frequently buying, selling NFTs and are making a profit, demonstrating the potential of NFTs.
How to Buy NFTs?
You can buy NFTs from NFT marketplaces. The most well-known platforms are OpenSea, Rarible, Foundation, BakerySwap, Axie Marketplace, NFT Showroom, SuperRare and VIV3.
How to Buy NFTs From NFT Marketplaces?
NFT marketplaces act as auction houses. You would place your bid on the selected marketplace and try your luck to see if you win your chosen NFT. You have to wait for hours or sometimes days to know whether your bid qualifies you to buy your NFT or not.
You need to know what type of wallet you require to connect to the platform and which cryptocurrency you need to purchase the NFTs. Since in most cases, NFTs run on the Ethereum blockchain. You will need to add ETH to your crypto wallet and connect it to the NFT platform to buy NFTs. Remember to check the wallet recommendations on the NFT platform website before you start buying ETH in order to buy NFTs.
Once you logged into the NFT Marketplace, you will choose the NFT of your choice. The prices of NFTs are listed in Ether but it will be accompanied by the dollar value. You’ll have to pay an Ethereum fee in addition to the cost of NFT. If you are comfortable with the listed price, you can proceed to complete the buying process.
Once your bid for NFT is confirmed, you can find your chosen NFT on “MY Collections” on the OpenSea platform.
How to Sell NFTs?
Users can sell their NFTs on the same marketplaces in which they created them. If you create NFTs on top of the OpenSea, you can only sell them on OpenSea, you can’t sell them on VIV3. You can sell your NFTs on OpenSea through auction or sell them at a fixed price, receiving Ether or ERC-20 tokens. Usually, NFT marketplaces support their blockchain’s native tokens to sell NFTs. For instance, VIV3 is a Flow blockchain marketplace that supports only its Flow tokens to accept and sell NFTs. Alternatively, OpenSea accepts Ether and ERC-20 tokens to sell your NFTs.
Login to OpenSea Marketplace. It supports Ethereum wallets such as Metamask or Coinbase wallet, connecting your Ethereum supported wallet to software such as Metamask. Users can choose the Royalties option that lets you earn a passive commission on reselling the digital assets each time.
How to Create NFT?
You can create an NFT for any song, image, video clip, or music file on the NFT marketplaces. NFTs marketplace lets you register on their websites and create your NFTs. You don’t require extensive knowledge to create NFT on these marketplaces.
Let’s make your NFTs on NFT marketplaces and list them for sale.
We go to the Rarible website to create NFT. We should upload png or MP3 files of chosen image, gif, or painting. The file maximum size wouldn’t exceed 30MB. Click the create button to mint NFT. You have the option to mint a single NFT or multiple.
You will enter the name of the NFT with a description and set the price for sale. Enter the amount of royalties. You will continue to receive a payment if your NFT resells in the secondary markets.
Connect your wallet to Metamask wallet to pay the gas fee in the Ether as a service fee to mint your NFT on the platform. It differs from one platform to another platform, but the main idea usually stays the same.
People are getting crazy about the concept of selling assets that certify as original, and that can’t be duplicated or replicated.
NFT uses distributed technology to prove the claim of ownership of a unique asset that can be sold, resold, but never be replicated or duplicated. Anyone could trace back on the immutable ledger to know-how created the asset and who currently owns it.
It seems that as of now the NFT market is on the rise, and becoming more mainstream. We, the blockchain and crypto community have the front row seats to the success or failure of the NFTs.