What are NFTs? | The Ultimate Guide to Non-Fungible Tokens
Nyan cat or the rainbow cat– is what I like to call, was sold for $590,000.
Cryptopunks artwork was sold for 124,457 Ethereum or $532 million.
Why are digital content like memes, videos, tweets getting sold for such huge money?
What are these “NFTs” that people talk about nowadays? How did a simple tweet sell for millions?
Can you make money out of it? Can you be artist? Can yo-
Wait, wait, take a breath for a second. You probably have even more questions than these but let’s not get carried away and first of all answer a simple question of “What are NFTs?”.
What is an NFT?
If we go by the Wikipedia’s definition of an NFT, it is a unique and non-interchangable unit of data stored on a digital ledger called blockchain. “It doesn’t make sense” was my first reaction too. But let’s understand this in simple words.
An NFT is also called a Non-Fungible Token. “Non-fungible” means that it cannot be replaced by something and is evidently unique. Take your own cash for example. A dollar (or something of equal value) can be exchanged with another dollar without anyone claiming to be the owner of that exact note. They are interchangeable or fungible.
Hence, NFTs are “one-of-a-kind”, literally. The first project was launched back in 2015.
NFTs are part of the Ethereum blockchain. Ethereum is a cryptocurrency like bitcoin, ripple or dogecoin but its blockchain also supports these Non-Fungible Tokens. It is worth mentioning that other blockchains could also support their own version of Non-Fungible Tokens.
NFTs can literally be anything digital, such as art or music. Currently NFTs majorly harbour media. Media such as images, GIFs and videos.
But, what’s the use of paying thousands, if not millions of dollars to buy something that can be copied or downloaded? I know. I thought the same too. But, the one thing that cannot be copied is it’s ownership. You could think of this as the van Gogh. You could print out the original, but only the original has high value and one owner. However, ownership doesn’t inherently grant copyright to the owner.
Why do NFTs have such high value?
NFT itself isn’t of high value. The reason behind it’s value is because of the media attached with them.
Note: It is important to note that even though people have made thousands and millions of dollars making and selling NFTs, there are people who lost money doing the same. So, read and understand the risks and rewards before getting involved in them.
What’s the Difference between NFTs and Cryptocurrency
The main difference is that NFTs, unlike cryptocurrencies, are non-interchangeable. Every NFT is different. Cryptocurrencies can be exchanged without any loss in value. The same cannot be said for NFTs.
How and Where to Buy NFTs?
Currently, NFTs are purchased through ether (ETH) which can be easily converted to dollars using an exchange platform like Coinbase or Kraken.
To buy a Non-Fungible Token, you’ll need to build a digital wallet tos store your cryptocurrency. Metamask, Binance, Coinbase provide these services through which you can connect your marketplace and buy them.
NFTs are sold through a structured auction system where people bid for their preferred NFT. The price can vary by much. However, platforms like Opensea allows you to buy them for a set price.
As for the question of “where”, popular places include Opensea, Foundation, SuperRare and Rarible. There’s an auction going on every single day. Opensea harbours the most number of people.
Let’s dive in to the two most popular platforms such as Metamask and Opensea.
- Metamask is an Ethereum wallet. It is available via a chrome extension or a mobile app. You can transfer your Ethereum into Metamask using Coinbase or the one you prefer.
- Opensea is a peer-to-peer NFT marketplace. You can exchange your cryptocurrency for any Non-Fungible Token. Your Ethereum wallet address acts as a username.
Do note that platforms charge for selling or buying your NFT often called “gas fees”. More about this in the next segment.
But Why Buy Using Cryptocurrency?
Well, it’s on the blockchain, duh!
Jokes apart, there’s a huge overlap between those interested in digital coins and Non-Fungible Tokens..
What are Gas Fees?
Cryptocurrency transactions are expensive and it’s no wonder platforms charge you for that.
Gas prices in Ethereum are denoted by Gwei. Gas fees are the payments that users have to compensate for the computation energy required to compute on the blockchain.
You might have heard about ‘bitcoin miners’. They solve complex puzzles on the blockchain to “open” the blockchain address. These miners get a portion of your fees.
Gas fee is an efficient way to ensure that security and surety is maintained. It ensures that people don’t spam. The more gas the miner can make, the more secure the network will be.
The good news is that you get to choose the maximum number of gas they want to spend on a transaction. However, the bad news is that when gas fees are high it becomes equally difficult to buy and sell the tokens. The other downside is that if you pay low gas fees the NFT could have low value.
How to Make and Sell an NFT?
Since you are here, you might be wondering “Can I create an NFT?”. Yes! In fact, anyone can create an NFT, but not everyone could make money out of it. Many people create them and end up being sold for a low value. The media attached to them has to offer some significance. It definitely takes time. Patience should be your number one weapon.
The one way you could add significance to your token is by storytelling. Storytelling adds depth and significance to your characters. Gary Vee is an excellent example who’s using this tactic right now as you’re reading this.
Let’s talk about making one!
The price needed to create an NFT can be highly volatile. The minting process could cost even more!
Connect your Ethereum wallet to the marketplace of your choice. After doing this, click on the ‘create’ tab to create your token. Now, you can start the minting process. Click on the ‘new item’ tab and load your artwork. Apply the details you want and congratulations, you’ve got yourself an NFT.
Now comes the hard part. Don’t worry it’s not ‘that’ hard (that’s what she said). Generating profit from your artwork is the challenging part. You intend to wait for someone to notice you? I mean, you could but why not make it easier?
Share your artwork in an already existing marketplace. That doesn’t mean ‘spam’ your artwork everywhere. Provide value and build your own social media brand, tell a story about your character, connect your character to a real-life event, market it like someone who’s intending to sell a story, not an artwork.
The Good Side of NFTs
- Trending: NFTs are blowing up right now especially with big CEO’s and celebrities making a debut into the NFT marketplace. This creates trust among the people. Some people even speculate that just like how online transactions are the go-to option for money transfer, NFTs will become the new digital transaction thing.
- Demand: Many people are pooling their money in the trust of these Non-Fungible Tokens and why not? It’s just the beginning of what Web 3.0 can do. NFTs could become mainstream. The possibilities are endless. These are just part of decentralised finance.
- Opportunity:This is an opportunity every digital artist couldn’t and shouldn’t miss. This is a way for artists to monetize their content. Blockchain is a fool-proof technology that ensures sellers get paid before selling the token. There are people who want to buy these things. There is a huge demand for such art.
The Dark Side of NFTs
- Environmental issues: The blockchain becomes functional after solving a puzzle. Miners solve these puzzles which require high computational power. Hence, it consumes a high amount of power. It is also estimated that solving one puzzle requires the same amount of energy that a European resident needs for two weeks.
- Reliant only on supply and demand: NFTs are currently reliant on the principle of supply and demand. There are people who would pay tons of money for an artwork. But, what if the demand is weak? Currently, the supply is short and the demand is huge.
Non-Fungible Tokens or NFTs have a huge potential to disrupt the market in the next decade or so. These could become the go-to option for many digital creative transactions. Majority of people do not even know about these game-changers. If you truly understand NFTs, you’re already way ahead in the digital world.
Another thing is that the NFT marketplace is dynamic. There are new things happening every single day and it could easily be overwhelming. Take your time and have patience. Follow the things that happen in the blockchain world. Follow the official NFT Twitter account.
You could easily heighten up your token value of you are a popular person. But, what if you’re like me? Don’t worry, there’s even a stronger thing to do. It’s storytelling. Giving the characters some context is a great way to brand your token. But, it takes larger time compared to others. Hence, patience is key here.
Are you able to explain NFTs in detail to a friend or a family member after reading this? What is your take on NFTs?