NFT, the three letters that seem to be on everybody’s lips these days, are taking the digital art and collectibles world by storm. Whether you believe they are a speculative craze or a fantastic new opportunity for artists, NFTs continue to make headlines as they sell for millions of dollars.
While the long-term viability of NFTs is still being disputed, they’ve remained selling like hotcakes. Many believe that NFTs are here to stay, and with the emergence of Facebook’s metaverse, now seems like the ideal time to brush up on all things digital!
Keep reading to learn all you need to know about the elusive NFTs—from how they operate to how to produce them, to the debate surrounding them, to what they actually are—we’ll cover all the nitty-gritty aspects surrounding NFTs and keep you up to speed!
What exactly is an NFT?
An NFT is a digital asset representing physical objects such as art, music, in-game items, and videos. They are purchased and traded online, usually using cryptocurrency, and are typically encoded with the same underlying software as many cryptos.
Despite having been in existence since 2014, NFTs are gaining appeal as a popular way of buying and selling art. Since November 2017, a staggering $174 million has been spent on NFTs.
NFTs are frequently one-of-a-kind or, at the very least, one of a very limited range, with unique identifying numbers (thereby generating digital scarcity). This is very different from most digital products, which nearly invariably have a limitless number of copies.
Decreasing supply should theoretically increase the value of a particular asset, assuming it is in demand. However, many NFTs, at least in the early days, were digital creations that already existed in some form elsewhere, such as iconic video clips or securitized forms of digital art already circulating on Instagram.
The most prominent digital artist, Mike Winkelmann (otherwise known as “Beeple”), created possibly the most famous NFT of the time, “EVERYDAYS: The First 5000 Days,” which sold at Christie’s for a record-breaking $69.3 million. Individual images—or perhaps the entire collage of pictures—can be seen online for free by anyone. So why are people prepared to pay exorbitant amounts of money for something they can easily download or screenshot?
The answer seems simple enough: An NFT permits the buyer to retain ownership of the original item. Furthermore, it incorporates authentication, which acts as proof of ownership—collectors value “digital bragging rights” nearly as much as the piece itself.
What is the difference between cryptocurrency and NFT?
NFT is an abbreviation for non-fungible token. It’s constructed using the same type of programming as cryptocurrencies, such as Bitcoin or Ethereum, but that’s where the similarities end.
Physical currency and cryptocurrencies are both “fungible,” which means they may be traded or swapped for one another. They’re also worth the same amount—one dollar is always worth another dollar and one Bitcoin is always worth another Bitcoin. The fungibility of cryptocurrency makes it a reliable method of executing blockchain transactions.
NFTs are different; each contains a digital signature that prevents NFTs from being swapped for or equivalent to another (hence, non-fungible). Yet while they’re both NFTs, one piece of artwork isn’t equal to another simply because they’re NFTs.
How does an NFT operate?
You’ve probably heard of blockchain, which is the core mechanism that allows cryptocurrencies to exist. The Ethereum blockchain is frequently used to store NFTs (although they can also be stored on other blockchains)
An NFT is produced, or “minted,” using digital objects representing both tangible and intangible elements, such as:
• Pieces of art
• GIFs
• Sports highlights and videos
• Collectibles
• Video game skins and virtual avatars
• High-end designer sneakers
• Music
Tweets count too. Jack Dorsey, one of Twitter’s co-founders, sold his first tweet as an NFT for over $2.9 million.
NFTs are essentially digital collector’s items, similar to actual collector’s items. Instead of receiving a physical piece of art, the buyer receives a digital file. They will also retain sole ownership rights. Yip, NFTs can only have one owner at a time.
The unique data of NFTs makes it simple to verify ownership and transfer tokens between owners. They can also be used to hold certain information by the creator or owner. For instance, artists can sign their work by including their signature in an NFT’s metadata.
What is the purpose of an NFT?
Content creators and artists have a one-of-a-kind opportunity to monetize their work with blockchain and NFT technology. Artists are no longer compelled to list their work through auction houses or galleries, and instead, the artist may sell it straight to the buyer as an NFT, allowing them to keep a more significant portion of the revenues.
Furthermore, artists may automate royalties to get a percentage of revenues anytime their artwork is sold to a new owner. This is an appealing feature because most artists do not earn future proceeds after their work is sold.
Art isn’t the only way to profit from NFTs, though! Charmin and Taco Bell, for example, have auctioned off themed NFT paintings to generate revenue for charity. Charmin’s offering was called “NFTP” (non-fungible toilet paper), while Taco Bell’s NFT art sold out in minutes, with the top bids coming in at 1.5 wrapped ether (WETH), or $3,723.83.
Nyan Cat, a 2011 animated GIF depicting a cat with a pop-tart body, sold for more than $600,000 in February. As of late March, the NBA Top Shot had sold more than $500 million. A single LeBron James highlight NFT sold for more than $200,000 on eBay. Celebrities such as Paris Hilton, Snoop Dogg, and Lindsay Lohan have jumped on the NFT bandwagon, releasing securitized memories, artwork, and experiences as securitized NFTs.
Is it possible for anyone to create an NFT?
If you’ve read until this point, you’re probably wondering: Can I create an NFT? Technically, anybody can produce a work of art, convert it to an NFT on the blockchain (a process called minting), and then sell it on their preferred marketplace. You can also include a commission with the file, compensating you if someone purchases the item via resale.
As with purchasing NFTs, you must have a wallet set up and stocked with cryptocurrency, and it’s this initial requirement for money that often causes complications. The hidden costs can be ridiculously high, with sites charging a ‘gas’ fee for each transaction (the cost of the energy used to perform the transaction), in addition to a fee for selling and purchasing.
Furthermore, you’d need to factor in conversion costs and pricing changes based on the time of day. All of this means that the fees can frequently exceed the price received for selling the NFT.
Whether or not NFTs are here to stay, they are now making some individuals money and opening new avenues for digital creativity. However, caution and thorough research while selecting platforms are always advised. And if you’re ready to create, arm yourself with a powerful laptop or perhaps a top-drawing tablet.
How to purchase NFTS
If you’re interested in starting your NFT collection, you’ll need the following items:
To begin, you’ll need to obtain a digital wallet capable of storing both NFTs and cryptocurrencies. You’ll almost certainly need to acquire some cryptocurrency, such as Ether, depending on the currencies accepted by your NFT provider. (You may now purchase cryptocurrency with a credit card on Coinbase, Kraken, eToro, and even PayPal and Robinhood.) You can then transfer it from the exchange to your preferred wallet.
You’ll need to keep costs in mind while you research your options. When you purchase cryptocurrency, most exchanges charge at least a portion of your transaction.
Popular NFT Marketplaces
Once your wallet is configured and funded, there is no shortage of NFT sites to browse.
At the moment, the largest NFT marketplaces are as follows:
- OpenSea.io: This platform promotes itself as a retailer of “rare digital products and collectables.” To begin, simply create an account to browse NFT collections. Additionally, you may arrange items by sales volume to find new artists.
- Rarible: Like OpenSea, it is a democratic, open marketplace that enables artists and creators to produce and sell NFTs. The platform’s RARI tokens let holders vote on features such as fees and community regulations.
- Foundation: Here, artists must acquire “upvotes” or an invitation to submit their work from fellow creators. Due to the community’s exclusivity and high admission cost, artists must acquire “gas” to mint NFTs, which may include higher-quality artwork. For example, Chris Torres, the developer of Nyan Cat, sold the NFT on the Foundation platform. Furthermore, it may result in higher pricing, which isn’t always negative for artists and collectors looking to capitalize, as long as demand for NFTs remains consistent or increases progressively.
Despite these and other sites being home to thousands of NFT makers and collectors, it is critical to conduct thorough research before purchasing. Certain artists have been duped by impersonators who listed and sold their work without their consent.
Further, the verification methods for creators and NFT listings vary among platforms, with some being more rigorous than others. For example, OpenSea and Rarible do not need owner identification for NFT postings. Buyer safety protections appear to be limited at best, and it may be prudent to always be on your guard and cautious while purchasing NFTs.
So, should you invest in NFTS?
Just because you can, does it mean that you should? Given the relative youth of NFTs and the risk involved, it may be beneficial to initially spend small amounts of money to experiment with them for the time being.
In other words, investment in non-financial technologies is mostly a personal decision. If you have the cash available, it could be worth considering, especially if the item holds personal meaning for you.
But always remember that the value of an NFT is fully determined by the price at which another party is prepared to pay for it. As a result, demand will determine the price rather than fundamental, technical, or economic factors, which traditionally impact stock prices and serve as a basis for investor demand.
This implies that you may resell an NFT for less than what you paid for it. Or, if no one wants it, you may be unable to sell it at all. Also, bear in mind that the cryptocurrencies used to acquire the NFT may also be subject to taxation if their value has grown since you purchased them, so you may want to consult a tax specialist before adding NFTs to your portfolio.
Treat NFTs similarly to other investments: Research, be aware of the risks—including the possibility of losing all of your investment funds—and, if you choose to proceed, exercise the necessary precautions.