Non-Fungible Tokens: A Complete Guide to NFT’s for Beginners
If you’re a regular consumer of internet content, there’s no way NFTs have dodged your eyes. It’s one of the hottest crypto trends at the time of writing. But what are these? How do they work? Why are random celebrities promoting NFTs through their content?
Well, in this post, we plan to uncover all of the misconceptions and darkness revolving NFTs. Let this be your NFT beginners guide for the days to come.
What is NFT?
NFT stands for Non-Fungible Tokens. Now, what are non-fungible tokens? This doesn’t make any sense, right? To understand NFTs from the root, we need to clarify the concept of fungibility first.
A fungible token means something that has identical counterparts in the real world. Money, for example. A $100 bill contains the same value as another $100 bill. They both have the same attributes and same level of acceptance around the world.
The same can be said for Bitcoins. If you spend a Bitcoin on something and receive a Bitcoin from your friend, you still have 1 Bitcoin. The value of Bitcoin may have changed during this time due to the volatility of cryptos, but a Bitcoin is a Bitcoin nonetheless.
Now, coming to non-fungible tokens. These are just the opposite of what we’ve described so far. NFTs are unique and they come with identifiable assets associated with them. No two NFTs in the world are alike. Not in terms of value. Not in terms of information.
NFTs have been around for quite some time now but the recent incarnation happened due to the crypto boom at the time of writing. Unlike other cryptocurrencies and Blockchains, NFTs are solely for digital products. It may be an art, a piece of music, a short video clip, and so on.
The idea here is that every digital product on the internet is different. And they all have a different value. The value is determined depending on the supply and demand. If there is a one of a kind art in the world, chances are collectors will go crazy to get their hands on it.
A famous example would be Beeple’s ‘Everydays: the First 5000 Days’. It was sold for over 69 million US dollars at an auction in 2021! If you don’t know, Beeple is a very famous digital artist who has a history of working with Apple, creating art for Nikki Minaj, Justin Bieber, and so on. The buyer now has a unique collectible that no one else can get unless the buyer decides to sell it.
Another popular example would the limited edition Pokémon cards YouTuber Logan Paul is promoting. Depending on old they are, each box is going for over 1 million each!
Essentially, NFTs are the finest way to secure digital art. It’s a more powerful tool than copyrighting ever was. You can get your copyright violated, but you cannot get your NFT stolen. And if you’re into unique collections, you can start investing in NFTs now as well.
How Does NFT Work?
So, you might be wondering, how does everything work? How are people buying this stuff with so much money? And what is the relation between NFTs and crypto? It’s only fair for you to ask these questions if you’re getting familiar with the concept of NFT just now.
The first thing you have to keep in mind is that the NFTs are traded through Blockchain. Yes, it’s the same technology that Bitcoin and Ethereum use for their transactions. The information of the NFT is uploaded into the blockchain by the creator a.k.a the seller and the Blockchain records the unique transaction as an NFT.
Other than the Blockchain connecting the NFT enthusiasts, there’s not much similarity between cryptocurrencies and NFTs.
Primarily, NFTs were in circulation through the Ethereum Blockchain. If you’re not familiar with it, Ethereum allows you to create smart contracts that get executed in the Blockchain. The millions of nodes (user computers) around the world are working round the clock to validate the contract by solving puzzles.
For general smart contracts on the Ethereum network, the ERC-20 tokens were used to buy Gas. If you’re not familiar with Gas, it’s the unit you have to pay to the ‘miners’ to get your smart contract executed.
But for NFTs, the ERC-721 tokens were incentivized. It was a separate section of the Ethereum network that later got its own Blockchain named ‘Flow’. And over time, other smart contracts enabled Blockchains started introducing NFT standards which popularized the culture of trading NFTs.
Long story short, you can link a crypto token to your creation i.e. digital art and validate it through the Blockchain to associate unique attributes like your name, rich metadata, source file links, and so on. And that’s how you create NFTs that collectors may be interested in.
There are no NFT exchange forums on the internet. You cannot trade NFT as you do with Bitcoin or Ether. NFTs are bought and sold by completely different tiered websites known as NFT Marketplaces. We will cover some of the best marketplaces toward the end of our post. Stay tuned if you’re intrigued.
A Short History of NFT
You may be hearing about NFT now, but the early history of it can be traced back to 2014. Kevin McCoy and Anil Das linked the first digital art at the Seven On Seven Conference. It was held at the New Museum in New York City. The smart contract for the art was enabled with Namecoin, one of the few cryptos that were in circulation during that time. It was a purely experimental process.
One year later, the first complete NFT project named ‘Etheria’ was launched. You may have guessed already that it was based on the Ethereum Blockchain that went live only a few months before. Etheria was showcased at DEVCON 1 conference. However, all of the 457 collectible items were unsold. Because people were yet to understand the value NFTs can offer.
NFT entered the mainstream consumer market through Larva Labs, a studio based in the USA. The project is named ‘Cryptopunks’ where 10,000 unique cartoon characters are up for sale as NFTs. It’s hardcoded into the Ethereum Blockchain through a smart contract. It means when the 10,000 punks are claimed, no more will be created.
Another prominent name would be CryptoKitties. It was launched as a game where players could trade their unique Kitten characters for other ones or sell them entirely.
All transactions for both Cryptopunks and CryptoKitties are processed by the Ethereum Blockchain. As the transaction of NFTs is linked with crypto networks, the crypto boom of 2021 initiated a never seen before the craze for them. Hundreds of millions of dollars went into the blockchain through various networks over the course of few months only.
Remember the 457 unsold collectibles of Etheria? Well, they were sold like hot cakes for over 1.4 million in total!. Each of those digital art was hardcoded to hold 1 ETH value. Depending on the Ethereum Gas price, the transaction can either gain or lose value in the future.
Some Incidents that Sparked NFT’s Popularity
Of course, 2021 is the year when NFTs saw the all-time high buying frenzy. But the first wave came upon the crypto world when CryptoKitties was launched. The platform allowed users to trade unique cat avatars. It was a huge hit among cat lovers and crypto enthusiasts at the same time.
So much so, that the Ethereum network was slowed down in December 2017! The existing pool of miners and processing power were just not enough to process so many smart contracts at once!
The high-profile sales in 2021 made NFT a mainstream collectible platform for many investors. For example, a platform called NBA Top Shots sold one tiny clip of LeBron James for over $200,000!
You already know about the Beeple transaction.
Another popular incident was where Twitter’s founder, Mr. Jack Dorsey did his first Tweet. It was converted into an NFT and sold for over $2.5 million!
Many venture capitalists and mainstream investors are claiming that NFTs are the future of business, art, and digital creation. And if the trend continues, you will witness the biggest inflation in the NFT culture in history.
Even a satirical skit made Saturday Night Live on the topic was sold as an NFT for $365,000! You can virtually create NFTs out of anything and sell it to the highest bidding client, as long as it’s your original work.
How You Can Create Your Own NFT
It’s the beauty of Blockchain technology. Anyone and everyone is welcomed with wide-open arms. You can make your own NFT by following a few simple steps and maybe sell it to some collector for a decent amount of money.
Here are the steps to create an NFT from Scratch.
The Item You Want to Tokenize
The first step is selecting the item that you are going to make an NFT out of. If you’re an artist, you have an edge over other people who are also trying to make a buck from it. Or, you may have a photo that you captured and think it’s good enough that some rich guy might want to include it in his collection, go ahead.
NFTs can be any digital files. A photo, a video, a text, music, and everything in between can be converted into NFT. But there’s a catch. The work must be original. You cannot get someone else’s creation and make an NFT out of that.
Get Your Hands on Some Ether
As the mainstream trend of NFTs was started in the Ethereum network, we are going to take Ether as an example for our post. You can do it with any other crypto network that supports NFT.
To ‘mint’ your art and make it into an NFT, you will need to spend Ether. Why? It’s simple. You need to spend money to make money. To tokenize your art, you need to pay the Ethereum network. The miners will execute the codes on your smart contract with the unique attributes you provide and validate the transaction as a permanent one.
You need the Ether to buy Gas to fuel the transaction. Depending on the supply and demand of Gas on the network, it can cost you anything from very little money to a staggering, jaw-dropping amount.
Choose the Right Marketplace
Your next step is to choose a marketplace where you aim to sell or trade your NFT. There are numerous markets popping up every day. All of them have something to offer to the end-user. Mintable, OpenSea, Rarible, etc. are some of the most popular and trusted marketplaces.
At any of these marketplaces, you will get an option to create your portfolio. The account setup process will take you through the steps of connecting your crypto wallet and connect the Ether you have to buy Gas.
Writing the Smart Contract
Or you can call it the NFT creation stage if you want to oversimplify it. Whatever it is, you need a strong understanding of Solidity, the programming network Ethereum uses. You include all the information you want with your token to make it the only one piece in the world.
If you don’t want to go through the trouble of learning Solidity, there are some third-party interfaces like the OpenSea that will provide a GUI (Graphical User Interface) for you to upload your art and all the necessary information associated with it.
Once your NFT is ready to go, wait for the Blockchain to execute your smart contract. And when it’s done, you are ready to sell your first NFT. But it could be years before anyone notices you on such marketplaces. And that’s the harsh truth about NFT.
However, there are other ways to make money from NFT! And we’ll look into different probabilities together. But before that, let’s look at why NFTs hold value at all.
Why Do NFTs Hold Value?
In one word, exclusivity. You have no idea how much people value the exclusivity of a product over the mainstream ones. And humans have a natural tendency to pay higher prices for explicitly limited products.
The same goes for NFTs. When a piece of digital art is converted into a unique token in the Blockchain, only the holder of that information is considered the owner. It’s not an image that you can download from Google Images or a video that you can watch on YouTube. Rather, it’s a unique piece of information associated with it that holds the actual value.
Let us take Beeple’s $69 million worth of painting for example. There is no other digital artist as good and as efficient as Beeple in the industry. He already had a following of millions and a network of business magnets who know him personally.
So, when you have a chance to get your hands on 5000 of his first creations, it’s only imaginable that you would want to. And that’s where NFT comes into play. By tokenizing the collage of the images, Beeple has created a unique value for it. And that value was set at $69 million by the highest bidder.
YouTuber Logan Paul has been promoting original Pokemon cards as NFTs for quite some time now. And the same concept of exclusivity comes into play. Not many good condition pokemon cards are in circulation now. If you’re a fan of the franchise and find an original series card box up for sale, wouldn’t you want to get it?
The bottom line is, anything that is exclusive holds value in the NFT marketplaces. The values are finally determined when the highest bidder has been identified. And the Blockchain automatically takes care of the transaction through Ether or any other crypto token.
How to Buy NFTs to Make Money?
The world of NFT may not yield any immediate results unless you’re a very good artist. And if you’re not an artist at all, what do you do? Well, you buy NFTs for less and sell them for more. That’s NFT trading at its core.
To do it successfully, you need two things. A crypto wallet and a good marketplace where you can do that trading.
First up, let’s look at some of the wallets you can use.
Wallets for NFT Trading
As you already know, you need Ether for the Ethereum network or any other crypto token for the corresponding Blockchain. And you can only interact with the Blockchain through a wallet. Here are some of the best wallets that offer multiple cryptocurrencies and support NFT.
MetaMask is one of the most popular Ethereum wallets that also happens to support NFT. It’s one of the prime choices among NFT traders that you can use to get started as well. Your first task is to open an account at MetaMask.
You get your private key and a public Ethereum address to receive Ethereum, just like any other crypto wallet. There is a built-in token wallet that you can use to manage all of your NFTs. You can effectively buy Ether with simply your bank card and use the Ether to buy NFTs.
There are both desktop and mobile app versions for this wallet. We recommend using the desktop variant because it’s more mainstream and easier to use.
Trust may not be the most popular wallet around, but it does exactly what it’s supposed to do. Trade crypto tokens! And most importantly, it supports NFT.
The user interface is one of the easiest we’ve seen. You can view your crypto collection, whether be it Bitcoin, Ether, or NFTs. You can easily access all the Dapps (Decentralized Applications) on the Blockchain.
You can buy Ether or any other crypto with your credit card, a very important feature when you want to get into NFT trading.
Mostly focusing on the Ethereum Blockchain, Alpha Wallet has an app for both iOS and Android platforms. You can also use it directly from your browser if you don’t want to go through the hassle of downloading and setting up an app.
Alpha has been immensely popular among gamers over the years for NFT usage. According to the developers, it supports all the game tokens. You can even connect your in-game tokens with Alpha and view them from the app dashboard if you want!
The NFT section is segmented into categories like artwork, real estate, tokens, and so on.
If NFTs are your primary concern, look no further than Enjin wallet. It also boasts an outstanding user interface with support for different Blockchains. The ‘Crypto Collectors’ feature is what you need to access to pick up NFT assets by simply scanning a QR code. You can buy and sell the assets seamlessly on this platform as well.
A fan of unique features? Then Pillar is the wallet you need to get. The developers have broken so many ‘traditional’ rules a wallet should follow, in a very good way.
For starters, the inclusion of a no-loss lottery. You can purchase lottery tickets to get your chance of winning a jackpot prize every week! And if you don’t, all you have to do is leave the lottery program and get your refund!
Moreover, you can create unique usernames for your account. If you deal with multiple Blockchain, having different usernames can be a blessing.
Overall, the user interface holds up very well by today’s standards. And you can buy, sell, or trade your NFT collectibles effortlessly using the Pillar wallet.
Some NFT Marketplaces
It’s time to get you acquainted with some of the most popular marketplaces for NFTs. As you may already know, NFTs are not exchanged in standard crypto exchanging platforms. It has dedicated marketplaces for creators to showcase their art and for collectors to hunt the best one for the lowest bid.
The name ‘OpenSea’ comes at the top of all search results related to the best marketplaces for NFT. And there are good reasons for that. To start with, it’s a completely free platform where you can just sign up to start trading. Staring in 2018, the primary motivation behind OpenSea was the popularity of CryptoKitties and the launch of ERC-721 tokens for the Ethereum network.
It might be free to join, but OpenSea will charge 2.5% on your sales. Another great feature of this platform is bounty hunting. All you have to do is connect a buyer and a seller of a digital good to claim your bounty.
OpenSea is a great platform for beginners, both for artists or crypto traders. If you’re an artist, you can easily create a smart contract without knowing Solidity with a very helpful user interface. It might hard to land your first customer, but bounty hunters may help you out.
Rarible follows a very similar model to OpenSea in terms of NFT trading and issuing, but it focuses on complete decentralization. Mainly focusing on the Ethereum network, Rerible has been governing the RARI tokens associated with the NFTs on the platform.
RARI tokens are awarded to the users who buy or sell NFTs on the platform. It’s a liquidity mining program that will run until 2024.
As the name suggests, you can farm your own NFT tokens if you’re a gamer. The platform focuses on a cross-chain protocol which means there is no specific Blockchain that gets priority here. The launch of SuperFarm was magnificent. Thanks to the Genesis Drop Event, participants earned a lot of NFT tokens that put SuperFarm on the map.
SuperFarm is a relatively new platform. It is getting huge updates almost every month. In our opinion, it holds immense potential as a future NFT marketplace. If you want an upper hand over other NFT traders, you should open an account right now. And the previously rewarded tokens will come in handy in the near future.
If you plan to use the Wax Blockchain, this is the marketplace to be. Atomic Hub has redefined how NFTs are traded on this Blockchain and claimed the place of a leader. You will find all of the Wax projects listed on your account dashboard.
One of the biggest benefits of using Wax over Ethereum is that you don’t need to pay for Gas fees! For only $0.25 worth of Wax tokens, you can trade your assets with millions of other users.
You also get to create your own NFT through the NFT Creator program. All you have to do is assign a schema behind your NFT.
The Risks of NFT
There’s no way these questions haven’t crossed your mind. Is NFT sustainable? What does the future hold for this decentralized tokenization system for digital arts?
In our opinion, it’s too early to make any bold comments. Networks like Bitcoin and Ethereum have been around for quite some time now. And they have seen their fair share of ups and downs. After so many years, the networks are starting to saturate and stabilize.
However, that’s not the case with NFT. It’s a relatively new concept that many people are yet to truly understand. Sure, we may have seen a lot of crazy purchases in the last few months, but the majority of them were part of the buying frenzy of 2021. The data set is not large enough to make patterns out of.
Moreover, there have been reports of hackers compromising user accounts at the NFT marketplaces to transfer and trade previously owned NFTs. That’s a big loss for those accounts that paid for the assets. The NFT might be on the Blockchain but the marketplaces are not. And it makes the marketplace a potential point of failure which doesn’t align with the goal of decentralization.
Besides security, there is a huge environmental factor involved. As the NFTs are essentially smart contracts on Ethereum or any other Blockchain, it needs processing power to execute. With the increasing number of NFTs by the day, more and more crypto miners are joining the army to strengthen the Blockchain.
As a result, the overall power consumption of the world has increased dramatically. Because the mining process takes a lot of computer power from power-hungry components like graphics cards and ASICs. It leaves an unavoidable carbon footprint on the world.
With the current boom in the NFT market in mind, we will refrain from making any bold claims about the future of the industry. Let us see what happens as time goes by. No one knows what the future holds for us.
In the meantime, if you want to make some quick bucks using NFTs, follow our guide and you’ll be good to go.
As of now, NFTs have completely changed how we are used to dealing with digital art. The introduction of exclusivity on a digital good has made them immense attractive among collectors. And the participation of big guns like Logan Paul, jack Dorsey, Elon Musk, etc. has made the overall NFT industry even more lucrative.