Non-fungible tokens, or NFTs, are changing dimensions of modern society – from finance to arts. And it surely will not stop there. NFTs have become one of the most important and resilient contemporary innovations in tech, finance, fashion, sports, memes, and arts.
What are NFTs?
Similar to any new technology, understanding NFTs and everything happening can be challenging. Fear not, we will explain what NFTs are, how they are made, their pros and cons, and how you can decide if NFTs are right for you.
A non-fungible token (NFT) is a unique data unit on a blockchain that can be linked to digital and physical objects to provide an immutable proof of ownership. The data an NFT contains can be tied to digital images, songs, videos, avatars, and others. Nevertheless, they can also give an NFT owner access to exclusive merchandise, tickets to live or digital events, or links to physical assets like cars, yachts, and more.
In this respect, NFTs allow people to create, buy, and sell items in an easily verifiable way using blockchain. But you do not buy the copyright, intellectual property rights, or commercial rights to any assets when you buy NFTs. NFT Legality is complicated, so we will explain more in other sections.
Creating and selling NFTs is quite simple. They entail
- A person (or a company) selecting a unique asset to sell as an NFT
- Adding the asset to a blockchain which supports NFTs through a process called ‘minting’, which creates the asset’s NFT.
- The NFT then represents that item on the blockchain, verifying proof of ownership in an immutable record.
- The NFT can be kept as part of a private collection. It can be also bought, sold, and traded in NFT marketplaces and auctions.
As you imagine, the technical definition is somewhat complicated. If you are interested in these details, our NFT dictionary can give you a comprehensive overview of the technologies and infrastructure involved in NFT ecosystem.
How are NFTs different from digital currencies?
Similar to money in your bank account, digital currencies are what you use for any and all transactions on the blockchain. Cryptocurrency can be purchased or converted into fiat currencies (dollars, euros, yen, etc.) via crypto exchanges. On the contrary, NFTs are unique and irreplaceable assets purchased using digital currencies. It can gain or lose values independent of the currency used to buy it, the same way popular trading cards or unique pieces of art can. More importantly, NFT is a type of cryptocurrency which belongs to only one entity at a time.
To help you understand better, think of traditional fiat currencies. If we borrow a dollar, you do not open your wallet and ask, ‘Which dollar note do you want’? This is because every $1 banknote represents the same thing and can be exchanged for any other $1 note. The US dollar is fungible. Cryptocurrencies are also fungible. They are not unique and can easily be traded and replaced.
On the other hand, NFTs are non-fungible in the sense that no NFTs are the same. Each NFT is a unique data unit which cannot be replaced by any identical versions because there are no identical versions.
When talking about NFTs, uniqueness and scarcity increase their appeal and desirability. Like all rare items, this scarcity allows individuals to sell their NFTs for premium prices!
Why are NFTs Popular?
The NFT art trend has emerged recently. However, there are still a lot of doubts. At the end of the day, NFTs are tied to digital files. How is owning an NFT different from a photo screenshot? Does proof of ownership mean anything? To help you understand, these are some of the main reasons people decide to own NFTs.
1. NFTs empower artists
With NFTs, artists can create and sell their work independently, allowing them to retain the IP and creative control. Artists can also earn royalties from all sales of their work. In this regard, NFTs have the potential to create fairer models by bypassing the gatekeepers that currently control creative industries. Many people buy NFTs because it is a way to empower and financially support creators they love.
2. NFTs are collectibles
Although costing less than 5 cents to make, a 1952 Mickey Mantle rookie card sold for 5.2 million dollars. This happened because of the history, rarity, and cultural relevance of the card. In many aspects, NFTs are digital versions of this. For people who want to build collections of digital assets, NFTs offer a unique opportunity that does not exist outside of traditional collectibles and art markets.
3. NFTs are investments
Some NFT owners simply want assets whose values will increase. In this regard, some collectors look at NFTs as investments, similar to traditional art. Mike Winkelmann, a renown American digital artist known as Beeple, sold his composition – Everydays: The First 5000 Days – at Christie’s for 69 million dollars in March 2021.
Some may find it strange since everyone can see and interact with images. But as mentioned earlier, there can only be one NFT owner. Still, market volatility makes NFTs high-risk investments, with potential for major losses.
4. NFTs are communities
NFT ownership also comes with social benefits. Many creators turn their NFT projects into lively communities. Bored Ape Yacht Club may be the best example of community building in relation to an NFT project. Collectors get access to a members-only discord, exclusive merchandises, votes in the project’s future, tickets to virtual meetups, and others. Thus, for many collectors, owning NFTs is about socialising with friends and having identities.
How to Create NFT Art
For those interested in creating NFT art, minting a piece of NFT is quite straightforward and does not require in-depth knowledge of the crypto industry. These steps can help you create an NFT.
1. Create a Piece of Art
First, create an art piece you want to turn into an NFT. You can make a digital image, audio production, or video. Most marketplaces support NFTs in JPEG, MP3, MP4, TXT, and other digital files.
2. Choose a Blockchain
A creator must decide on which blockchain he/she wants to issue NFTs. Currently, Ethereum is the most popular blockchain service for this purpose. However, there are other blockchains gaining popularity, including
- Cosmos
- Tezos
- Polkadot
- Flow
- Binance Smart Chain
Each blockchain has its own NFT standards, marketplaces, and wallet services. If someone wants to create NFT tokens on Binance Smart Chain, traders can only use those NFTs on platforms that support Binance Smart Chain assets. They cannot sell them on other NFT marketplaces like OpenSea, which supports Ethereum, Klaytn, Polygon, and Solana blockchains.
3. Make a Wallet
You need to set up a digital currency wallet to pay marketplace’s fees and receive payments when you sell your NFTs. Because Ethereum is the most commonly used NFT ecosystem, let’s take a look at what is needed to create a new NFT on the Ethereum blockchain. First, an NFT creator needs an Ethereum wallet that supports ERC-721, Ethereum’s NFT token standard. Some wallets that qualify include Coinbase Wallet, MetaMask, Trust Wallet, Enjin, and D’Cent.
An NFT creator also need to top up his/her wallet with some amount of Ether (ETH) tokens which will eventually cover transaction fees. People using Coinbase wallets can buy ETH from Coinbase with US dollars or other fiat currencies. Other users have to purchase ETH from crypto exchanges and send it to their digital wallets.
4. Find a Marketplace to Sell Your Art
Before you create and sell your NFT art pieces, you need to choose a marketplace to list your NFTs. There is abundance of NFT marketplaces for you to choose. Depending on your art and interests, you may choose a curated marketplace specialising in specific kinds of art or a general open marketplace. Also, keep in mind that marketplaces may charge minting fees. There may be Ethereum gas fees and other fees for listing and transacting on the platform.
5. Mint NFTs
You are now ready to mint your NFTs. Most NFT marketplaces offer a step-by-step guide for uploading your digital files to their platforms. The processes will help you to turn your digital art pieces into marketable NFTs, also known as minting.
6. Sell Your NFT
After minting your NFTs, you can choose to sell it. There are generally three options to sell your NFT art:
- Fixed price: this lets you set a price for a NFT and sell it instantly if a buyer is willing to buy the NFT at that price.
- Timed auction: a timed auction gives those interested in your NFT a time limit to submit bids.
- Unlimited auction: there are no time limits with an unlimited auction. The seller can choose to end the auction whenever they want.
You also need to set the minimum price and determine royalties you will be paid if the NFT is resold. NFT creators may earn royalties for their artwork when someone sells their tokens to another person. Creators earn royalties automatically through smart contracts.
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