NFTs are taking the digital world by storm and appear to be growing in popularity with each passing day. What’s more, savvy investors are taking advantage and bringing in some serious profits. What is an NFT, and what makes them so special? This ultimate guide answers all your questions and more.
What is an NFT?
NFT stands for non-fungible token, a digital asset created by blockchain technology. Being digital, there’s no way to acquire this token in physical form. Each NFT is unique, with a specific blockchain address.
Because NFTs are non-fungible, they can’t be replaced by the same item if lost, traded, or sold. These non-interchangeable digital items are original creations, similar to an old masterpiece painted by one of the great artists of the time.
Digital tokens share the same realm as cryptocurrency, but each digital coin of the same type is no different from the next. Since NFTs are one of a kind, they introduce scarcity and offer a variety of uses.
How Did NFTs Come to Be?
An unknown person or group using the name Satoshi Nakamoto began minting cryptocurrency using blockchain back in 2008, calling the coins Bitcoin. The digital currency became open source in 2009 and increased drastically in value from there. Today, there are thousands of cryptocurrencies available for purchase.
NFTs came out of a desire for “colored coins.” These coins would be a way to mark items on the blockchain for a specific purpose, such as ownership of a real-world asset. Each coin would have to have a marker or image to make them stand out as unique.
It wasn’t until 2014 that digital artist Kevin McCoy created the first NFT, called Quantum. The token looks like an octagon that pulses through a series of colors. It sold in June 2021 for over $1.47 million.
The launch of the Ethereum blockchain in 2015 made it easier than ever before to create NFTs. New blockchains put their hats into the ring, generating NFTs of their own and adding to the popularity. With the announcement of the metaverse in 2021, many people believe NFTs will be essential for future digital ownership.
How Do NFTs Work?
In a sense, NFTs have many similarities to a physical collector’s item. Individuals can buy, sell, or trade tokens, and each one varies in value depending on its perceived worth.
Most of these tokens reside on Ethereum’s blockchain, which keeps a careful record of each transaction. As an artist creates a new NFT, it is immediately timestamped and forever recorded into the blockchain’s ledger. Anyone can look up an NFT’s authenticity at any time.
What Types of NFTs Are There?
NFTs can appear in many different forms, as the definition of these tokens is still somewhat unclear. Here are some of the most common types of NFTs currently appearing in the blockchain.
Digital Drawings
By far the most common type of NFT, digital drawings offer artists a chance to showcase and sell their designs online. The most expensive NFT sale to date was a piece of digital art called “The Merge,” selling for over $91 million. With asset tracking capability, artists can even attach ownership of real-world creations to NFTs. Thanks to this income potential, a digital drawing is currently the best NFT to buy.
Sports Collectables
Some NFT companies rally around sports figures, capturing amazing stills or incredible moments in sports history. Through NFTs, it could be possible to own an iconic grand slam or hole in one shot from 200 feet away. Organizations are even looking to treat NFTs like unique sports cards that no one else can have.
Memes/Tweets
Memes paint the social media landscape and are now making appearances in NFTs. Subjects of these images can sell them on the blockchain, and some have reached prices in excess of $500,000. Similarly, it’s possible to buy single tweets for laughs or if a particular message has special meaning.
In-Game Items
NFTs can also appear as in-game items to help players set themselves apart. Through the use of these digital tokens, players can pick up a unique outfit or character that only they will own. If a gamer grows tired of a certain item, they can sell the NFT and move on to something new.
Games like Cryptokitties revolve around NFTs. Each character in the game is exclusive and belongs solely to the player purchasing it.
Music
Music is another area rising in popularity with NFTs. Musicians can record snippets onto an NFT and sell it for a profit. This allows fans of a particular genre or artist to own a piece of the space that no one else can listen to.
Who Can Create NFTs?
Anyone with the proper tools can mint a token of their own to sell with the right NFT ideas. You’ll need a digital asset that you’ve created or have sole ownership of to do so. Anything you can’t lay claim to can land you in hot water when you go to sell. This digital asset should be something people will want to buy.
With that asset in mind, you’ll need to decide which blockchain to sell it on. Ethereum is the most popular, but other blockchains are growing in stature.
You’ll need a digital wallet to hold the cryptocurrency to fund your NFT creation. Of course, you’ll also have to buy some cryptocurrency to fill the wallet or connect it with coins you already have.
NFT Marketplaces will take your design and mint it into an actual NFT for sale. These platforms charge in cryptocurrency and vary in pricing and application. Marketplaces can specialize in types of NFTs, such as sports or digital art.
How Much Does It Cost to Mint an NFT?
Minting an NFT can cost almost nothing to upwards of $1,000 to create. There may be fees associated with owning a crypto wallet, and NFT marketplaces will likely charge for using their services. Each wallet and marketplace has different rates, and the speed you choose to have something minted has an effect on cost as well.
Going the slow route, sometimes referred to as “lazy minting,” gives a marketplace permission to create your NFT as it has time. The cost will be low, but you may wait a long time before receiving your token. On the flip side, you’ll pay a pretty crypto coin to have an NFT minted quickly.
How Can I Acquire an NFT?
Purchasing an NFT is as easy as having crypto and knowing where to look. The NFT marketplaces mentioned earlier are the most popular locations for picking up digital assets to start or add to your collection. OpenSea is currently the largest and most successful, with over 80 million tokens to choose from.
Certain websites can help you zero in on a particular type of NFT you’re in the market for. Funko extended its line of products to the NFT space, offering collectors the chance to pick up unique items instead of mass-produced copies. Since everything passes through the blockchain, you can rest assured that all transactions are legitimate and protected.
How Do You Sell or Trade NFTs?
When looking at how to flip NFTs, you need not go any further than an NFT marketplace. With several markets to choose from, it’s imperative to lock down whichever one best fits the NFT you want to sell or trade. You’ll want to spend time researching similar NFTs to determine a reasonable listing price.
Shoppers with similar interests will then come across your NFT on the marketplace and throw out a bid. Depending on your listing, you may receive a trade request for another NFT or an amount based on what the buyer thinks the NFT is worth. It’s up to you as the seller to accept, negotiate, or decline the offer.
Why Should Anyone Invest in an NFT?
Investing in NFTs can serve a few purposes. With any investment, it’s essential to do the research required to make an accurate assessment.
For Collecting
Most people have hobbies that involve collecting physical or digital objects, and NFTs are one more way to scratch that itch. Because NFTs offer a special timestamped one-of-a-kind item, they may appeal even more to collectors who want to stand out.
Making Money
Like any investment, the hope is that an asset will rise in value as time goes on. The very first NFT recently sold for over $1.47 million, and others have been purchased for way more. The right investment can reach incredible heights quickly, giving sellers access to the potential for huge gains.
Being linked to a blockchain also means there’s no risk involved when making a purchase. This isn’t some seedy black market dealing we’re talking about here. NFT transactions leave a very clear history on the blockchain they are associated with, so there’s never any guesswork about a purchase.
Market Predictions for NFTs
Sales and investments in 2021 split the NFT scene wide open, with a huge increase in the number of sales and overall players involved. As the concept becomes more mainstream, more companies recognize the benefits of owning and selling NFTs on the marketplace.
Sales are already catching up with 2021’s numbers, with 2023 looking to see double the amount of money from NFT purchases. Analysts are worried that NFT sales are slowing as 2022 moves on, leading to concerns of a plateau somewhere down the road.
Those looking to NFTs as the next big thing anticipate more new NFT companies than ever before making an appearance, and existing enterprises continuing to follow suit. As these digital tokens are not yet mainstream, only time will tell which direction they go.
Protecting Your NFTs
NFTs can be worth a lot of money, and it’s important to protect these assets. Consider the following to help ensure your investments don’t end up in the wrong hands.
Keep Your Digital Wallet Safe
Digital wallets are great places to store NFTs and cryptocurrency, but it’s unwise to leave that wallet around for anyone to find. In theory, anyone can access a wallet as long as it’s connected to the internet. The best NFT wallets have the means to keep your information safe.
A wallet should come with a seed phrase, similar to a password, that you need to access the contents within. Don’t store your seed anywhere attackers could ever access. Instead, leave it completely offline on a physical piece of paper. No one should ever ask you for this phrase, nor should you ever provide it to anyone.
If in doubt about your ability to keep an online wallet secure, consider using a hardware wallet that’s completely off the grid. Only you with this device can access your account through a sign-in process before you can buy or sell. If you lose your hardware wallet, no one will be able to access your information without your login information.
Watch out for Scammers
Scammers may attempt to create cheap knock-offs of original NFT art with minor modifications, as seen in many real-life scenarios. NFT marketplaces authenticate and verify all details of an NFT, including where they come from.
If you’re selling NFTs, be sure to check offers before agreeing to them. It’s not uncommon for individuals to lay down a bid in U.S. dollars instead of Ethereum in hopes of snagging an NFT for cheap.
Avoid Sketchy Information
If you’re around the NFT marketplace long enough, you’ll start receiving information about “secret deals” that you can’t find anywhere else. It’s best to disable private messages on Twitter or Discord to remove the temptation entirely.
Be wary about clicking on any email regarding NFTs, even if it appears to be from your NFT marketplace. Verify the sender before you open something that could send personal data straight to a hacker.
Pros and Cons of NFTs
NFTs have a lot of potential but also come with a list of concerns. Check out the pros and cons of dealing with non-fungible tokens.
Pros
- Ownership: NFTs are unique and afford digital ownership to a single individual. The blockchain it’s listed on keeps careful track of each asset and ensures no one can alter or remove it.
- Investment Gains: As an investment, NFTs offer the potential to generate profit through sale and trade. As each NFT is unique, there’s added scarcity and the potential for desire.
- Sales Income: For those with the means to do so, NFTs can be a place for artists to maximize profits on songs or artwork. Using NFTs allows artists to remove barriers and sell content with fewer fees.
Cons
- Volatility: NFTs aren’t an exact science and are subject to volatility. An NFT worth a certain amount one day can be worthless the next.
- Cyberattack: Anything on the internet becomes subject to the realm of hacking. It can be challenging to protect investments from these outside threats.
- Rights Access: By purchasing an NFT, you gain access to the original of that object. However, it doesn’t give you the rights to memes or pictures already floating around the web.
Frequently Asked Questions (FAQs) for What is an NFT
With NFTs being so new, there are many unknowns swirling around about them. Below you’ll find answers to some of the most commonly asked questions about these unique tokens.
What is an NFT? Final Thoughts
NFTs are a lucrative means of offering unique digital content to collectors and investors alike. Since no two are the same, demand can cause massive fluctuations in price for any sought-after item. Because of this one-of-a-kind design, NFTs can also be used to represent ownership of physical assets or intellectual property.
The desire for NFTs only really took off in the second half of 2021, so much is still to be seen about where these tokens go. If they follow the path of certain cryptocurrencies before them, the sky’s the limit of what NFTs are capable of.