What Is An NFT?
NFTs have been getting a lot of hype over the last few months. And as with many other innovative blockchain-based crypto technologies, the NFT craze has already made millionaires out of countless creators as well as investors who know how to use them.
We are currently witnessing a groundbreaking new technology that enables creators of all types to protect their intellectual property whilst at the same time drastically simplifying the transfer of ownership in the digital domain for both creators as well as investors.
But just what are NFTs? And how can you become a part of the exciting NFT revolution? These are some of the questions we will be exploring in this article. Read on to find out more!
So What Exactly Is an NFT?
NFT stands for “non-fungible token” and refers to unique digital items that exist on blockchains and are traded on marketplaces like OpenSea. When NFTs are created, or “minted”, unique cryptographic certificates are created for each one. This means that each NFT is completely unique and cannot be exchanged in the same way that currencies, such as BTC, ETH, USD or EUR can. Nor can individual NFTs be divided up or split into smaller quantities — they are thus non-fungible.
What Makes an Item Non-fungible?
- Exchangeability
A non-fungible item is not exchangeable in the same way that fungible items, such as currencies are. - Unique Digital Signature (Certificate)
NFTs have digital signatures associated with them, meaning that each and every NFT is unique from each and every other one. There can thus never be two identical NFTs. Think of an NFT signature as unique digital certificate of authenticity. - Tradability
The ownership of NFTs can be transferred via the blockchains on which they exist Currently, most NFTs reside on the Ethereum blockchain, but there are already a number of others that support NFTs, such as FLOW, Tezos and Solana. - Distributed Public Ledger
All information relating to individual NFTs, including the respective dates on which they were created, when and how many times they were transferred, who they are owned by, etc., can be found on the public ledger. For example, to find out more about the history of an NFT that was created on the Ethereum blockchain, you can simply enter its address into a block explorer, such as etherscan.io, which will then reveal detailed information about it.
How Is an NFT Different from Cryptocurrency?
There are two main differences between NFTs and cryptocurrencies:
Each NFT Is Unique
That’s right. No two NFTs are exactly the same (even if they happen to look the same). This means that they cannot be exchanged for other (identical) NFTs in the same way that units of currency (including cryptocurrency) can.
This is also one of the reasons why owners of limited-edition valuable NFTs, such as those frequently sold by famous digital artists in marketplaces like Rarible, also own the bragging rights to these one-of-a-kind tokenized pieces of crypto art.
NFTs Cannot Be Divided into Smaller Units of Value
Units of currency, such as Bitcoin, Ethereum, USD and EUR, can be divided into larger or smaller units of value until the smallest unit of value has been reached (usually 0.00000001 in the case of most cryptocurrencies). However, with NFTs this is not possible since each NFT is a self-contained and individual digital unit.
To understand this concept better, consider the difference between a painting and any amount of money larger than one (0.01) cent. The painting is one object, the value of which is generally dependent on it remaining in one piece! A million dollars, on the other hand, can be divided into one million units of one dollar each, and each one of those dollars can further be divided into one hundred units of one cent each. The painting is therefore non-fungible whereas the money is fungible.
How Does an NFT Work?
When an NFT is created, a unique digital signature (or certificate) is created through a smart contract at the same time. This signature forms an inseparable part of the NFT itself, and its ownership thus determines who has the rights to the NFT. This means that it is impossible to claim ownership of an NFT by just copying and pasting it to your own computer because the certificate that proves who owns it can only be associated with one user’s digital wallet address (think of it like a user account) at any given time.
The owner of an NFTs is free to transfer it to anyone else on the blockchain if they wish to do so, for example in exchange for a certain amount of Ethereum, i.e .the price at which the current owner is willing to sell it. Once the transfer or the predetermined funds has taken place, the NFT, together with its unique signature, are transferred to the new owner’s (buyer’s) address. A new entry indicating this transfer and the exact time at which it occurred, is then automatically logged on the public ledger for anyone to see. The entire transfer process can take as little as a few seconds depending on how many other transactions are taking place at the same time. In my experience, it never really takes longer than 3 hours for an NFT to show up in your digital wallet.
What Are NFTs Used For?
There are already a wide variety of use cases for NFTs. The ease with which they can be created, tokenized, stored, bought and sold means that NFTs are a no-brainer for existing creators and owners of digital assets that they would like to protect from piracy and illegal duplication.
NFT Examples
Here are just some of the creative ways in which NFTs are already being used:
- Digital art
- Songs and other types of music
- Video clips
- Video game items (weapons, clothing items, etc.)
- Written material (essays, famous first tweets, etc.)
- Digital collectibles (digital trading cards, limited-edition images, etc.)
- Domain names
- Tickets and coupons for events
- Virtual real estate
- 3D models
- Other types of digital files (gifs, blueprints, etc.)
- Memes
Who’s Been Using NFTs?
The most famous NFT artist that comes to mind — someone who is practically synonymous with the NFT revolution itself — is without a doubt Mike Winkelman, better known by his alias Beeple. He became known for his Beeple Everydays — digital artworks that he created and posted on his personal website, www.beeple-crap.com, for several years. The accumulated volume of artworks eventually amounted to thousands of pieces. He later sold a piece of art called “Everydays: The First 5000 Days” (a collage of his first 5000 images) for a whopping $69.3 million and then became truly famous virtually overnight. Since then Beeple has come to be recognized as the single most famous celebrity in the NFT art space, and his artworks continue to fetch astonishing prices on the platforms where they are bought (usually within seconds after they are released) and sold on secondary marketplaces.
Other well-known creators in the NFT space include:
- Trevor Jones
- FEWOCIOUS
- PAK
- Mad Dog Jones
- Slimesunday
- Hackatao
- XCopy
- 3Lau
- Grimes
- Whisbe
Even Jack Dorsey sold his first tweet ever as an NFT. The tweet sold for a whopping $2.9 million and reads:
But creators are not the only ones using NFTs. Even traditional auction houses, such as Christies, Sotheby’s and Phillips, are jumping in on the action. The technology enables traditional auction houses to not only sell digital art, but also to find new collectors.
Why Are NFTs So Popular?
NFTs are considered by many to be the holy grail when it comes to protecting the intellectual property of creators of all types, particularly digital artists, musicians, designers, writers and those who just like art. This is primarily due to the fact that they provide a way for creators to issue proof of ownership to buyers via the blockchains on which these digital assets are minted.
Below are some of the reasons why NFTs are getting so much attention.
NFTs – A Breakthrough for Creators
The fact that each and every NFT is associated with a unique digital signature, which cannot be changed, tampered with or separated from it, means that unfair copyright infringement and illegal copies of intellectual property, such as images and music, are essentially a thing of the past, at least as far as ownership and usage rights of these digital assets are concerned.
An Accessible Way for Investors to Own Digital Assets
NFTs also provide a perfect way for both experienced as well as new investors to buy, own and resell digital assets. Since NFT transactions all take place on and via blockchains, it is much easier to transfer ownership of NFTs than is the case when buying and selling items using traditional banking systems, credit cards and Fiat currency payment processors, such as Paypal.
An Easy Way for Creators to Promote Their Work and Gain Notoriety
Due to the entirely digital nature of NFTs, it’s much easier to integrate them into social media, websites and other forms of online content.
This means that talented creators can easily gain a following by actively linking to their completed NFTs, or updates on works in progress, via their favorite social media profiles. The artist Beeple, the artist mentioned above is a perfect example of how this can be done. And with NFTs, attracting followers, fans and prospective crypto art buyers and collectors is a direct and seamless process with all the social media platforms and online profiles available today.
The Environmental Impact of NFTs
Some argue that the environmental impact of NFTs due to the amount of energy required to mint them is not worth the subjective (or in some cases objective) value they hold.
This is a complicated topic that could be discussed at length and would require a great deal of calculations to support or deny. Furthermore, the predominantly subjective nature of the value associated with most NFTs (artworks, etc.), as well as the fact that the resources required to create NFTs arguably contribute to their perceived value, are additional points to bear in mind. In addition to all the above, the argument that they require “too much” energy to create is in itself based on relative notions of how severe the environment is affected by the production of energy.
Proof-of-Stake NFTs — A Solution to Environmental Concerns?
As mentioned earlier, there are already a number of alternatives to the Ethereum blockchain when it comes to NFTs. Among these, FLOW and Tezos are two that are not PoW (Proof-of-Work) blockchains.
A detailed explanation of how the PoW and PoS (Proof-of-Stake) blockchain technologies work would require a dedicated article on its own. But basically, PoW blockchains require huge amounts of processing power to solve the complex mathematical problems that are assigned to verify blocks of data, e.g. when the minting of NFTs is taking place.
PoS blockchains, on the other hand, hardly require any processing power at all, meaning that there would be no environmental concerns at all if all NFTs were created using Proof-of-Stake.
The good news is that Ethereum 2.0, which has already been under heavy development for several years, is on its way, and yes, you guessed it! Ethereum 2.0 will be PoS!
Where Can I Buy NFT Tokens?
There are already tons of platforms where you can buy and sell NFTs. Some, such as NiftyGateway, are curated, meaning that not just anyone can sell their NFTs on them (although anyone can bid and buy NFTs on curated platforms). Others, such as OpenSea, are more open to lesser-known NFT creators and sellers. The fees involved in becoming an NFT seller depend on the platform in question.
Most Popular Marketplaces
The most popular marketplaces in the NFT space tend to be the ones with the most popular artists and creators — meaning the ones that create the most sought-after NFTs. This is mostly due to the fact that NFTs bought on popular platforms are considered much more valuable and therefore easier to resell, often in secondary marketplaces.
It’s worth checking out our list of the best NFT marketplaces right now.
How to Buy an NFT
The process involved in buying an NFT may seem daunting at first if you have never done it before. But it is actually a lot simpler than you may think. In fact, once you have bought your first NFT, you may very well conclude that using a debit or credit card to make online purchases is a seriously inconvenient and outdated way of doing transactions considering what is already possible with crypto and NFT transactions.
You can check out our dedicated tutorial on how to buy an NFT — even if you’re a complete beginner.
How to Make an NFT
Yes, making an NFT is something you can do too! And the best part is that you don’t need to be a programmer or a geek to do it. Creating your own NFT and making it available on an NFT marketplace can generally be accomplished in a few easy steps.
Here is a link to our detailed tutorial on how to make your very own NFT.