Introduction to Non-Fungible Tokens (NFT)
What are NFT’s?
NFTs (or non-fungible tokens) are unique digital tokens that serve as proof of ownership of an asset, and cannot be replicated/copied. NFTs use blockchain technology like Ethereum, which acts as a digital record of all transactions related to the NFT on a vast network of computers.
While NFTs can be used to represent physical assets, like property or artwork, the majority of NFTs represent collectible digital assets like digital artwork, music, photos, videos, or even virtual plots of land in video games!
Each NFT is unique and contains identifying information recorded in its smart contract. Most of the NFTs are built upon Ethereum’s ERC-721 or ERC1155 token standards, recently Solana has also allowed to mint NFTs and many more blockchains are joining in too!
What makes NFT’s unique?
A simple analogy of an NFT is a shiny Pokémon card. Anyone can print a fake copy and perhaps even make it look almost identical to a real one. But it's just not the same in the mind of a collector and does not have the same monetary or emotional value.
We value the shiny Pokémon card for its uniqueness and authenticity. This is the same with an NFT. Of course, you can download the NFT's associated image or collectible, but that doesn't represent actual ownership or authenticity.
Even NFTs in a limited run aren't all the same. You may have the 01/100 in the series, which can make it more valuable than the other units in the same collection
How are NFT’s created?
If you want to create an NFT, you have to first choose a specific blockchain technology, and upload your content to that blockchain. Then, you select the NFT marketplace to list your NFT on, since NFTs can only be bought and sold on specialized NFT marketplaces. You can even add a royalty or commission to your NFT, which would result in a payment to you every time your NFT changes hands!
How are NFTs bought & sold?
In order to buy or sell an NFT, you need a digital wallet specific to the marketplace that you will use, which needs to be loaded with the cryptocurrency accepted at that marketplace. For example, OpenSea is the biggest NFT marketplace on Ethereum, so wo will need an Ethereum wallet (like Metamask which we discussed in our introduction to DeFi) with some ETH in it to pay for the NFT + The gas fees (transaction fees). Once we are ready its simple as pressing buy and confirming the transaction from your wallet and you are done! There are a few other marketplaces too which we will take a look at towards the end.
What are some use cases of NFT’s?
Art: NFT’s have helped solve long-standing problems with scarcity in digital art. How do you keep virtual artwork rare when you can digitally copy it? While there’s fake art in the real world too, we’re usually able to authenticate them. Crypto art gets most of its value from verifying its authenticity and ownership digitally. Like CryptoPunks
Collectibles: Whether it's a PancakeSwap Bunny or a Binance Anniversary NFT, there's a massive demand for digital collectibles. This use case has even hit the mainstream with the NBA NFT collectible trading cards NBA Top Shot.
Gaming: Gaming has a huge demand for unique items that are tradable and purchasable. Their rarity directly affects their price, and gamers are already familiar with the idea of valuable, digital items. Micro-transactions and in-game purchases have created a multi-billion-dollar gaming industry that could tap into NFTs and blockchain technology.
Music: Like an image file or video, you can also attach audio to an NFT to create a collectible piece of music. Think of it as a digital “first edition” of a record
How to create (Mint) your own NFT?
Now that we’ve learned about all the basics of NFT’s, how they work, how are they traded and what ways they can be used in, you are ready to make your own! So how do you start with it? Let’s have a look below with 5 simple steps
Head over to your marketplace of choice, in this instance opensea.io and connect your wallet (Metamask, trust wallet, Coinbase wallet etc.)
Once connected click on your profile in top right corner and select “My collections”
Select Create to start a new collection, you can think of this collection as your portfolio and you are now free to upload your jpeg or gifs artwork, music files or videos etc.
Fill in the details for the collection and NFT name, along with any description or links to your pages or website and fill all mandatory fields like properties and price and then click create
Pay the gas fee to cover the minting process and you are done! Your NFT will be available for purchase on the marketplace shortly
Opensea: Biggest marketplace on Ethereum (also supports Polygon and Solana now). https://opensea.io
Rarible: Second largest on Ethereum (also supports Tezos, Polygon and Solana). https://rarible.com
Binance NFT: Largest marketplace on Binance chain. https://www.binance.com/en/nft
Magic Eden: Largest marketplace on Solana chain. https://magiceden.io
Jpg Store: Largest marketplace on Cardano (ADA) chain. https://www.jpg.store
How to create NFTs on Opensea and buy/sell video tutorial: https://www.youtube.com/watch?v=2tBPp8MLS9E
Common NFT terms:
Floor Price: The lowest price that an NFT in a collection is listed for
Gas fee: The transaction fee of the blockchain associated with buying selling or minting NFT’s
Mint: NFT minting is the process of publishing a non-fungible token (NFT) on the blockchain and making it available for purchase.
Blue Chip: Well-known projects with highest volumes and stability, like Bored Ape Yacht Club or CryptoPunks
Delist: Cancelling the sale of a NFT on the Market
Doxed: When the identity of the creator or team behind a NFT project is made transparent and documented, this is usually a good sign of confidence in the project.