What are NFTs? Non-Fungible Tokens Explained
Non-fungible tokens are taking the world by storm, with many people jumping on the bandwagon to get in on the action. I’m sure you’ve heard of popular celebrities banking in millions from selling their unique NFTs. Artists such as Shawn Mendes, Grimes, Steve Aoki, Tony Hawk and Ellen DeGeneres are only a few!
Now the real question is, what are NFTs? If you’re a beginner, you’ve come to the right place!
NFT stands for non-fungible token, meaning that it cannot be replaced and is one of a kind. It is a piece of data stored in a blockchain digital ledger, and can represent assets like art, images, sounds, videos and other types of digital files for purchase. It allows the buyer to be the sole owner of the original item, with built in authentication and proof of ownership. For example, if you were to buy the original Mona Lisa painting, people can view it, they can replicate it, but they will never have the original piece, thus making it unique. This makes the creation and circulation of fake collectibles pointless because each item can be traced back to the original issuer. People view this exclusivity as a “digital bragging right,” proceeding as an incentive to purchase an NFT using some form of cryptocurrency.
If you’re just starting, I bet you have the same question as many of us did: "Why would anyone pay millions of dollars for a digital piece of art, instead of screenshotting or downloading it?" This goes back to our Mona Lisa example. A non-fungible token allows you to know you own the real, original item because it has its own authentication and unique identification code stored on the blockchain.
The beauty of digital scarcity comes from the fact that all of our NFTs are cryptographically linked on the Ethereum Blockchain, and are completely immutable, and irreplaceable. Unlike a conventional image, where millions of owners can store a copy on their hard drive, a NFT has data hardcoded inside a cryptographic token that represents a certificate of ownership and interacts with IPFS (Interplanetary File Service). The result is a sophisticated method to transact digital non-fungible creations that ensure digital scarcity.
What is a Blockchain?
Fundamentally, a blockchain is a decentralized public ledge that records transactions. A digital file of any asset that has been minted as an NFT will be recorded on this blockchain, making it easy to verify the ownership. There are various blockchains that exist but the most attractive one to NFTs is the Ethereum blockchain, due to its truly decentralized nature.
What's the Difference Between NFTs and Cryptocurrencies?
An NFT and a cryptocurrency is essentially built with the same programming, similar to Bitcoin and Ethereum, however that is all they have in common. Cryptocurrencies are fungible and can be traded or exchanged with one another, comparable to physical money because they are equal in value. On the other hand, an NFT is non-fungible aka unique and one-of-a-kind. Each of them carry their own digital signature, hence why it cannot be exchanged.
Who is Using NFTs?
The digital NFT marketplace continuously adds new creators everyday. Anyone and everyone can sell and buy NFTs. Some of the most popular NFTs created were sold in minutes. For example, within 30 minutes, Taco Bell sold 25 GIF and images about tacos on an online site. Other companies have sold digital assets as well. The NBA leaped at the chance to sell NBA Top Shot collectibles, a downloadable version of their basketball's greatest moments in the format of trading cards. In total, they have notched over $700 million in sales in less than a year. Memes have also been monetized and minted into blockchain technology. Do you remember the internet sensation Nyan Cat? The NFT sold for 300 ETH ($590000) in early 2021 during an auction.
How can I create a NFT?
When you "mint an NFT," your art becomes a token on the immutable Ethereum blockchain. In doing this, you assign your artwork provenance by marking yourself as the token's creator, you verify its authenticity, and you enable it to be purchased, traded, and digitally tracked (on a blockchain) as it is resold in the secondary NFT market. The NFTs you mint on Portion are tied directly to your Ethereum wallet which means that the artist is in control, and you’ll hold and manage your funds directly. To get started creating your first NFT, check out this step-by-step tutorial.
Why is a Non-Fungible Token Important?
The digital art market has long been encumbered by the issues that Napster and other file torrenting services had highlighted in the early 2000’s with creating digital scarcity. Physical art has myriad redeemable qualities, perhaps its most endearing quality is its physical scarcity which confers properties of unique ownership. However, provable ownership has always been a challenge in the digital world. The advent of NFTs have enabled part of what’s compelling about the intersection of Art and Blockchain: provable digital scarcity and ownership, and the ability to create and transact on a global scale without barriers or myriad middleman.
Traditionally, the barrier of entry to the art marketplace, for both artists who wish to sell their works and buyers who wish to collect and/or invest in those works, has been extremely high. Artists face a catch-22 situation where they have to achieve a certain level of fame and renown before their pieces can reach high-profile marketplaces, but talented artists without connections may lack the exposure to ascend. Buyers, likewise, must have a certain high level of wealth to purchase works from such marketplaces. This has the effect of excluding a vast majority of the art creating and purchasing population from the very marketplaces that are supposed to serve them. Now, with open, decentralized marketplaces with no such barriers to entry (such as Portion), buyers and artists from around the world can trade freely without relying on an auction house as a middleman. This means artists of all levels of fame can advertise and sell their work and collectors/investors of all means can appreciate.
An NFT can truly be anything you want to create, even a taco. The NFT marketplace is allowing people to buy and sell digital assets like never before with creations ranging from art, real estate, music, NBA clips to memes, and the list just goes on. This presents opportunities for artists to create a new source of revenue without a middleman and offer them a platform for their art or collectibles. NFTs make it not only possible to sell today, but also to keep earning tomorrow. For example, Portion allows their customers to keep 100% of the sales and earn 11% royalties on secondary sales, thus producing a desire to list NFTs. The 11% royalties feature is implemented to make sure that if your work gets super popular and escalates in value, you'll reap some benefits. As for consumers, buying an NFT gives you basic usage and bragging rights. This is your time to invest and bid on new art and collectibles items for their scarcity and provenance before it's too late. Who knows, the digital art piece may increase in value one day.
Non-fungible tokens possess potential for growth and development but at the end of the day, the value of them doesn’t just come from a game of purchasing and hoping to sell for more. If you are investing in it, you, yourself should find it valuable.
How Do I Buy or Trade NFTs?
NFTs are bought and traded just like any other cryptocurrency based on Ethereum, only instead of buying a certain amount of tokens, you buy a single unique token. To buy NFTs, you'll need a cryptocurrency wallet. Start by installing Metamask which is a browser extension that lets you interact with various facets of Ethereum. Metamask is a digital crypto wallet and gateway to blockchain apps. With this, you can buy, store, send and swap tokens on valuable assets both fungible and non-fungible.
Once you have installed the extension, you can choose to purchase ETH (the Ethereum blockchain's native currency) directly in MetaMask with a debit card or Apple Pay by clicking “Add Funds.” With sufficient funds, you can then connect your wallet to a website that sells NFTs such as Portion’s marketplace, and begin to purchase or mint your own creations. There are many different marketplaces emerging, even niche ones, such as NBA Top Shot for basketball highlights turned NFTs, but the set up process may slightly vary for each platform. Just remember, when using MetaMask or any similar platform, always be very careful with your funds and store your password and your wallet’s private key somewhere safe. For a step-by-step guide on how to buy NFTs, check out this guide.
Additionally, due to the high demand of many NFTs, they are often released as "drops" on specific days and times. So, if you've been eyeing a specific piece, you'll need to be registered and have your crypto wallet filled up ahead of time to purchase the digital artwork before the rush of eager buyers.
Be Cautious and Know the Risks
Similar to bitcoin, non-fungible tokens require decentralized blockchain technology in order to verify its integrity. An NFT of Twitter's very first tweet recently auctioned for $2.9 million. Some investors are focusing on the NFT marketplace and NFT art hoping its value will rise. If the hype evaporates, the value will fall as easily with an NFT trade as a stock or even a bitcoin. Be cautious about these consequences and know that the NFT market may be a risk.
Should Beginners Invest in NFTs?
From a certain point of view, the value of an NFT lies in the eye of the collector. After all, owning a unique asset can be worth any expense if you want it badly enough. Beginners must understand that the popularity of non-fungible tokens have skyrocketed in early 2021 because of their relative scarcity. However, many platforms offer an abundance of people to mint their NFTs now, which makes it more difficult to separate tokens with potential versus ones that are a wasted purchase. Given the high level of uncertainty, I’d advise doing your research before jumping on the bandwagon. Perhaps the most reasonable approach to investing in NFTs is not to consider them investments at all, but to buy tokens that are related to your personal interests or hobbies. Own them for your enjoyment and consider the money spent as a way of supporting creators that you care about.