You’ve probably heard people trading, collecting, and making a load of money from NFTs. As cryptocurrency began spreading like wildfire as a medium of exchange, people realized that digital assets can also be sold and traded – from songs, videos, images, and even in-game items.
As NFTs are all the rage across the internet nowadays, it’s no wonder a lot of people are interested in getting into the action. To get you started, here are the basics of NFTs:
In simple terms, a non-fungible token (NFT) is a digital asset that corresponds to something unique in cyberspace. It can take any form such as media files or even virtual items in video games. Like most major cryptocurrencies, NFTs are also built on blockchain technology, which is basically a system of recording information in a way that is virtually unbreakable or unhackable.
NFTs vs Cryptocurrencies
On the other hand, while NFTs are often priced and valued through different cryptocurrencies, the two are not interchangeable terms. Cryptocurrency refers to the non-physical medium of exchange that is not controlled or regulated by any single agency, thus, being “decentralized.” If you transfer 1 bitcoin to another user, its value remains 1 bitcoin. If cryptocurrencies are the virtual money used to transact, think of an NFT as an asset, like an artwork (here’s how to make nft art). However, this artwork contains a distinct identifier that makes it impossible to replicate, making it unique to the current owner.
Another thing that sets the two apart is how they employ blockchain technology. When cryptocurrency is traded or transferred as a part of a transaction, an entry is added to a digital “ledger.” This keeps a record of the transaction, making sure that the virtual coin sent or received is accounted for.
A similar system is used in the NFT, with its token or code being stored on the blockchain ledger. However, the file address is also recorded, keeping track of the ownership of the NFT and making it impossible to duplicate or steal. NFTs are secure and virtually un-stealable because of their use of smart contracts. These are pieces of software code that detail unique information and functions about your token. The information in these contracts are recorded as transactions involving the NFT take place, making sure that the item remains traceable and safe.
It also helps to note that only the token or the digital signature of your NFTs are saved in the blockchain; the media file that contains the token is usually stored off-block or outside the digital ledgers because of the file size restrictions. In short, the images you see online or the songs you can stream are not the entirety of the NFTs that cost so much today. You can copy, grab, or download the file you see on your screen, but you do not have actual ownership of the art or property unless you actually purchase the NFT. Similarly, you can take a picture of the Mona Lisa, but that doesn’t make you the owner of it.
Joining the NFT market
The first question people ask is how much do non-fungible tokens sell for. Since the market for these unique virtual tokens is in its infancy, there is no reliable determinant for pricing: you can sell your NFTs for as much as you want (or better yet, as much as someone is willing to pay). The market is extremely volatile. What is worth $1,000’s one day may be worth significantly less a week later. In general, be cautious and don’t spend more than what you can afford to lose.
With this freedom in pricing, the NFT market has become a lucrative option for a lot of artists, designers, and programmers who can sell their work. A commonly-cited example is the digital artwork “Everydays: the First 5000 Days,” which was a collage of 5000 digital images created by the artist known as Beeple. It was sold for $69.3 million in a Christie’s auction in May 2021. In true crypto fashion, the programmer-entrepreneur who bought the artwork paid for it with Ether (more than 42,000 Ether!).
Similarly, major brands have started dabbling in non-fungible tokens. A few months ago, Burger King teamed up with NFT platform Sweet to release collectible NFTs which can be redeemed from QR codes included in their meal boxes.
If you’re also looking to join the rapidly-growing NFT market, the first things you need to have are cryptocurrency coins and a digital wallet to store them in. Then you sign up to an NFT platform like OpenSea or NiftyGateway, connect your digital wallet, and you can start creating your own NFTs. Just remember that some platforms require an upfront payment for the creation of your non-fungible tokens, while others require a listing fee for uploading your newly-created tokens on their sites.
When you create an NFT, there is a process called minting. Here, you determine certain conditions that will serve as the backbone of the smart contract for your token, such as an identifier for the token and the address for the contract. This is usually based on the standard used by your platform, the most common of which are the ERC721 used by the Ethereum blockchain and the multi-token ERC1155.
While NFTs are currently usually seen in artwork, videos, music, or in-game items, it’s likely that the security technology that keeps these items traceable will be used in many more applications in the future.