Before we elaborate on that, it’s important to say that there are two things that everyone seems to agree on- NFTs are similar to cryptocurrencies, and regardless of what they really are, their value is almost always subjective.
If this is still confusing to you, let’s go back to the very beginning.
So, what are NFTs?
An NFT is a non-fungible token.
As simple as that.
Or is it?
Read on.
Unique Digital Assets
Let’s begin by defining the term ‘fungible’. Fungible assets are mutually interchangeable – or replaceable by another identical item. So, if you and your friend give each other a $100 bill, the value of your assets remains the same. Dollar bills are fungible – or interchangeable- as it doesn’t matter which $100 bill you’ve put back into your wallet– at the end of the day, you and your friend still own $100 each.
But let’s say you own a very special asset – a family heirloom that has been handed from one generation to another. Would you exchange that piece of jewelry for a similar asset of the same monetary value?
Probably not – well, I know I wouldn’t.
That is because a family heirloom has emotional value; for many, these assets are non-fungible.
Or let’s take another example. Suppose someone offers you to participate in a ridiculous house exchange program. Your homes have the same market value; they’re both situated in a good neighborhood with a tall fence surrounding a beautiful backyard. If you are, for whatever reason, emotionally attached to your home, you will likely refuse to exchange houses. And, even if you don’t decline the offer, you will live in a place that has the same value as your previous property. However, your new home will still significantly differ from your original asset.
If we apply these analogies to NFTs, we can, for now, conclude that non-fungible tokens are unique digital assets that, for whatever reason, have a specific value. As we further dive into the topic and explain the nature of NFTs, you’ll see why they can’t be interchangeable.
Understanding NFTs
Most NFTs are held on the Ethereum blockchain. The reason behind this is that Ethereum does not operate the same way as the Bitcoin blockchain, for example. The bitcoin blockchain is for cryptocurrency only – it’s a decentralized public ledger that contains the history of all Bitcoin (BTC) transactions. So, while the Bitcoin blockchain only supports the BTC currency and calculates its transactions, Ethereum is more flexible.
Why?
Because Ethereum is a programmable blockchain.
Photo illustration: Freepik
As a result, anyone can write a program for the Ethereum blockchain that does something other than calculating crypto transactions. And you’ve guessed it – NFTs are primarily on Ethereum because this blockchain can support programs that allow users to create NFTs.
Blockchain technology is commonly regarded as being impenetrable because the cryptographic techniques used to encode the data also ensure the data remains unaltered. So, once put on the blockchain, smart contracts become an integral part of it– no matter how hard you try, you can’t delete, alter, or stop them from fulfilling their purpose.
Another interesting fact is that blockchain knows no privacy. Everything, including smart contracts, is publicly displayed on the blockchain, allowing anyone to view and interact with published programs. So, when interacted with in the right way, smart contracts can create NFTs.
To sum it up, NFTs are minted (created) through smart contracts, which contain unique coding that can’t be tampered with, making them non-interchangeable. As unique metadata and identification codes are integral to every NFT skeleton, NFTs can’t be replaced with a different item of the same kind. And since NFTs can’t be deleted from the blockchain or replaced with another NFT, they can be used as methods of verification and tokens that signify ownership.
NFT vs Crypto: Connection and Differences Between the Two
Cryptocurrencies and NFTs reside on blockchains and use them for ownership verification. By the way, a blockchain is a chain of blocks containing records of all transactions and other financial information, including balances held at addresses and key holders who can access those balances, but more about that next time. In other words, all holdings are permanently recorded on the blockchain and can only be accessed via a private key.
Photo illustration: Freepik
So, if both crypto and NFTs are digital assets that exist on blockchain networks, aren’t they the same?
No, no, they aren’t.
Remember how I mentioned that all $100 bills are fungible because they share the same value? The same rule applies to crypto. Crypto coins are digital assets based on blockchain. Although they use the same technology as NFTs, crypto assets aren’t composed of unique coding that makes them non-fungible.
And what happens if an asset is fungible? You can exchange it for another identical item or a similar item of the same monetary value. This allows us to trade Bitcoin, for example, for ADA (Cardano blockchain’s cryptocurrency), ETH (Ethereum blockchain’s cryptocurrency), or any other crypto.
So, cryptocurrency is traded as other securities, and NFTs can be bought or sold, but they cannot be exchanged for one another. But unlike crypto, NFTs could be the key to solving asset theft and asset misplacement.
See, we’re making progress here.
NFT Use Cases and Applications
NFTs are all the hype these days, but definitely not for a good reason.
Last year an NFT was sold for $69 million– of course, that’s controversial. It’s absurd to many Web3 enthusiasts that someone willingly paid that much money for a URI (a string of characters used to identify an internet-connected resource) to a JPG picture. No wonder terms such as NFTs have negative connotations– they remind people that the rich are wasting money on silly little digital images while the rest of the world suffers from scarcity.
But then we could also argue that it’s in our nature to assign value to things that aren’t inherently valuable. Signed baseball bats, celebrities’ clothing, trading cards, limited edition books, vinyl records, or a heart-shaped stone that I found at Kallithea beach in 2019– these are valuable. Not to everyone, apparently, but to some, they mean the world.
Photo illustration: Freepik
Whether people like it or not, NFTs are a trend. Those who want to sell/buy these assets have the right to assign them any value.
Still, NFTs are more than highly-priced links to digital art. So, let’s see how we can actually use this technology to our advantage.
Significant NFT use case examples that will revolutionize the way we value and authenticate things:
- NFTs in the ticketing industry
- NFTs that help businesses create secondary markets
- NFTs as a confirmation of ownership
- NFTs that can generate a passive income
NFTs in the Ticketing Industry
Let’s say you want to attend an event. In most cases, you have to purchase a ticket to access the said event. Here you have a few options: you can either buy a ticket in digital or paper form.
Either way, these methods don’t guarantee that you will have the ticket in your possession by the time the event is hosted.
Why?
Well, you could lose or destroy a paper ticket. Similarly, you could accidentally delete the ticket from your phone.
Photo illustration: Freepik
Here’s when NFTs in the ticketing industry could come in handy. As private keys that confirm the ownership of an NFT are usually stored in a private hardware wallet, you are the only one who can access it and confirm that you, indeed, are the ticket owner.
NFTs That Help Businesses Create Secondary Markets
The Alfa Romeo Tonale SUV is the first car with an NFT certificate. What’s incredible about it is that this automaker created a secondary market simply by including an NFT in every car purchase.
So, how does that work?
These NFTs signify that Alfa Romeo is the original owner of these cars. And, as NFT royalties give original owners a percentage of a sale each time the NFT is sold, Alfa Romeo made it possible to tap into the secondary market and generate revenue based on every next vehicle sale.
Source: Auto Magazin
More importantly, Alfa Romeo NFTs will benefit car buyers, too. With the customer’s consent, Alfa Romeo NFTs will collect data about these vehicles, including mileage, maintenance, previous owners, etc. As a result, buyers will have insight into whether the car is worth the buy.
NFTs as a Confirmation of Ownership
Real estate scams are common. People would get a fantastic offer, and pay thousands of dollars for a new home, only to find out they’re not legally entitled to the property. Although there are many ways to avoid falling into this trap, tying an NFT to each property could minimize these unfortunate events.
Similarly to Alfa Romeo Tonale SUV NFTs, these digital assets could confirm that the seller is, indeed, the owner of the property. This will also ensure that all parties involved in the process are satisfied with the final sale.
Even better– real estate NFTs can show buyers how much was invested in a property. Although there are many other ways to check property records, they require a middleman– a centralized body that helps you make an informed decision. However- and this is why non-fungible tokens are revolutionary- NFTs would eliminate the need for a middleman, allowing us to decentralize the market.
NFTs That Can Generate a Passive Income
As stated earlier, people can earn a passive income through NFT royalties. However, that isn’t the only way an NFT creator could benefit from this technology.
For example, owners can rent their NFTs. The owner will set the lending rate and duration, and those who want temporary access to digital assets will rent them. Of course, the terms of these exchanges would be governed by smart contracts, making it impossible for scammers to steal NFTs from original owners.
Another way to earn passive income is by tying NFTs to user data. Before you start searching online for how to make it happen, please know that it will take a while before this plan comes to fruition. However, some Web3 enthusiasts are trying to make it happen, and we may soon be able to profit from providing insightful user data.
These are just a few examples of how NFTs could benefit our society. If I continue to talk about NFT use cases, you’ll never see the end of this article. So, let’s continue with how to make an NFT.
How to Make NFTs
Now that you know what NFTs are and what they can be used for, of course you want to make one. So, let’s explain NFT minting.
First, you’ll need to figure out what you want to put up for sale. We’ve learned that NFTs are usually tied to digital art, but they don’t have to be– your options are endless!
Here comes the challenging part. You’ll need to
- Set up an NFT wallet
- Choose a blockchain
- Find an NFT marketplace
- Create an NFT
- List it for sale
Set up an NFT wallet
An NFT wallet will provide easy access to earnings and collectibles alike, and it’s one of the first things you must consider before creating an NFT. You can either choose a digital or a hardware wallet, though you should go for the latter, as it offers greater safety.
Photo illustration: Freepik
Keep in mind that you should choose a wallet that supports the blockchain you’ll use to host your NFT. Some of your options are:
To set up a wallet, you’ll have to download it on your mobile device and create a username and a password. It would also be good to write down your private keys and recovery phrase on paper and store it somewhere safe.
Choose a Blockchain
NFTs are primarily held on the Ethereum blockchain, but several others can store your NFT, too. The blockchain you choose will permanently store your non-fungible token on its network, so do your research and pick the one that best fits your needs.
Besides Ethereum, you can go for Solana, Tezos, or even Flow.
Find an NFT Marketplace
As the name says, the NFT marketplace is a platform that allows you to create, buy, and sell your non-fungible token collections. If you’re looking for the best option, OpenSea is the most common choice among collectors. It provides users with an NFT creation tool, a program not all NFT platforms offer, and it already hosts over 80 million NFTs.
Photo illustration: Freepik
If OpenSea isn’t your cup of tea, here are some alternatives to consider:
- Crypto exchanges such as Binance and Coinbase
- Solanart
- Rarible
- Nifty Gateway
Create the NFT
After completing the steps above, you’re finally ready to mint your very first NFT. Congrats!
At this point, all you have to do is follow the guide you can find on your chosen marketplace and upload your digital file. You’ll first have to connect your wallet to the NFT platform and fill in the details after uploading your digital art.
That includes the name and description of your NFT and other details if your NFT has any. For example, let’s say you own a brand. You could include discounts to your merch for anyone minting your NFT. And, of course, you can dictate how many NFTs can be minted.
Then, select the blockchain you’ve chosen. After this step, the NFT platform will usually require you to hit the Create button, and you’ll be good to go.
List your NFT for Sale
Listing NFTs for sale is usually free. You’ll first choose the listing price and the sale duration. You’ll then have to connect your wallet to the NFT platform and add the non-fungible token to your wallet.
NFT listings differ depending on the platform. However, each NFT marketplace offers detailed guides leading you through each step of listing an NFT for sale.
How to Buy NFTs
Buying NFTs is a lot easier than creating them. You will need a wallet and some crypto because collectors can’t yet purchase these digital assets with fiat currency.
Keep in mind that you’ll most likely need ETH. Once you find a marketplace and the NFT you want to purchase. then, check the price and exchange your fiat currency with adequate crypto coins.
Photo illustration: Freepik
Do You Actually Own NFTs?
NFTs remain a mystery to many people. That is because they can’t answer this notorious question– do you actually own an NFT of something, and if not, what exactly do you own then?
Okay, I’m just going to rip off the band aid and say it.
Owners of NFTs tied to digital assets don’t own the asset in question.
So, if you purchase an NFT tied to a JPG picture, you will only own a URI that exists somewhere on the blockchain that shows that that string of data only belongs to you. In other words, when you buy an NFT, you become the only person who can sell/gift that non-fungible token to someone else.
Additionally, NFTs give you the right to display and use the said collectible, but only to some extent. For example, collectors can use their NFTs as profile pictures. However, they can’t use them to claim ownership of the original artwork.
Photo illustration: Freepik
As a matter of fact, you don’t have to buy an NFT to legally view it in your browser or even download it on your device. Etherscan or Polygon blockchain explorers give users access to all NFTs, allowing them to read the smart contracts and find the Token IDs and the URIs that lead to digital art that exists freely on the information superhighway.
Why Do People Buy NFTs Then?
With all this controversy surrounding non-fungible tokens, how come people still invest in these assets? I mentioned earlier that we humans love to assign value to the world around us. Let’s dive into that topic even further.
For example, let’s examine the way we value diamonds and copper.
Diamonds are more valuable to people than copper, although copper is a metal used in many industries. That is partially because diamonds are stronger than most metals, including copper, and aren’t as abundant as the opponent. We can conclude from this example that uniqueness and rarity play an essential role in how we value things.
Hmmm, I wonder what would happen if someone put something on the internet and provided proof that the item is original and that no other of its kind exists, nor will exist, like, ever? Would people want it?
Of course they would, which is why NFTs are the latest hype in the virtual world.
Another reason why people would want to buy NFTs is simply to support their favorite artists. We now have access to music, artsy, and even NBA-inspired NFTs. By purchasing them, collectors can support artists or celebrities they are fond of.
CREDIT: TOP SHOT
And, of course, let’s not forget about profit-chasers who will purchase a super-rare, expensive NFT only to force the price upwards and make good money through the next sale.
People also invest in NFTs because they’re the next big thing after crypto. Let’s face it, NFTs are trendy. Anyone who wants to ride the Web3 wave will at least consider investing in them.
Popular NFT Marketplaces
We’ve learned earlier that NFT platforms are marketplaces where people can create, buy, and sell NFTs. I also mentioned some of the most popular ones, including OpenSea and Nifty Gateway, so let’s talk about them.
- Open Sea: Launched in 2017, OpenSea is the world’s first and most famous NFT marketplace. With low rates and excellent features, it’s a game changing NFT platform that provides users with all they need to tap into the NFT market. Another reason to choose OpenSea is that it supports NFTS minted on Ethereum, Polygon, and Klaytn blockchains.
- NiftyGateway: Those who think their NFT collections will be well-received by the public shouldn’t sleep on NiftyGateway. The NFT platform collaborates with leading companies and artists to produce limited-edition collections and premium NFTs. It’s also an Ethereum-based NFT marketplace.
- Rarible: This NFT marketplace is excellent for beginners, allowing users to mint NFTs easily and list their collections for sale. Whether you’re a seller or a buyer, Rarible will help you connect with the right people and earn good money with minimal effort. Another benefit of Rarible is that it allows you to receive royalties on NFT purchases of up to 50%, and it supports several blockchains, including Ethereum, Polygon, Solana, Flow, and Tezos.
- Solsea: Solsea is the largest NFT platform on Solana, and it should be your primary choice if you intend to mint Solana-based NFTs. It’s cheaper, faster, and easier to use compared to other Solana-based NFT platforms on the market.
- Solanart: If you want to mind Solana-based NFTs, Solanart is another marketplace to consider. Still, having launched in 2021, this is a relatively new platform, and although it’s already known for high-volume trades, it may take a while before it gets the recognition it deserves. It has a clean user interface, allowing beginners and seasoned pros alike to review their collections and further explore the marketplace.
- NBA Top Shot: NBA Top Shot is a little different from its competitors mentioned above. This marketplace is entirely dedicated to displaying, selling, and buying so-called NBA NFTs that feature significant moments happening in the NBA industry. These NFTs are minted on the Flow blockchain.
Important note: Your NFT wallet must support NFTs minted on a specific blockchain. For instance, if you want to mint or buy NFTS on Solanart, you will need a wallet to store Solana cryptocurrency. Furthermore, you might be unable to tie that wallet to NFTs minted on other blockchain networks.
Popular NFT Collections
Whether you’re just curious or looking for a new collection to buy, here I’ll include some of the most popular collectibles listed on Open Sea at the moment of writing this article.
- CryptoPunks: An eye-catching collection of 10,000 unique collectible characters that reside on the Ethereum blockchain. These punky-looking avatars are some of the earliest NFTs introduced on Ethereum, and each piece is carefully crafted so that no Crypto Punk looks like the other. These pixelated NFTs are highly popular, and, as it usually goes– some are more expensive, and some are affordable; you’ll just have to pray that the one you like doesn’t cost over 100 ETH. Good luck with that!
- Clone X – X Takashi Murakami: Clone X is a collab between Takashi Murakami and RTFKT studios that resulted in the creation of digital avatars, all referred to as Clone X. The combination of cyberpunk and anime style is definitely worth the hype, as each clone has a unique personality you’ll absolutely adore.
- Azuki: Here we have another collection of 10,000 NFT avatars. The artist’s dedication and hard work paid off, as Azuki is one of the most prominent and promising NFT collections so far.
- Bored Ape Yacht Club: If you haven’t heard of Bored Apes, you must’ve lived under a rock for the past year. Bored Ape collectibles are undoubtedly the most popular NFT collection, and even some celebrities, Including Snoop Dogg and Paris Hilton, joined the Bored APe Yacht Club and bought these NFTs.
Photo illustration: Freepik
These are the most popular NFT collections on OpenSea. However, here are some other collections worth the praise:
NFTs and Brands
If you thought that popular brands would miss the opportunity to ride the Web3 wave, you were wrong. Here are some popular brands that have already launched their non-fungible collectibles:
- Nike- If you want to own a line of code in the ledger that leads to a fancy image of virtual sneakers, Nike offers quite a few options. As a matter of fact, Nike approaches NFT minting very seriously, and if you decide to purchase them, and least you’ll know the design of your digital sneakers is absolute fire.
- Louis Vuitton- So far, Louis Vuitton NFT collectibles haven’t disappointed. These digital collectibles are artsy, colorful, and stylish, so if you’re scouting for artistic value, you might want to check these out.
- Disney: As one of the most bellowed brands, Disney excels at making and selling NFTs. These NFTs are in demand, although the brand has already published several collections.
- Pepsi: After the Pepsi Mic Drop genesis NFT collection was proven successful, this industry giant might soon come with a new drop. The first collection was a tribute to the year Pepsi was born, so who knows what comes next?
