What is an NFT? All you need to know about NFTs.
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New technology is always popping up in the Crypto world. In the first quarter of 2021, we witnessed NFTs gaining a massive popularity. The year is about to end and NFTs have already gotten a firm foothold in the blockchain industry. In this article, we will take you through what an NFT is and everything you need to know about NFTs. Take notes especially if you are looking to create or trade NFTs.
To understand exactly what an NFT is, you should be familiar with terms like blockchain and digital tokenization.
What is an NFT?
NFT stands for Non-Fungible Token. An NFT is a one-of-a-kind digital asset that is mostly used to represent a form of a physical or digital object, art, or in-game asset. It is a digital file representing the real thing. Non-Fungible means that it is the only one in existence and cannot be replaced.
To simplify it, an NFT holds a unique value and cannot be exchanged with other NFTs since they are not of the same value. A great example of a fungible token would be Bitcoin. You can exchange one Bitcoin for another since they hold the same value. The dollar is another fungible token.
For instance, a 10-dollar bill can be broken down into 10 one-dollar bills and still hold the same value. NFTs can not in anyway be broken down and hence their uniqueness.
NFTs can be differentiated from one another since they each hold a unique number known as the token ID. This token ID is stored on a specific blockchain and once generated it cannot be altered. The token ID serves as proof of ownership.
How do NFTs work?
As stated above NFTs are “representative tokens”. NFTs are created to represent items such as:
· In-game Assets (cards, rare characters, etc.)
· Photos and Videos
· Digital Art
· Physical Artworks/Paintings
· Music
· Collectibles
All the above items can be exclusively owned by purchasing the items as non-fungible tokens. The exclusivity makes them valuable and drives up their prices. This is one of the reasons why they are currently selling for millions.
NFTs and blockchain technology are still developing concepts and therefore in the future, NFTs may represent more items.
How are NFTs Stored?
NFTs exist on a blockchain; which is a decentralized public ledger that keeps track of all of the transactions that take place across any computer connected to the blockchain.
Most popular NFTs today are hosted on the Ethereum network. The most common NFT standard is the ERC 721 and is part of the Ethereum blockchain. It is important to note that the Ethereum blockchain is not the same as Ethereum. The blockchain makes it possible for ETH as a form of cryptocurrency to exist.
However, NFTs can exist on other blockchains as well. A good example would be the TRC-721 NFT standard which exists on the TRON blockchain. Other blockchains that support NFTs include; Binance, Solana, Smart Chain, Dapper Labs, EOS, Polkadot, Tezos, and WAX. All these blockchains have their versions of NFTs.
How Can I Create an NFT?
NFTs are created through a process known as minting. To mint, your NFT on the Ethereum blockchain all you would require is a recognized Crypto wallet (e.g., MetaMask) and some money in the wallet. This amount varies from platform to platform. It is usually referred to as “gas fee”. It is a form of payment to compensate for the computing energy used in the specific transaction.
It is important to note that gas fees are most popular on the Ethereum network. On other blockchains, such as polygon, minting is gas free.
Now all you need to do is pick an item (can be any of the items listed earlier), choose a marketplace, and connect it to your crypto wallet, and voila you can now create your own NFT. NFTs can also be acquired through purchase, as rewards from various blockchain games and gamified yield farming.
What is an NFT Marketplace?
An NFT Marketplace is a platform that allows registered users to buy and sell their NFT projects. Picture a grocery store but instead of groceries, they are selling various NFTs. To register on an NFT marketplace you would need a crypto wallet to enable you to make the transactions as well as to store your NFT data after purchase.
To connect your wallet to the marketplace, you complete your digital signature. This is just approving the marketplace to initialize transactions with your wallet. However, money is transferred after a given validation cycle.
As an artist, you have several options when it comes to choosing a marketplace. The most common NFT marketplaces are OpenSea, Rarible, and Mintable. OpenSea is largely popular because artists only pay gas fees once as compared to the other platforms where an artist has to pay gas fees for every NFT.
Marketplaces are all different from one another in that they may only connect to specified wallets and transact in specified cryptocurrencies. An NFT marketplace like VIV3 only allows users to transact with the FLOW token.
How to Choose an NFT marketplace
Your choice of NFT marketplace is largely driven by your requirements. This could be factors such as:
· Type of NFT marketplace — NFT markets differ from each other in various ways. For example, some marketplaces charge minting costs while others offer free minting.
· Type of NFTs you want to buy or sell- Some marketplaces are popular for digital art while others are popular for “in-game reward” NFTs.
· Type of wallet and cryptocurrency- Marketplaces may choose to transact in with specific wallets and specific cryptocurrencies and tokens. Without their specific requirements, you cannot register and transact in these marketplaces.
· Fractionalization- Although not yet very popular some marketplaces are allowing joint ownership on NFTs. This means that a bunch of people can cost-share and own part of an NFT.
How to Buy NFTs
To buy an NFT is a straightforward process. All you need is a digital crypto wallet, some form of a token (cryptocurrency), and knowledge of what types of NFTs you are interested in. Here is a step-by-step method of buying an NFT.
1. Create a digital crypto wallet (if you don’t have one already).
2. Load enough money into the wallet.
3. Register on the marketplace of your choice.
4. Connect your wallet to the marketplace.
5. Browse around and find the NFT you want to buy.
6. Click “Buy Now” or “Place a bid” depending on the available options.
After the transaction is complete, you now own the NFT. It is accessible on your “collections” page.
How to Sell NFTs
Once you have successfully created an NFT, you can now sell It on the marketplace. Here is a step-by-step process of listing your NFT for sale on a marketplace.
1. Find the NFT in your collection.
2. Select the NFT and click on the “sell” button.
3. Fill in the relevant pricing options.
Usually, you have the option of selling your NFT at a fixed price or an auction. The marketplaces also give the option of programming royalties into the sale.
It is important to note that each marketplace is different and that each has its processes. However, the most popular marketplaces follow the above process.
Frequently Asked Questions About NFTs
What is NFT art?
NFT art refers to the art that has been minted into an NFT. It is just the original artwork but with extra information in the metadata which makes it unique which distinguishes it from similar copies making it the original. NFTs are also popular in the music industry and work within the same concept.
Why is NFT art expensive?
NFTs are expensive because they are scarce. Each NFT has a unique identity and is exclusive to the owner. The price is also driven up by the personalities or brands who have owned the NFT before.
What is an NFT drop?
An NFT drop is an event where NFTs are made available to the public. It is a publicized date that aims to encourage investors to be set to buy a certain NFT. It is almost similar to token-drops where Crypto tokens are released to the public.
Are NFTs bad for the environment?
You have probably heard the conversation about “energy-hungry cryptocurrencies”. Cryptocurrencies work within a framework known as the Proof of Work. This simply means that they require energy during mining. The energy used and quantity mined is proportional.
The environmental impact of NFTs is therefore significant as they fall under the Ethereum blockchain. One Ethereum transaction consumes as much energy as an American household would consume in about 2.5 days.
