Non-fungible tokens (NFTs) offer perhaps one of the most exciting real-world use cases for blockchain technology, yet so few people know what they are and what they can do. Our introductory guide to NFTs will get you up to speed with all of the following:
- The essentials of what NFTs are
- What you can do with NFTs
- How to make and obtain your own NFTs
- What the future holds for NFTs
What are NFTs?
The first question on everyone’s mind when it comes to NFTs is, “What does ‘fungible’ mean?” Fungible essentially means divisible, meaning that NFT tokens cannot be divided and split up. This is in contrast to, say, Bitcoin, which can be split up into eighths, meaning you can buy between 1/8 of a bitcoin up to a whole bitcoin. You cannot buy fractions of an NFT – you can only buy the whole thing.
Perhaps unsurprisingly, Ethereum has been the platform on which almost all NFTs have been issued to date. ERC-721 has been the primary standard for NFTs up until now, although the more recent ERC-1155 is taking a growing market share. Where ERC-721 requires a new smart contract to be written for each new class of token, ERC-1155 allows a single, smart contract to govern an infinite number of tokens, which is one of its numerous advantages.
NFTs: A Brief History
The idea for NFTs began Colored Coins on the BTC blockchain with the concept being to create digital assets like collectibles, coupons, property, company shares, etc. The key difference here is that with Colored Coins being on the Bitcoin blockchain, it was actually a fungible token. It wasn’t until 2015 when we would see the first official NFT project, Etheria, launched on the ETH blockchain.
By 2017, the crypto world began seeing multiple NFT projects being launched, including Curio Cards, CryptoPunks, and CryptoKitties. CryptoKitties can really be used as the standard for what NFTs have become, one-of-a-kind pieces of collectable art that cannot be replicated.
NFTs officially became “mainstream” in 2021 when users spent over $200 million on the collectibles. Bands released albums as NFTs, Jack Dorsey sold an NFT of his first Tweet, and major brands ranging from Star Trek to Elvis Presley began being trademarked for NFTs.
But, come mid-2022, analysts announced that the NFT bubble had burst with sales having declined by over 92% since September the year before. Much of this can be attributed to the bear market and high inflation being felt all over the world, and many believe this is a temporary pause. Either way, NFTs continue to be produced in various forms from artwork to avatar skins and more.
How do NFTs Work?
Before you find out how your NFT can die, let’s remember what an NFT is – or more importantly, what it isn’t. An NFT is not a digital asset, it is a link to an asset somewhere on the internet that someone else has created and that lets you do certain things with it. If that asset were to disappear, then so would the value of the NFT.
Think about a bookmark on your browser – if the website it links to goes down, the bookmark is now useless. The only difference is that NFTs cost money, and sometimes quite a lot.
But surely assets used to create NFTs are on the blockchain, and blockchains are immutable, so they can’t just disappear? Wrong. The majority of assets behind NFTs are stored on centralized servers, be it the laptop of a photographer wanting to earn a few extra bucks to a full blown NFT game using Amazon Web Services to store its assets. The asset stays on the server and only the link goes onto the blockchain. If you own the password to access the data, you own the NFT.
The Ethereum Network is the most commonly used blockchain for NFTs. The ERC-721 was specifically designed to be the standard for all non-fungible tokens. But, other blockchains that host NFTs include Solana, Cardano, and BNB Chain.
NFTs vs. Crypto
|Unique and non-fungible / irreplaceable||Uniform and fungible / replaceable|
|All fees are paid to marketplace, validators, and creator(s)||All fees are paid to crypto exchange|
|You own the NFT, but not the copyrights||You fully own your crypto|
How to Make and Sell NFTs
To mint and sell your own NFT, follow these simple steps:
- Choose the format of your content
- Graphics (PNG or GIF)
- Text (PDF)
- Audio (MP3)
- Video (MP4)
- Access the NFT marketplace website. If you do not have an account, you will need to create one. You will also need a crypto wallet and to purchase some ETH to pay the gas fee for minting.
- Upload your digital asset. Click “Create” or “Add New Item” and give your item both a name and description.
- Click create. You have now created your first NFT and are ready to sell it on the marketplace.
- Choose how to sell your NFT:
- Fixed Price – the creator specifies the price
- Auction – the NFT goes to the highest bidder
- Promote your NFT. Many creators use various means to promote their work, including social media, online ads, and NFT forums.
How to Buy NFTs
Like cryptocurrencies in general, NFTs tend to be bought through exchanges. There are a few specialized NFT exchanges in existence, with more expected as the ecosystem grows, and major exchanges are likely to have NFT arms before long. It is possible to exchange NFTs privately peer-to-peer, but this has the same inherent risks associated with a private cryptocurrency transaction.
To purchase an NFT at an exchange, follow this process:
- Step 1: Open and verify an exchange account.
- Step 2: Purchase ETH and transfer it to your crypto wallet.
- Step 3: Connect your crypto wallet to the marketplace.
- Step 4: Purchase your NFT.
Top 5 NFT Marketplaces
|Competitive commission rates||ETH only|
|Largest selection of NFT styles||High minting fees|
|User-friendly mobile app|
|Allows bids on “fixed price” NFTs||2.5% fee on all parties for all transactions|
|Accepts multiple payment methods and crypto wallets||Must use ETH for deposits and withdrawals|
|Gives creators voting rights on proposals fort the platform||Cannot view many items without connecting crypto wallet|
3. Nifty Gateway
|Accepts fiat payments||Victim of NFT heist in 2021|
|Exclusive, high-end NFT drops||High-end NFTs are expensive|
|User-friendly platform||Mobile app is currently display only|
|High royalties for creators||High commission rates|
|Partners with high-end artists with very rare pieces||Artist participation is by invite only|
|Competitive purchase rates||ETH only|
Insert foundation image here
|Exclusive content from over 25,000 creators||5% transaction fees|
|Lots of auction sales||15% commission rate on creators|
|10% royalties for creators||ETH only|
5 Best NFTs to Buy
1. Lucky Block
Win real worlds with Lucky Block! They claims to be “the No.1 NFT competitions platform” in the crypto sphere. Their platform has a rewards system directly linked to their competitions. Competitions consist of random drawings that are held once an NFT collection sells out. Prizes range from other NFTs to houses to Lamborghinis and more.
2. Battle Infinity
Battle Infinity was the first decentralised metaverse gaming system. A big draw here is the IBAT, a fantasy sports game where users can build their own strategic team to play against others around the world. Users earn rewards by winning battles, crypto staking, NFT trading, and more.
3. Axie Infinity
Axie Inifinity is an NFT video game where users collect Axies, digital pets, and battle them against others. The game claims to have an “idle battle” system that operates similar to the RPG Final Fantasy Tactics or mobile game Idle Heroes. Axie Infinity hosts a “play-to-earn” rewards system where users can earn ETH.
4. Bored Ape Yacht Club
The Bored Ape Yacht Club (BAYC) boasts a collection of over 10,000 unique digital collectibles featuring their board ape characters. Your NFT purchase gains you access to membership of the Club at the basic level, with more levels being unlocked via roadmap activation. When you purchase a BAYC NFT, you gain complete ownership and commercial usage rights over it; meaning it is yours to do with as you please.
At CryptoPunks, you’ll find over 10,000 unique digital NFTs generated solely through computer code. There are 6,039 male characters and 3,840 females. No two NFTs are the same, with some having “rarer characteristics” than others. The highest selling character went for over $23.7 million in February 2022.
What Do I Do With My NFT?
What you do with your NFT will be dependent upon the type of NFT you purchased. Here are the most practical applications on how many put their NFT to the best possible use.
- Digital Art: Many NFTs are limited editions and so more often than not, investors are holding on to their one-of-a-kind pieces knowing that their value is expected to greatly increase in time.
- Profile Picture/Avatar: People often use various things as status symbols – shoes, cars, tattoos, etc. The same can be said for people who use their NFT as their profile picture or online avatar. They are showing off their status with something they purchased that is unique to them and nobody else can own.
- Collectibles: Anyone who has ever collected stamps, baseball cards, comic books, beanie babies, or anything else can understand the intrigue here. When an NFT is a one-of-a-kind, that can make its value to the collector priceless.
- Gaming: Many video games are introducing NFTs to their players in the forms of skins for their avatars or unique items/weapons. Players can hold onto their unique weapons or trade them with other gamers as they see fit.
- Music/Video: Some creators are now releasing full albums or movies as NFTs to reward loyal fans. These limited editions would be exclusive to only one or a select few of the luckiest. Maybe Warner Bros. might consider releasing the shelved Batgirl film as an NFT?
Top 5 NFT Wallets – Keep Your NFTs Secure
|Most popular wallet for NFTs||ERC 20 and ETH only|
|Private keys saved via on browser||Slow transaction times|
2. Trust Wallet
|Free and easy to use||Cannot recover lost accounts via customer support|
|Allows staking and earning returns on digital assets||Only available as an app|
|Optimized for iOS and Android devices|
|Company will reimburse any lost/stolen digital assets||High fees|
|Use 2FA security||No access to your private key|
|Links directly to your Coinbase account|
|DeFi focused wallet||ETH only|
|Keys secured on mobile device, not server||Limited support|
|Create and integrate your NFTs with other apps||Not an open-source wallet|
|No ads/trackers||No multisignature security|
Any profit made from an NFT is considered taxable income. You will need to claim your NFT on your taxes should any of the following happen:
- You sell your NFT for crypto
- Buy an NFT with fungible crypto
- Trade one NFT for another NFT
Creators who sell their NFTs on exchanges will also need to claim their gains as income.
Can My NFT Die?
The short answer is yes. For example, the owners of the assets could intentionally or accidentally delete the images; the server or hard drive holding them could fail; hackers could gain access to the file system and wipe everything; or an NFT project could fall on hard times and may be unable to pay the bills for its web hosting services.
However, there are technologies that are helping to resolve this issue, such as IPFS (InterPlanetary File System) and FileCoin which increase the robustness of the underlying assets on the web, but these solutions still don’t offer the kind of permanence that NFT buyers crave, and indeed believe they are getting.
Likewise, there are tools out there that can help you determine how at risk your NFT is, such as checkmynft.com, but in the end, the likelihood of your NFT becoming nothing more than an expensive broken hyperlink is down to the quality of the project and the people running it.
Should I Invest in NFTs?
There is a lot of hype around NFTs, and the question around investing in them isn’t a simple answer. The question you really need to ask is “Why do you want to invest in NFTs?” Do you want to make money? Do you want to collect them? Are you interested in purchasing a one-of-a-kind piece of art for yourself?
If the answer to any of these questions is “yes,” then you should invest. Remember NFTs are part of the crypto market, so any investment is volatile and risky. The market reacts with supply and demand fluctuations. So when demand is low for NFTs, their prices will be lower and it will be a good time to invest.
Avoid NFT Scams
The internet is full of scam artists, so it is important to take every precaution when investing in NFTs. Here’s what to look out for:
Common Criticisms of NFTs
Despite their advantages, NFTs get criticized a lot. The criticisms leveled against NFTs range from perceived environmental impact to criminal activity involving NFTs.
In this section, I’ll look at common arguments against NFTs and address them properly.
1. NFTs damage the environment
The debate over the power consumption of Ethereum, Bitcoin, et al. is not new – NFTs are just the latest lightning rod for environmental activists opposed to crypto. However, saying NFTs are bad because blockchains use considerable amounts of energy is not the gotcha critics think it is.
For starters, most estimates about the environmental impact of blockchains rely on questionable research and exaggerated claims. It’s also erroneous to draw conclusions about the carbon footprints of blockchains without knowing the precise mix of energy sources used by miners.
In contrast, Christmas lights have high energy consumption levels, but we don’t see anyone campaigning to outlaw them. Furthermore, Ethereum, which supports NFTs, has moved to a proof-of-stake (PoS) consensus—which is more energy-efficient than PoW.
2. NFTs are used for scams
Another claim often leveled against NFTs is that they are used to perpetrate fraudulent activities. Critics point to rug pulls, thefts, wash trading, and other dishonest activities rampant in the NFT space as proof that they are inherently bad.
However, blaming scams and frauds on NFTs is like blaming the tool instead of its master. NFTs didn’t introduce fraud or scams; they’re merely new tools for thieves to exploit unsuspecting individuals; hardly surprising since criminals are usually the first to adopt new technology.
Does that justify NFT scams? No. But it helps to understand that NFTs aren’t solely responsible for fraud and scams.
3. NFTs are bad for the art industry
People have been pirating art, especially digital art, for years. This explains why digital art is often unprofitable – anyone can copy the file and use it without permission. Furthermore, NFTs are not a new art form – they just make it easier to sell artworks by creating rarity.
It’s also important to note that “art” is a concept that’s hard to define. Art is subjective and can mean different things to different people. Not every person likes the same music or movies or books.
Instead, we should view NFTs as a boon to the art industry. By establishing provenance for digital art, digital art can acquire scarcity and command higher prices. And now, artists can sell works directly to buyers without relying on third parties such as art galleries and dealers.
4. NFTs ruin gaming
Typically, gaming NFTs mostly cover in-game items like skins, weapons, points, or special characters. Such assets can be sold on a secondary market and exchanged for fiat, like any other good.
Gaming studios are already making money off gamers under the status quo. Gamers rarely earn rewards for playing these games (except bragging rights). But now, gamers can turn a profit by selling their NFTs and actually receive tangible rewards for their investment in both time and money.
5. NFTs are worthless investments
Like cryptocurrencies, NFTs are often described as worthless items only suckers buy—think Beanie Babies or Dutch tulips. But this is not true. Things have value because people agree that they have value. This is why classic baseball cards and first-edition novels sell for millions of dollars.
People invest in illiquid items like rare art or old wine because they have scarcity, cachet, and verifiable authenticity. Blue-chip NFT collections like CryptoPunks or Bored Apes have the same qualities, so they definitely qualify as investments in the sense of the word.
The Future of NFTs
The world of crypto and NFTs continues to grow in new ways, from Quentin Tarantino selling Pulp Fiction script pieces to video clips and even NFT accessories. And now people and companies alike can see the utlization of these things and understand the community that has been created around them.
As humans, it’s normal to fear and reject what we don’t understand. It’s a defense mechanism encoded into our brains from the time we roamed the earth as an endangered species.
But, as modern-day humans, we can choose knowledge over fear. NFTs can potentially transform how we think of scarcity and ownership of digital and real-world assets, a development with significant implications.
But it’s impossible to grasp the benefits of tokenizing items if we lack an open mind and a commitment to diligent research. Which is why this quote from scientist Marie Curie is perfect to conclude with:
“Nothing in life is to be feared, it is only to be understood. Now is the time to understand more, so that we may fear less.”
How do I get started with NFTs?
To purchase an NFT, you will need to have an account on a trusted NFT marketplace and have ETH tokens to purchase. Link your crypto wallet to the exchange and you’ll be ready to purchase your NFT.
Are NFTs a good investment?
NFTs are a good investment if you buy the right type of NFT. You’ll want to research all the best NFTs to buy now and ensure you are investing in a reputable NFT project that will retain its value.
Can I make NFTs and get rich?
Anyone can make NFTs, and its easy to do! But, there is no guarantee that you’ll get rich. You’ll want to take extra steps to promote your NFT once it is created using social media, digital ads, and word of mouth.