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NFT – non-fungible tokens, all you need to know

What is NFT

NFT – non-fungible tokens, all you need to know

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Not long after the emergence of crypto, which changed the way we traditionally perceived currency, a new buzzword in the form of NFTs began to gain traction. Initially, there was a lot of confusion surrounding the two terms, partially because they are based on the same blockchain technology. So, what are NFTs and how are they related to cryptocurrency? How does one own an NFT, or why would you even want to have one? Where to find them? How to create them? You will find answers to these and several other questions in the next paragraphs.

What is a non-fungible token

A non-fungible token, more commonly referred to by its acronym – NFT, is a unique form of digital data created through blockchain technology with an immutable proof of ownership. If this definition sounds a bit convoluted, then think about it as a unique, original piece of art, such as the Mona Lisa. There is only one Mona Lisa painting, even though anyone can have a print of it, a photo, or some other form. An NFT is like a digital form of the original, one-and-only, unique work of art.

Another example – if you have a one-dollar bill, it has the exact same value as any other one-dollar bill. The same goes for any other traditional currency and cryptocurrency as well – one bitcoin has the same value as another bitcoin. As NFTs are unique, every digital data piece of this type has a unique value, which is worth as much as someone is willing to pay for it. A Bored Ape NFT cannot be exchanged for the same Bored Ape NFT, as no two identical items of this type exist.

Even if someone simply makes a screenshot of an NFT image, NFTs have built-in authentication that serves as proof of ownership.

How are NFTs related to cryptocurrency? First, most NFT marketplaces where you can buy or sell these digital items use crypto (usually Ethereum, but not only) as the primary form of payment. Second, as mentioned earlier, NFTs and crypto use the same blockchain technology.

The use of NFTs to create unique projects and services

Now that we have a general idea of what NFTs are, let’s have a look at what this technology can be used for.

NFTs offer artists a new way to share and monetize their digital art. Since every data piece of this type is unique and – as mentioned – features proof of its originality, a new playground for all kinds of artists has appeared. Indeed, graphic designers, painters, musicians – they can all turn their work into NFTs and sell them. Even physical objects can become NFTs.

The prices of some NFTs are staggering. To give some examples:

  • the popular Nyan Cat .gif sold for $600,000
  • Lindsay Lohan minted and then sold an NFT portrait of herself for $50,000
  • Mike Winkelmann, nicknamed Beeble, broke a record by selling his “Everydays: The First 5000 Days” digital artwork NFT for over $69,000,000
  • Grimes sold music videos for a total worth of $6,000,000
  • The “Disaster Girl” meme was sold as an NFT for 180 Ether (about $500,000 at the time)
  • A video of James Lebron dunking sold for about $200,000
  • A pixel art image of an ape called CryptoPunk sold for over $1,500,000
  • The musician 3LAU sold a collection of limited edition NFTs for over $3,600,000

These are extreme cases of course, most artists do not manage to reach such high numbers, but even a few hundred USD for a digital work of art is enough to encourage a lot of artists, and simply grants another option of getting paid for their work.

NFTs can be used as the basis for a ticketing system. If you go to concerts you probably know some people treat tickets as collectibles. Some organizers release even premium collectible versions. NFTs expand on this idea by providing unique NFT digital tickets. The proof of authenticity of an NFT helps solve issues with ticket fraud that plagued the traditional way of selling tickets. If the tickets are not to be resold to other buyers, an option can be set for the NFTs. This is a huge advantage for regular customers who often have to struggle with bots purchasing tickets for events and then selling them on the secondary market at much higher prices. For organizers, NFT tickets reduce costs as there is no need for printing or shipping, and it is easy to verify their authenticity as all the data is stored on the blockchain. They are also quick to produce, an NFT can be ready for sale in under a minute. If the tickets are allowed for reselling, the organizers can profit whenever the ticket changes hands.

Non-fungible tokens can also be used successfully in logistics and supply chains where they can be used for product authentication and the verification of product origin. Developed by createIT, the OneCredible project is a solution that uses blockchain for tracking supply chains. Supply chain data remains authentic due to blockchain’s immutability and transparency. OneCredible stores data, monitors processes and prevents the falsification of information. For companies that care where their products come from and whether they are genuine, blockchain and NFTs are a great solution. NFTs can provide info on the individual elements of devices and luxury goods, such as expensive vehicles. Not only can they help with cost control, but they also basically eliminate problems with counterfeiting.

Though the video game industry may seem like one of the best grounds for NFTs, the gaming community is rather “unenthusiastic” towards them to say the least. However, this doesn’t stop many game developers from trying. The companies behind such games as the Worms series, Stalker 2, Castlevania and Ghost Recon have all tried their luck with NFTs, but the results were mixed in terms of profit, and usually met with player resentment. In video games, the technology is usually used to provide unique in-game items, avatars, or skins, but there are other ideas as well. Konami released an anniversary collection of artwork related to Castlevania, benefiting not only from the initial sales (all items were sold) but also any time the items are resold further. However, until video game developers find some truly attractive solution for gamers that will meet with the general acceptance of the gaming community, companies that develop AAA games (the most expensive, blockbuster titles) may have a hard time introducing these digital assets to the most beloved game franchises. It seems much easier for smaller, “indie” developers, especially if they release their products on the mobile gaming market, which is significantly more open to new forms of monetization.

Not every digital asset needs a category, people can turn the most surprising elements into NFTs. Twitter CEO sold his first ever tweet for nearly 3 million dollars. Alex Ramirez-Mallis, a filmmaker from Brooklyn, sold a 52-minute recording of flatulence for $420. An image of a card, similar to Magic the Gathering cards, with a portrait that combines Homer Simpson with Pepe the frog was purchased for $320,000. One toilet-paper manufacturer sold NFTs presenting its products for hundreds and thousands of dollars. ESL, the largest organizer of esports events in the world, has released a product line of NFT trading cards. Some of the sets are now listed as sold out.

NFT marketplaces

The most common place to sell and purchase these digital assets is an NFT market. Below is a list of some of the popular NFT marketplaces:

How to buy/sell NFTs

The process of purchasing NFTs is a bit more complex than your standard online shopping. Though some marketplaces allow for purchases with standard currencies, you may want to buy crypto to have a bigger choice.

Getting a crypto wallet

Most NFT marketplaces use cryptocurrency as the default payment method, so the first thing to do before buying these digital assets is to get a crypto wallet, which is either a type of software or a physical device used to store and transfer crypto. It is usually faster and easier to get a software wallet, but the hardware version is more secure. If you aren’t in a rush, it’s better to get a hardware wallet.

Software wallets are more comfortable to use as they are always connected to the internet. However, as mentioned, this also makes them more vulnerable to attacks. You can set up a wallet of this type through platforms such as MetaMask, WalletConnect and others.

A hardware wallet is a physical device similar in the way it looks to a USB stick which is not always connected to the internet and can be carried similarly to a traditional wallet. This method of storing cryptocurrency is considered much safer. You can purchase a highly-rated hardware crypto wallet even on Amazon.

Purchasing cryptocurrency

Ether (ETH) is the most commonly used crypto for NFT transactions (but other ones are sometimes used as well) as NFTs are mostly located on the Ethereum blockchain. ETH may cost you more, but will give you more freedom than other crypto, especially if you are just beginning your adventure with NFTs. If you insist on paying with regular currencies, marketplaces such as Nifty Gateway and MakersPlace offer standard payment options.

Connecting your wallet to an NFT marketplace

Now that you have your cryptowallet and have decided on the payment options, it’s time to connect it to the marketplace of your choice. OpenSea, Rarible and LooksRare are currently the biggest and most popular options.

Making a purchase

When purchasing an NFT, you can sometimes buy one instantly, but other times you place a bid. If your bid is the highest at the end of the auction, the NFT is yours and can be transferred to your wallet.

Minting and selling nfts

To turn a specific set of data, such as an image or video, into an NFT, it is necessary to go through a process called “minting”. Remember to own the legal rights to the data set before you start the process, otherwise you will probably have legal problems sooner or later.

The minting process happens through the marketplace of your choice. The most common procedure is to upload the digital file you would like to mint and pay a certain amount of crypto for the service. Once finished, your NFT is registered to your wallet and you receive all the relevant info. It’s yours to manage.

Should you decide to sell your NFT, select a marketplace and familiarize yourself with its conditions (the selling options, fees, etc.). When the NFT is sold, the files are exchanged for currency and the process is over.

NFTs and taxes

Unfortunately, the taxation regulations for NFT transactions will vary from country to country and should be investigated individually depending on your region. Generally, NFTs are not usually exempt from taxation.

Conclusion

NFTs are a relatively new phenomenon that continues to evolve, and recent years have shown that they are rapidly gaining popularity. They revolutionized the digital environment by rendering data unique, opening new opportunities for both individuals as well as entire industries.

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