Whether or not you’re particularly well-versed in the world of cryptocurrencies, you’ve probably heard someone mentioning NFTs in the last several months. Maybe you read about them on the news, made you saw a meme about the Nyan Cat NFT selling for nearly $600,000, or maybe your crypto nerd friend just won’t shut up about them. After extensive research on what exactly NFTs are, the concept still seems rather confusing. However, it’s worth trying to understand what an NFT is and why there’s been so much hype around them recently.
First of all, NFT stands for “non-fungible token”. No, that does not mean that these tokens are resistant to certain types of fungi. “Non-fungible” basically means that something is one-of-a-kind and cannot be replaced with something identical to it. For instance, a Bitcoin would be a fungible token, because you can trade one Bitcoin for another Bitcoin, and you have the exact same thing.
NFTs, on the other hand, are entirely unique digital assets tied to the market value of a piece of online media. These pieces of media could be a digital photograph, a video, a soundbyte, an essay, or even a Tweet. In fact, Jack Dorsey, co-founder and CEO of Twitter, is selling the first-ever Tweet as an NFT. The current bid? $2.5 million.
Understandably, you may think it sounds ridiculous for someone to pay $2.5 million for a Tweet that you could just go on the platform and view for free. You may also think it’s ridiculous that someone paid $20,000 for a video clip of Logan Paul that you can watch on YouTube for free. However, before you completely write off NFTs as the internet’s latest way for fools to spend their money, let’s dive in a little deeper and look at how exactly NFTs work.
How Do Non-Fungible Tokens (NFTs) Work?
NFTs started as a part of the Ethereum blockchain. Essentially, content creators can use their unique content to create an NFT using one of Ethereum’s blueprints, and thus their content becomes a one-of-a-kind asset that can be traded on the open market. It’s important to clarify that once an NFT is sold, the content creator still retains the rights to that unique piece of content. They do no; however, retain the rights to that NFT.
Let’s say that you purchase an NFT that represents a certain piece of digital art, such as the NFT created by Beeple that sold for $69 million. Beeple still retains the rights to use that image however he wants. The person who bought the NFT, on the other hand, has purchased a speculative asset that is inherently tied to the perceived value of Beeple’s work. The owner of the NFT is speculating that the value of that NFT will increase over time as Beeple’s work continues to grow in popularity.
Essentially, NFTs are a way to speculate on the future value of just about anything. If you find yourself listening to an underground hip-hop artist who you believe is going to be the next big thing, you can buy an NFT of one of their songs and wait for them to make it big, and for your NFT to appreciate in value. If you see a meme that you’re convinced is going to go absolutely viral in the next year, you can buy the NFT related to that meme and wait for your asset to appreciate once it takes the internet by storm.
Due to the fact that all NFTs live on a blockchain, all transactions are recorded in the blockchain’s decentralized ledger. This ledger serves as the proof of ownership of the original NFT, and makes it impossible to replicate an NFT. So while you might be able to screenshot a piece of digital art, you need a supporting blockchain transaction to prove that you actually purchased that piece of digital art’s NFT. Imagine someone makes a bunch of prints of a Picasso painting and tries to sell them as the original. Without some form of verification that it’s an original Picasso, no one’s going to buy it (or no one should, rather).
Content creators also have the option to take a royalty percentage of the proceeds every time one of their NFTs is sold. That way, if their piece of content goes viral, they can reap some of the benefits. And while Ethereum was the first blockchain to offer NFTs, other blockchains like Eos, Neo, and Tron are now also offering NFTs to try to attract content creators to sell digital works on their blockchains.
What Are Some Examples of Non-Fungible Tokens (NFTs)?
While the talk surrounding NFTs is mostly tied to selling digital art, Ethereum and other blockchain companies are insisting that the capabilities reach far beyond that. Apparently, NFTs have the capability to represent ownership of physical assets as well as digital ones. The idea is basically that instead of owning a deed to your home or a title to your car, you would own an NFT that would represent your ownership of that asset.
To date, NFTs have yet to take over the world of physical assets. The closest thing would be Nike’s CryptoKicks technology, which will automatically assign customers an NFT of their specific pair of shoes when they purchase them. Thus, the NFT serves as a sort of “deed” to that pair of shoes that can then be sold. Nike’s CryptoKicks have yet to launch, with no set release date in the future, and the idea of NFTs representing physical objects has yet to materialize in any other meaningful way.
In the world of digital assets; however, it seems as if everything and anything is fair game for making into an NFT. One of the very first uses of NFTs was for an online game called CryptoKitties, in which players could buy and sell virtual cats using cryptocurrency. One of the cats sold for over $170,000. As ridiculous as that sounds (and probably is), it does highlight the ability of NFTs to represent in-game collectibles. Maybe in the next Halo game, you’ll be able to buy a one-of-a-kind gun with cryptocurrency.
Since the CryptoKitties era, the applications of NFTs have grown rapidly. A 50-second video made by Grimes recently sold for nearly $400,000. The NBA is selling individual Moments from the 2021 season on their platform NBA Top Shot. Taco Bell just sold off a bunch of digital tacos, some of them selling for as high as $700 (and you can’t even eat it). Kings Of Leon even just released an album as an NFT.
How to Buy and Sell Non-Fungible Tokens (NFTs)
There are plenty of online marketplaces where you can buy NFTs. The most popular at the moment are OpenSea, Rarible, and Nifty Gateway, but there are many others. In order to buy NFTs, you have to make an account on one of these marketplaces and link your account to a digital wallet. Most of these marketplaces accept Ethereum, so if you have an Ethereum wallet, you can use it to purchase NFTs once you link up your accounts. Once you’ve purchased an NFT, it will go directly into your digital wallet, and the transaction will be recorded in the blockchain.
If you want to sell your own content as an NFT, the first thing you need to do is open an Ethereum wallet. Wallet apps like Coinbase, MetaMask, and Rainbow all work with NFTs. Once you have a digital wallet, you’ll have to purchase a small amount of Ethereum. Then, you have to connect your wallet to an NFT marketplace, just like you would to purchase NFTs.
Once you’re linked up with a marketplace, all you have to do is upload your content. Most file types will work, including TXT, PNG, JPG, GIF, MP3, and more. The marketplace will then ask you if you want to mint your NFT as a one-of-a-kind or a collection of multiple items, and will ask you to price your NFT. After you’ve done that, your NFT will go live on the marketplace in a matter of minutes. Then you just wait for the bids to come in!
You should be aware, however, that creating NFTs can get expensive. Due to the fact that NFT transactions use a massive amount of energy, most marketplaces charge network fees that can be pretty high. If you’re serious about selling your digital content, go for it. If you’re just uploading a few pictures on a whim, you’re probably going to lose money in the end.