As we journey through this captivating landscape of NFT.
We must also be mindful of the stories of missed opportunities and the challenges some face.
Navigating the world of NFTs can be confusing, but we’re here to unravel the mysteries and share the excitement with you.
Excitements that celebrities are jumping on to take a bite of its potential. Not just as investors but as creators.
Twitter founder Jack Dorsey, Snoop Dogg, and MI Abaga are some celebrities who have minted and sold NFTs.
But what exactly are NFTs? What makes them so valuable and attractive? This article explains everything you need to know about NFTs.
What is an NFT?
NFT stands for Non-fungible token. It’s a digital asset representing ownership of items, including artworks, collectibles, music, videos, memes, and tweets.
NFTs are used to prove ownership and ascribe authenticity to a physical or digital item.
A non-fungible token cannot be copied, even though the items they represent can easily be copied.
Fungible and Non-Fungible Tokens
When you hear non-fungible, you know there has to be a fungible token. So what makes an asset fungible or non-fungible?
When an asset is fungible, it can be replaced with another similar asset and retain the same value. In other words, the value of fungible items is not tied to their uniqueness.
For instance, if you sell 5 Ethereum, you can purchase another 5 Ethereum from someone else, which will still have the same value as the one you sold.
You can even buy 2.5 Ethereum each from 2 different vendors, and when put together, they will still have the same value as the 5 Ethereum you sold earlier.
On the other hand, when an asset or a token is non-fungible, it means it cannot be exchanged with another asset or token to get the same value. The value of non-fungible assets is tied to their uniqueness.
History of Non-Fungible Tokens
The earliest known NFT created was Quantum, minted by Artist Kevin McCoy on May 2, 2014.
McCoy minted quantum on the Namecoin blockchain using a technology he developed with Anil Dash. Namecoin is a blockchain modelled from Bitcoin’s code.
The quantum is an image of an octagon filled with various sizes of circles. Quantum changes colour and moves like an octopus.
McCoy and Dash envisioned a technology to help digital artists sell and prove ownership of their artworks.
Quantum was later minted on the Ethereum blockchain and auctioned at Sotheby’s for $1.4m in 2021.
Meanwhile, several NFTs were launched on pre-Ethereum blockchains. A good example is Spells of Genesis, a blockchain-based trading card game launched on the Bitcoin network in 2015.
According to NFT Archaeologist Adam McBride, The first NFT launched on the Ethereum blockchain was Terra Nullius. It was launched in August 2015.
However, these NFTs failed to garner much popularity beyond the well-informed crypto natives at that time.
The popularity of NFTs began with the advent of Ethereum’s ERC-721 Standard in 2017 – the standard governing NFT transactions on the Ethereum blockchain.
Ethereum overcame several limitations of previous blockchains. Specifically, Ethereum made it easier to trade and transfer ownership of NFTs.
The ERC-721 Standard led to the launch of several NFT projects in the same year. The most popular of them included Cryptopunks and Cryptokitties.
Introduced by Matt Hall and John Watkinson, Cryptopunk is one of the most successful NFT projects. The project started as an experiment at Larvalabs – a company run by Hall and Watkinson.
Watkinson was fascinated by the idea of creating the digital equivalent of the hockey and magic cards he collected often as a teenager.
However, the challenge was creating these cards so they could not be copied.
In 2017, Hall and Watkinson came across Blockchain and generated 8-bit collectible simple pixel-like images called Crptopunks. Each Cryptopunk was unique and could not be copied.
They created 10,000 unique Cryptopunks. Larvalabs kept 1,000 punks to themselves and gave the rest for free to their community to claim.
However, beneficiaries paid about $0.11 to cover transaction fees when claiming Cryptopunk NFT.
The NFT market has witnessed a lot of entries since the advent of cryptoPunks, as well as highs and lows technically driven by the high volatility of the crypto space.
According to Bloomberg, the NFT market peaked in early 2022 when it amassed a trading volume of about $17 billion.
What Does it Mean to Mint an NFT?
Minting an NFT means creating a unique token on the blockchain. It is the process of storing a digital item like JPEG, GIF, music, videos, etc, on the blockchain.
Minting an NFT makes it immutable and verifiable on the blockchain. Only after an item is minted can it be traded as an NFT. Usually, you will pay a small amount in crypto as minting fees.
During minting, you can create an art collectible as single or multiple images. You may also be able to add descriptions known as metadata to your tokens.
And importantly, you can set royalties on your NFTs which you will earn from every subsequent sale on the marketplace.
How to Buy an NFT
You can buy NFTs using the following steps:
- Purchase Cryptocurrencies(BTC or ETH) which will be used to purchase an NFT.
- Sign Up on an NFT marketplace like Opensea, Rarrible, and Nifty Gateway. Learn how to create and use Opensea.
- Connect your Wallet to The Marketplace
- Find and Purchase Your Desired NFTs:
The creator or current owner of the NFT may list their asset for a fixed price, and you will be required to pay that amount before such NFT is released to you.
On the other hand, the creator or owner may list their asset for auction, and you will be required to bid on the NFT. The highest bidder at the end of the auction gets the NFT.
Generally, you may have to pay additional fees to cover charges for gas used to execute the transaction.
What You Need to Understand About NFT Marketplaces
An NFT marketplace is a digital platform where users can buy and sell items minted and listed as Non-fungible tokens.
NFT marketplaces allow users to search for and acquire desired NFTs and even create their NFTs. These marketplaces usually charge a fee for transactions completed on their platform.
An NFT marketplace is like eBay for Non-fungible tokens.
Some of the most popular marketplaces where NFTs are bought and sold include the following:
Why NFTs Have Become Popular
NFTs popped up as far back as 2014.
However, their popularity started growing with the development of Cryptokitties in 2017. NFTs became very popular in early 2021.
Three reasons behind this popularity are;
- The lockdown caused by the COVID-19 virus
The COVID-19 virus confined many of the world’s population to their rooms as national governments issued lockdowns worldwide. People were left mainly in the company of their mobile devices and the internet.
Hence, increased screen time on social networks like Twitter, where NFTs were gaining ground, increased these unique assets’ popularity.
- Several big-money NFT sales in early 2021.
Numerous big-money NFT sales like Beeple’s every day and the success of cryptoPunks and similar projects brought the knowledge of NFTs to many people.
Who would hear of an artwork selling for over $69m without stopping over to know what it really is?
In Africa, the successes of early NFT adopters like the Artist Osinachi also helped to increase the popularity of NFTs in the region.
- Speculative purposes.
Another reason behind the popularity of NFTs is that people saw it as a form of investment with potentially high returns.
Hence, several users hopped onto the bandwagon as investors. Even in games, NFTs are utilised as investment assets. A good example is Axie Infinity (AXS)
Notably, many new applications were developed to experiment with the utility of NFTs. For example, virtual worlds like Decentraland and other blockchain-based games and applications gave NFT more popularity.
By mid-2021, many big brands, including Nike and Adidas, were already biting into the NFT pie. The involvement of the big brands gave NFTs more popularity.
The Potential of NFTs Going Mainstream.
Whether NFTs have gone mainstream or not is a subject of debate among investors.
However, one cannot deny that NFTs gained mainstream attention in 2021 when these digital assets exploded and sold for several millions of dollars.
The NFT market erupted into a frenzy in 2021, prompting legitimate concerns about a market bubble that will finally burst.
However, interest in NFTs has declined since the last quarter of 2022. Hence, it becomes tricky to state that NFTs have gone mainstream entirely.
Meanwhile, the potential of NFT going mainstream is there. Big mainstream brands, including Nike and Adidas, have already adopted NFTs.
Also, enduring use cases of NFTs, such as gaming and ticketing, can push further adoption of this asset class.
Therefore, it is too early to conclude that NFTs have gone mainstream, but there are clear signs that they will.
However, this will depend on improvements in the underlying technology to ensure utility aside from speculations, scalability, and enhanced security in the NFT market.
Relationship between NFTs and CryptoCurrencies
There is a common misconception that NFTs are the same as other cryptocurrencies.
However, this is not true. So what are the differences between NFTs and other cryptocurrencies?
The major difference between NFTs and other cryptocurrencies is that NFTs, as the name implies, are non-fungible, while other cryptocurrencies like Bitcoin are fungible.
NFTs and Crypto connect in different ways.
First, NFTs and Cryptocurrencies are both built with the same blockchain technology.
Again, Both NFTs and Cryptocurrencies can be bought and sold for profit.
What Does the Future of NFTs Look Like
Until now, the NFT space has been saturated with several digital arts and collectibles that investors speculate on as an investment class.
Although digital arts and collectibles look poised to remain a major part of the NFT market, NFTs look set to go beyond them to advanced use cases and greater adoption.
Some of the expected advancements include:
- Gaming: This use case has been experimented already. Players can trade and own in-game NFTs in Web3 games.
- With this, the games will be more rewarding. For instance, the Ethereum-based game cryptokitties allowed players to groom and trade cats for financial gains.
- Metaverse: This is another use case that is under experimentation. Virtual real estate and avatars can be traded as NFTs in the metaverse. Decentraland, for instance, allows participants to acquire, own, and trade virtual lands on the platform.
- Ticketing: Artists and Musicians could also issue tickets in NFTs for the public to attend their virtual performances. This use case is still under development and promises to increase profitability for artists in the future.
Despite these promises, the regulatory uncertainties and security concerns surrounding NFTs could present challenges.
And for the future potentials of NFTs to be actualized, these challenges must be addressed.
How You Can Make Money From NFTs
The tested ways to make money from NFTs include the following:
- Minting and Selling NFTs: If you are a creator, you can mint your works as an NFT and sell them in any NFT marketplace. However, you should note that many factors will affect the value of your NFT, including your popularity, demand for your works, and even the market narrative at that time. If you’re a famous artist or public figure, your NFTs may command a higher value.
- Flip NFTs: You can also make money by buying and reselling NFTs in various marketplaces. Target NFTs with lower prices but with the potential to appreciate. Then list them for sale once the value appreciates. However, you should note that, like every other form of speculation, there is a possibility that you can lose money using this method.
- Royalties: While minting your NFTs, you can set royalties to earn a stipulated percentage every time your NFT is resold at the marketplace. Royalties are usually encoded into the NFT smart contract, and you can earn royalties every time your NFTs change hands.
- Renting NFTs: You can also rent your NFTs to other users for a fee if you do not intend to sell your asset completely. For example, the blockchain game Axie Infinity allows participants to rent their in-game assets to other players.
- Play-To-Earn: You can participate in blockchain games that adopt a play-to-earn model. You earn NFTs for playing and winning adventures in these games.
- Staking NFTs: You can deposit your NFTs in staking platforms to earn rewards. Such rewards are usually in the native token of the staking platforms. The rewards you earn depend on factors including the platform’s utility and the duration of staking. For instance, a user who stakes their NFT for ten months may get double the rewards of those who stake for five months if other market factors like liquidation, security breaches, and others remain constant.
- Offer Liquidity to DeFi Protocols: You can offer liquidity to Decentralized Finance (DeFi) protocols and get rewarded with NFTs and the protocol’s native token. You can list and sell your rewards to make money.
- Invest in NFT Start-Ups: Instead of investing in NFTs directly, you can also invest in NFT-based companies for an equity stake. If the company grows, your share grows as well.
Should You Invest in an NFT?
Everyone can buy NFTs. But because you can doesn’t mean you should.
The first step to deciding whether to invest in NFTs is to prepare yourself for the investment. NFT investments are risky.
You can make profits, and you can also lose your asset. Hence, investing in NFTs is a personal decision.
You should ask yourself:
- Do you have money to spare?
- Does this NFT have value, and will it be in high demand soon?
Again, you must understand that the value of NFTs is primarily driven by demand.
In other words, the value of a Non-fungible token depends on how much the buyer wishes to pay. This means you may resell your NFT for a lower price than you paid.
You may even end up not finding someone willing to acquire your collection. Are you prepared for this?
Hence, to decide whether to invest in NFTs or not, you must do the following:
- do your research to improve your knowledge of the industry
- understand the risks and rewards
- proceed with patience and caution
Having discussed the nature of NFTs, you should also know the NFT whitelist.
An NFT whitelist is a list of addresses that have been granted early access to mint an NFT before every other person can.
NFT whitelists often reward early supporters for their loyalty and stimulate demand for the project.
However, some NFT projects do not have whitelists. The Bored Ape Yacht Club and CryptoPunks are examples of NFT projects with whitelists.
Whitelists work in several ways. NFT projects may host contests or giveaway swags to select the beneficiaries.
Projects may also require users to perform tasks, including following the project’s social media handles to drive engagement.
Whitelists usually serve as a reward for loyal supporters and fans. The projects compile a list of wallet addresses and grant them early access to mint their NFTs.
Whitelisted addresses are given a specific time to mint an NFT, while others wait until the period ends. Whitelists usually last up to 48 hours or less, depending on the project’s decision.
Benefits of NFT Whitelists
Whitelists are beneficial to both NFT projects and their users.
To the projects, a whitelist helps increase demand and creates a sense of exclusivity for their NFTs.
Again, Project creators can employ whitelists to prevent spamming from non-whitelisted addresses at the early stages of development.
This is helpful as spam accounts may slow the network and drive up gas fees.
To users, the benefits include:
- Whitelisted users get the opportunity to mint NFTs earlier than the general public. This enables users to buy NFTs at a lower price.
- Whitelisted users also stand the chance of acquiring NFTs at a discounted price.
- Because they are the earliest participants, whitelisted users can acquire the rarest NFTs that will likely explode in value.
Drawbacks of NFT Whitelists
Despite the massive benefits of whitelists, they face several challenges.
The most significant drawback is that the process requires much user time.
Even after putting in the effort, you are not guaranteed a spot on the whitelist.
Again, NFT whitelists are saturated with many scam projects, making it imperative to be cautious while participating in whitelists.
Thirdly, it is also possible to mint an unpopular NFT that will be difficult to sell in the secondary market. Hence, you may end up losing your investments in whitelisting.
How to get Whitelisted for NFTs
To get selected for a whitelist, you should do the following:
- Discover and Follow NFT Projects.
- Subscribe to Newsletters if they have one.
- Join the Project’s Discord Server.
- Engage with the Community.
- Apply to be on the Whitelist.
Importantly, you should note that whitelist spots are highly competitive. Hence, you must complete the specified tasks early to beat competition from other participants.
How to Spot NFT Whitelist Scam
Scams and other fraudulent activities are still very rampant in this Web3 space.
NFT whitelisting is not spared. Scammers always attempt to use fraudulent ways to withdraw funds from victims’ wallets.
The following will help you identify NFT whitelist scams:
- If a project representative or anyone asks you to pay a fee to be whitelisted, it’s a scam. Genuine NFT whitelists do not charge fees or bribes.
- Suppose you are asked to share your private key or bank details to get into a whitelist, back off immediately. Your private key should be personal to only you.
- If the project creators are anonymous with no social media presence, it is best to avoid such whitelists.
- If the project’s roadmap, offerings, and reward packages are unrealistic, kindly keep off from such projects.
- Do your research about the project. This will help you identify the team behind the project, their records, and if they have been involved in any successful or fraudulent projects in the past. The track record of the project creators is an indicator of how the current project may end up.
- Trust only official links posted on the project’s official Twitter handle, discord server, or telegram channel. This will help you avoid scam attacks and clicking phishing links.
Is it Worth Trying to get on an NFT Whitelist?
Whether it is worth getting into an NFT whitelist depends on several factors, which ultimately come down to you – the investor.
After considering the benefits and drawbacks, it is left for the investor to decide if he can work, accept the drawbacks and find a way around it or forget about getting an NFT whitelist.
How to Verify if an NFT is Legit or Not?
Marketplaces verify NFT collections by checking the transaction volume or verifying the creator via social media.
Verified collections on a marketplace like Opensea are usually marked with a blue tick, similar to Twitter blue.
However, the ultimate verification is your duty. The process of verifying that an NFT is legit is called validation. There are lots of online tools that can help you do this.
To verify that an NFT is legit, you must check its details on the blockchain where it was minted. Tools like Blockchain Explorer and Etherscan can help you do this.
Important information such as the creator of the NFT, the owner, transaction history, and metadata (title, description, image/video) are all stored on the blockchain.
This information will help you to ascertain the legitimacy of an NFT.
Finally, you should also check the transactions involving the smart contract of the NFT.
The smart contract contains pre-coded rules that guide how such NFT can be transferred or used. It is important to confirm the legitimacy of an NFT.
How are Publishers Using NFTs?
Traditional publishers employ NFTs in several ways, including diversifying revenue channels, tracking revenue, rewarding loyal customers, and engaging better with the audience.
- Extra Revenue Channel: Publishers are minting and selling digital collectibles such as artworks and images to create a new revenue stream. A good example is Time magazine which launched 30,000 NFTs in its TIME Pieces. TIME Pieces generated over $10m in revenue.
- Tracking of Revenue: According to the Guardian, Textbook publisher Pearson announced plans to sell its textbooks as NFTs. This is to enable it to track sales and revenue from its Titles. This is another way publishers are maximizing the potential of NFTs.
- Engaging with the Audience: Publishers can use NFTs to reward loyalty and build a community around their content. French publisher 20 Minutes has launched NFTs in this regard. The company launched 999 NFTs which featured generative art combined with exclusive access to its 20 Mint newsroom. NFT holders in the 20 Mint newsroom submitted articles and Artworks they wanted to be featured in the magazine.
How are Brands Using NFTs?
Since the NFT boom, brands like Nike and Adidas have adopted NFTs for numerous reasons. The following is what NFTs can do for your business:
- Generating Extra Revenue by Selling Collectibles: Brands use NFTs to generate extra revenue by minting and selling digital arts and collectibles. Brands also produce limited edition content and sell them as NFTs to generate extra income.
- Marketing: Brands have also used NFTs to connect millennials and sell products and services to them. Engaging in activities they value is an excellent way to capture people’s interest is to engage in activities they value. So, engaging in NFTs is also a way to win crypto-natives’ patronage of crypto-natives. A good example is the “When you see yourself” album released as an NFT by the music band Kings of Leon.
- Building Communities: Brands also use NFTs to capture people’s attention and build a community around their products.
What is Metaverse?
The metaverse includes a wide range of emerging technology that provides an immersive virtual world for participants.
In the metaverse, it is possible to interact with other users remotely so that you feel you’re in the same room with the other participants.
This advanced form of an immersive virtual world is facilitated by technologies like Virtual Reality (VR) headsets and Augmented Reality (AR) glasses facilitating this advanced form of Technologies to attend virtual events in the outlook of these avatars.
Popular examples of companies who have committed to building the metaverse include Facebook’s parent company, Meta, Microsoft, Nvidia, and Roblox.
The metaverse is still in development, and we are yet to witness even the slightest of its potential.
Difference Between Metaverse and NFTs
NFTs and metaverse are different, although Non-Fungible tokens and the Metaverse are part of the greater Web3 space.
The major difference between the two phenomena lies in their core nature.
The metaverse is a virtual world, while NFT is a class of assets created on the blockchain.
A good example of a metaverse is Decentraland, while Cryptopunks represent a good example of NFTs.
How is NFT Applicable to the Metaverse?
NFTs can be used in the virtual world to represent in-game assets.
These assets may be in the form of virtual lands as in decentraland, or even avatars and collectibles.
NFTs also allow creators and collectors to acquire and trade in-game items for profit, thereby making the entire Metaverse experience more rewarding.
Again, NFTs could be used to grant access to specific events. For instance, a music band could require attendees to own a particular NFT to gain entry into their music shows in the Metaverse.
Apart from these, there are indications that NFT marketplaces and Art galleries may become viable projects in the metaverse.
However, it is important to understand that the metaverse is still in its infancy. Hence, many developments and use cases will pop up with time.
Is NFT a good investment?
It depends on the particular NFT you intend to invest in. Rare NFTs are in high demand, and NFTs from popular figures tend to appreciate them.
This makes them viable investment options. However, you can also lose your money if the value of your NFT drops.
How do I get NFT token?
You can mint your own NFT or buy an NFT from any NFT marketplace. Refer to the section “How Can I Buy NFTs” above to learn how to do this.
Why are NFT tokens so expensive?
Although most NFTs sell below $200, some others are very expensive.
This is usually driven by scarcity, demand and use case. Examples are BAYC, MAYC, Cryptopunk, etc.
What is the difference between blockchain and NFT?
A blockchain is a distributed ledger used to store information in a transparent, secure, and immutable way.
Transactions recorded on a blockchain are publicly verifiable and considered authentic.
A Non-Fungible token, on the other hand, is an asset created on a blockchain.
What type of blockchain does NFT use?
NFTs can be minted and stored on many blockchains.
However, the most popular blockchains used by NFT projects include Ethereum, Flow, and Binance Smart Chain.
Is an NFT actually on the blockchain?
Yes, NFTs are actually on the blockchain.
When Non-fungible tokens are minted, they are assigned a unique identifier and stored on the blockchain.
What is the most expensive NFT ever sold?
The most expensive NFT ever sold is the merge, an artwork by Pak that sold for over $91.8m on Nifty Gateway in December 2021.
However, the merge wasn’t purchased by a single individual. Rather, 29,983 people purchased 266, 250 unique tokens from the artwork.
Meanwhile, the most expensive NFT sale to a single address is Beeple’s Everydays: the first 5000 days sold for over $69m at Christie’s in March 2021.
Why is blockchain important for NFTs?
It makes it possible to track ownership of NFTs transparently. Also, the immutability of blockchain makes it difficult to tamper with the NFTs stored on them.
Hence, Blockchain also enhances the security of NFTs.
How is NFT created in blockchain?
NFT is created by storing a digital asset on the blockchain through minting.
Does buying an NFT confer copyright ownership?
No. Buying an NFT does not confer copyright ownership.
How will NFT ownership change in the future?
The future of NFT ownership is still unclear. It would be tricky to make conclusions regarding this.
How does the concept of ownership work with NFTs?
When a creator mints an item as an NFT, the token is given a unique identifier. It is the right over the token and its unique identifier that a buyer acquires.
Copyright ownership of the associated item remains with the creator. However, in rare instances, the creator may include a transfer of copyright ownership in the NFT’s smart contract.
But this is not always the case. In other words, NFT ownership does not automatically translate to copyright ownership.
Why do NFTs not give ownership rights to the holders?
This is because the tokens represent assets on the blockchain. And assets on the blockchain are not covered by known copyright protection laws.
Can an NFT be a physical asset?
NFTs are mainly digital assets, but they can be used to represent physical assets. This type of NFT is known as Physical NFT.
Physical NFTs are used to prove ownership of real-world physical items. However, they must have a digital component stored on the blockchain.
Where are NFTs stored?
NFTs are stored on a blockchain.
What are the best applications of NFTs?
They are digital arts and collectibles, gaming, virtual real estate, ticketing, music, DeFi, and fashion.
What’s the difference between NFTs and fractionalized NFTs?
An NFT is a complete piece. A fractionalized NFT has been divided into smaller pieces.
One person can own NFTs at a particular time, while multiple persons can own fractionalized NFTs at any time.
What is the difference between an NFT and a regular asset?
An NFT is stored on the blockchain, while a regular asset is typically not minted.
How can I invest in NFT without buying NFT?
- Work for a Web3 project that gives NFT
- Participate in giveaways to earn NFTs.
What is the logic of buying or selling NFT?
- Hope of selling later for a profit
- To own a unique and scarce digital asset
- To support artists and creators.
How can NFTs help enterprises?
NFTs can help enterprises to generate more revenue, track sales and revenue, enhance marketing campaigns, store authentic certificates, reward loyalty, and engage with their audience.
What is NFT Bank?
NFT banks are decentralized banks that allow transactions to be performed using NFTs. NFT banking involves creating digital assets as NFTs to facilitate payments.
Examples of companies developing NFT banking platforms are Coinlist and Blockfi.