On the surface, these are no different from the 750 billion random images floating around the internet. Deep down, they represent a unique form of identity sometimes worth tens, hundreds, thousands and even millions of dollars. Here is the story of NFTs and why you should even bother about them.
NFTs stand for Non-fungible Tokens.
A token is any functional item with definitive value ascribed by members of its ecosystem. Dating back to 6000 B.C and even earlier, Tokens have remained an integral part of local and trans-Atlantic trade in the old empires. Early usage by the Romans, the Assyrians were as an I Owe You (IOU), especially during commodity scarcity or in a situation where an existing form of payment became prohibited.
Today we see the usage of tokens in casino houses, car wash and laundry services, private parking providers, and even the stock market. It all boils down to whatever has been agreed upon to represent a fixed volume of money or other forms of perceived value within an ecosystem. Tokens could be tangible or intangible, fixed or fluctuating, fungible or non-fungible, etc and fall under any of these three broad functionality classifications: utility, security or transaction.
Non-fungible is a fancy word for unique. Take, for example, a dollar note. Under a perfectly normal circumstance, you would not mind being handed a $100 bill, two $50s, and five $20s as your grocery change since all iterations are worth the same. Dollar bills are fungible because they easily get replaced. NFTs. on the other hand, are non-fungible because they carry a unique identifier representing their validity, authenticity and relative scarcity.
Here is a list of comparisons between Fungible and Non-fungible tokens.
Fungible Tokens are
1. Suitable as a medium of exchange
2. Strictly worth the value assigned
3. Tradeable on exchanges.
6. Developed with a unique blockchain
Non-fungible tokens are
1. Suitable as a store of value.
2. Mostly worth the data they carry.
3. Tradeable on dedicated marketplaces.
5. Mostly Non-divisible (except for fractional NFTs).
6. Developed on existing blockchain
Putting all the pieces together, NFTs are unique digital tokens cryptographically sealed on a blockchain, and valuable within its ecosystem.
NFTs were nowhere to be found on the demand radar until 2021, and yet had been around for the past eight years. Cryptopunks — a collection of 10,000 pixelated 24 x 24 art pieces released in 2017s — were the first ever commercial NFTs to set the stage for global adoption. They were preceded by the rather less popular Kevin McCoy’s ‘Quantum’ in 2014 and Pepe the frog collections in 2016. The World NFT market is today, worth $15.7 billion, and the cryptopunks franchise represents a significant 12%.
Expected to hit an $80 billion valuation by 2025, NFTs have so far generated billions in dollars and trillions more in clout. PAKs “The Merge” tops the list for the most expensive NFT at $91.8 million, distantly trailed by Beeple’s “The First 5000 Days” at $69 million, and followed by a $52.74 million sensational countdown clock art dedicated to Australian-born incarcerated journalist, Julian Assange.
As bizarre as it sounds, only quite a few things may fail to pass for an NFT today. NFTs typically fall into three broad categories — images, sounds, and a combination of both. Here are the types of NFTs.
Perhaps the most common type of NFTs, avatars and profile pictures represent the NFT publicity foot soldiers. NFT avatars are minted NFTs displayed as a picture associated with a social media account. They come across as hexagonal-shaped on Twitter and a couple of other social media platforms, hopefully differentiating them from regular PNGs and JPEGs. Crypto punks, Kitty cats and bored apes collection from the Yuga labs-owned 10,000 BAYC NFTs released in April 2021, are some of the most popular NFTs found on social media profiles.
Photography NFTs are also growing in popularity. These are live photograph shots assigned a cryptographic code and minted on a blockchain. Justin Aversano’s Twin Flames collection — a compendium of 100 unique photographs of twins captured across the world — holds the record for the highest grossing NFT photographs. Its 49th series auctioned for 871 ETH ($2.4 million) in 2021, after debuting on Christie.
Next to photographic NFTs, generative arts have also chunked up a significant dose of popularity within the NFT space. In its purest form, generative art is created and stored on a blockchain by computers with sophisticated Artificial Intelligence technology. The Autoglyph is a popular generative art collection that marked its presence on the global trading NFT list, back in April.
Some artists prefer to release their NFTs as fragmented collections. Others lump them together as one-to-one masterpieces taking advantage of the financial benefits of scarcity. The top-three highest grossing artworks in the NFT space are all one-to-one pieces.
1/1 pieces give collectors a heightened sense of exclusivity which, as history has shown, is one of the biggest factors influencing today’s art collectors. Little wonder their heightened valuations.
In modern play-to-earn games, many performances improving features you can earn or buy as a player falls under the gamified NFT category. Most popular adventure games of today like Call of Duty, Assassins Creed, and other Web3-based games like StreetRunner and Axie Infinity make use of in-play NFT collectable features.
Quite in its infant stage, Music NFTs is also one of the upcoming NFTs with great earning potential for artists and fans. Seeing how NFTs can take the form of images or sounds, Music NFTs give artists much-needed control over their songs and the financial rewards thereof. Smart Web3 innovations like Animal Concert help artists connect with fans in the metaverse and attend virtual concerts from the comfort of their homes. Other platforms like Royal and Sound.xyz have paid over $3 million in earnings to artists.
Collectables in the NFT space are just a digital extension of physical memorabilia and mementoes we have collected over the years. Sports fans and music artists have explored this as a money-making venture for an extended period, and bringing them to the NFT space is just another way to connect people with memories of their passions.
It takes roughly six steps to get your NFT up and running on a blockchain. Here they are:
- Get your image/video/audio ready: Begin by choosing what image, video or audio you wish to make as an NFT. You may create one yourself, or choose an already-created commodity, in which case you’ll have to get copyright permissions.
- Choose your wallet: Crypto wallets store your tokens and facilitate transactions on a blockchain. There are different crypto wallets to choose from, and depending on your preferences, you can use a hot wallet, a cold wallet, or a multisig wallet. Read more about wallets here.
- Get some crypto: Once you’ve set up a wallet, the next step is to purchase sufficient crypto to cover for NFT minting activity. The most popular NFT marketplaces are built on the Ethereum (ERC) blockchain. You’ll need to purchase ERC tokens to transact on the blockchain.
- Pick a marketplace: There are popular marketplaces like OpenSea, Rarible, etc., to register, and get started on your NFT journey. Connect your chosen wallet to your choice marketplace to begin transactions.
- Mint your NFTs: Minting is the non-modifiable process of assigning a unique blockchain identity to a digital asset. The minting process varies, and is determined, by your asset type, collection type, and sale method. For most marketplaces, minting is free, and you’ll only have to pay for the gas fees demanded by the blockchain.
- Sell your NFTs: The major pricing strategies to sell your NFTS are Fixed sales and Auctions. Fixed sale entails a fixed price. Auctions are also of two types: English auction — where the price is contested in ascending order according to bidding value, and Dutch auction, which entails a continuous price drop until the NFT is bought.
While they may still be in their infant stages, NFTs are a revolutionary movement worth observing. One of the greatest takeaways from the rise of NFTs is the decentralization of perceived utility. That is, the freedom and power to ascribe value and utility to just about anything is being handed back to individuals with NFTs, and there is no longer the need to have independent curators or reputable panelists dictate the value of an art from the lens of their skilled, but limited, perception.
Their underlying blockchain technology denotes proof of authenticity previously lacking in the digital world. For many artists, NFTs mean cutting off profit-ripping intermediaries and handing financial freedom back into their hands. Musicians have found it a new way to connect to their fans, and there are also cases of fans getting financial incentives from their relationship with artists.
In the retail industry, NFTs can help detect fake from original products and provide additional value for customers. Some countries are already setting the roadmap for NFT taxation, making it another source of government revenue. With energy, NFT minting does not add to existing blockchain energy consumption. Instead it is another step towards energy efficiency in crypto, seeing that consumption will remain the same regardless of minting activity.
Overall, if you are just getting started, learn how the industry works and determine what blockchain to use, which marketplaces and wallets are most suitable, the trend of digital products in vogue, and the potential resale value of your uploaded or collected NFTs.
Fascinating? Yes. Profitable? Yes. Risky? Also Yes. So you need to do your research.