NFTs featured in this image: Blue#boi, Creature #5005, KITT-E, Punk #3100, WoW #9062.
What is an NFT: NFT's explained;
NFTs use cases examples;
Why are NFTs valuable;
Are NFTs bad? The issues;
What are you getting when you buy an NFT;
Opportunities for NFT creators;
Top blockchains for NFTs;
Top Marketplaces for NFTs;
Top Wallets for NFTs.
What is a non-fungible token?
To understand what is an NFT, you need to know the difference between fungible vs non-fungible.
Fungible means X can be traded for another X and still hold the same value.
E.g: My dollars = your dollars. My 1 ether = your 1 ether. My casino chip = your casino chip.
Non-fungible means that X has unique attributes as does Y. You cannot exchange Y for X and still keep the same value. They are not equivalent, but 1 of a kind items.
E.g: There is only 1 Mona Lisa painting.
A movie ticket for the latest Spider Man at AMC theatre cannot be used at a Cineworld theatre.
CryptoPunk 9373 ≠ Crypto Punk 5234, because each one has its own combination of attributes.
Token it’s a digital certificate publicly verifiable and stored in a blockchain.
An NFT is a token unique in value, irreplaceable, that exists on a blockchain.
NFTs use cases examples.
A good place to start is to browse through the different categories on the largest NFT marketplace, OpenSea.
Art - proof of ownership, authentication or provenance of a physical or digital art that can be stored on or off chain. E.g: Beeple 1/1 artwork that sold for $69 million.
Collectibles - digital artworks, trading cards, rarities or moments in time like NBA Top Shots. On a side note: NFT collectibles like BAYC are increasingly being used to grant access to gated communities or special perks.
NFT art and collectibles are the most mainstream NFT examples and probably responsible for most of the NFT boom we’ve witnessed in 2021.
Music - single releases, special merch, artwork or even funding to develop an album. Big names like Eminem, Steve Aoki or Grimes are making $$$$ in the NFT space. Cutting the intermediaries means more money and control goes directly to the artist.
Gaming - buy, own or trade in-game digital goods. Or play-to-earn like Axie Infinity, where users can buy virtual land in the form of NFT, generate an income or even have governance for playing regularly (e.g: rewarded in NFTs, “breeding” unique NFTs, NFT staking or fantasy sports).
Utility - it can mean various things. NFTs that are redeemed as rewards, that prove membership, that allow governance, ticketing or even domain names services like Ethereum Name Services that turn your wallet into easy-to-read addresses or to create censorship-resistant websites.
Some other NFTs use cases that are not in the OpenSea’s directory but worth mentioning.
Virtual Real Estate - own NFTs that represent digital parcels of land on a virtual world, game or metaverse where you can build upon or set your own rules like on Decentraland.
Fashion NFTs and wearables - design, buy or sell avatar skins for games, for a virtual world. Or develop, buy or use AR filters where you can “put on” digital clothing expanding the possibilities in the fashion world.
The increasing NFTization of everything might be one of the explanations to the following question👇
Why are NFTs valuable?
We present some arguments that might justify the NFT craze we are currently seeing in 2021.
Scarcity and rarity are part of the nature of NFTs and currently the supply is low when compared with the high demand. It can help explain why NFT collectors or investors are willing to spend large amounts of money on NFTs as they would on a Monet or a pair of Michael Jordan’s game-worn Nikes.
Note that, owning an NFT of a particular popular project, game or collection has become a symbol of social status. FOMO is a natural consequence and it drives the NFT value up.
Add the strength of NFT communities. The life expectancy of a lot of NFT projects is dependent on the commitment to and of their community. Projects can be replicated but strong NFT communities are hard to replicate. That’s why community is a key metric to see how solid an NFT project is and if it will be a good long term investment.
We increasingly spend most of our waking hours online and the NFT space keeps expanding and disrupting more industries. Is it all good?
Or are NFTs bad? The issues in the NFT space.
Are NFTs a bubble that will soon burst?
There’s a lot of eyes on this space, especially this summer. Sure, it can be characterized as a volatile, speculative and booming market. And if it’s a bubble and if it bursts, it doesn’t automatically mean the NFT space will go away. Maybe it will mean more attention to the tech behind NFTs, the possibilities and disruption it unlocks. Maybe what will live on is an iteration of the current NFTs.
The environmental issue.
A lot of the NFT minted (mint means when you add an NFT to a blockchain) today are stored on the Ethereum blockchain. This blockchain like Bitcoin uses an algorithm called Proof Of Work, in short it requires a lot of computational power, consequently energy to validate transactions on its blockchain. And that’s bad for the environment. Even though Ethereum is transitioning to the more energy-efficient Proof of Stake, there are other blockchains rising in the NFT space, like Solana, Binance or Tezos that are environmentally more friendly and use this as a selling point.
Again, most NFTs live on the Ethereum blockchain. This blockchain has high gas fees, this can be prohibitive for the common mortal who wants to own or create an NFT. There are workarounds: alternative blockchains with lower gas fees as mentioned above, features like lazy minting available in some marketplaces (OpenSea or Rarible) as a way to lower the barriers of entry in the NFT space, or even only buy NFTs when Americans are asleep for low Ethereum gas fees (less users ⟶ drives gas price down).
Are NFTs decentralized?
Well, NFTs live in a blockchain and blockchains are decentralized. But does that mean that they are really decentralized? Well, yes and no. No, because most NFT creators sell their NFTs through marketplaces, many of which operate like i) a gatekeeper by selecting who is listed in the marketplace and ii) like a middleman that takes a cut of the sales. No, because there are decentralized marketplaces like Hic et Nunc, or NFT projects can allow collectors to directly mint their NFT on their website, commonly projects hold an NFT pre-sale to raise interest and early users to their project and cut down intermediaries.
Scams, fraud and stolen NFTs
Yes, there are a lot of bad players in the NFT space. This will have a fully dedicated blog post. For now, here’s a short list of the most common NFT scams, frauds or steals.
Example 1: NFT project goes viral. Thousand copycats pop up on OpenSea, hoping to mislead distracted NFT collectors.
Example 2: impersonating NFT projects, founders or customer service. The aim is to get you to share your private keys or sensitive info from your wallets in these fake sites or scam giveaway conversations.
Example 3: friendly helper(s) on NFT Discord Community. Offer to help solve a problem shared in one of the channels, lure into private separate conversation, again to get people to share private and sensitive information.
Why pay millions to own something that you can download to your computer or watch on youtube for free? Well, you’re missing the point. NFT art or NFT collectibles for example allow to prove ownership and provenance of an art or item, publicly and verifiable at any given moment on the blockchain.
It’s important to DYOR, DYOR, DYOR on an NFT project, learn about the creator or team behind the project, what’s their vision or roadmap and how active and strong is their community to feel confident before investing in an NFT. Be vigilant and very reluctant to share private info online, it is most probably someone trying to scam you in the NFT space or any other industry.
Also, as a NFT collector or NFT investor be aware of..
What are you getting when you buy an NFT?
In short: you’re buying a token unique in value, irreplaceable, that exists on a blockchain. The ownership of that token is transparent, publicly verifiable at any time.
So, you get a piece of code but what can you actually do with it?
It can serve as proof that you - and no one else - own a digital or physical art by X creator.
Earn royalties every time that NFT is resold (if the creator wishes it). Or even allow the holder to breed an NFT with another NFT to mint an even more rare NFT.
Alter or substitute the file (metadata, jpeg, video, audio, etc) that is linked to that NFT.
NFTs may be used as proof to grant access to a gated community online or offline (e.g: music event). Or used as a collateral for a loan or to earn interest on its current market value.
Or simply to upload the file associated with X NFT (that might be stored in chain or off chain) as your new profile picture. For bragging rights.
A lot of what you can do with a given NFT is up to the people who create NFTs.
Opportunities for NFT creators.
First, there wouldn’t exist NFTs if nobody was willing to create them.
So, what can NFT creators gain from creating an NFT?
Earn royalties every time their NFT is resold. NFT creators can write into the NFT code a percentage to be earned at every resale. Opposed to conventional art for example, where artists hardly see any royalty even if the value of their work appreciates.
Direct mints of NFTs or use decentralized marketplaces, NFT creators are effectively cutting the middlemen or gatekeepers.
Avoid gatekeepers to reach and work closer with an audience. Community building helps a lot of creators to build successful NFT projects. NFTs also allow creators to reward their most loyal fans and early backers.
Creatively explore the merge between tech and art, music, finance. The opportunity to build a following, a community where you set the ground rules for people to access, interact and play.
Interoperability between NFTs will be important to allow other creators to build upon popular NFT projects, make NFT which are in most cases immutable to be editable, boost collaboration between creators and expand the tech possibilities in the NFT space.