What is a NFT?
A nonfungible token (NFT) is a cryptocurrency asset representing a unique and collectible digital item using blockchain technology. Essentially, just like how physical works of art or rare items have value/create demand through their scarcity and desirability, NFTs do the same for a digital market. Popular applications of NFTs include digital works of art, animations, collectible cards, game items, and images.
To prevent further confusion, one might need to know the definition of "fungibility" first. Fungibility is an asset's ability to be interchangeable with other assets of the same type. Thus, the designation of an asset as nonfungible refers to its scarcity as well as its distinctiveness. In a world where digital art can be copied and distributed for an infinitesimal fee, NFTs allow creators to sell original works of art for greater value.
What can I do with a NFT?
All NFTs have the ability to be traded for cryptocurrencies, which have real financial value in numerous countries. One of the most popular blockchain technologies for NFTs is the Ethereum network, a technology powering its own cryptocurrency (ETH) and thousands of decentralized applications. It has formed its own digital economy, within which individuals can trade NFTs for cryptocurrencies with security and without third parties.
In terms of functionality, most NFTs lack practical value due their status as art. In these cases, they are simply used as evidence of authenticity and ownership. On the other hand, some NFTs have actual uses in games, such as Lost Relics, a crypto action-adventure RPG where rare "blockchain items" found while playing the game have actual monetary value.
NFTs not only symbolize new avenues of revenue for individuals artists, but also a significantly more diverse market for art. As more people are introduced to NFTs and cryptocurrencies, underrated artists will have more opportunities to make a career out of art.
What determines the scarcity and value of a NFT?
Determining the value of a NFT, especially a work of art, is not dissimilar from gauging the worth of a physical work of art. One may consider multiple factors simultaneously: who is the artist? How do people feel about the NFT? How many people are bidding for it? What are people bidding for it?
One may also consider if the NFT is part of a limited series. In a limited series, certain numbers in the sequence have more significance than others and thus have more value. For example, the most desirable NFT in a series would be the first. Other numbers would more likely be of subjective value to an individual, which is undefinable except to that individual.
Finally, in the most obvious evaluation of NFTs, game-based NFTs are valued in terms of their significance in the game. Rarer items are worth more, both in-game and in real life. Items with greater benefits and higher functions also may be worth more. In Lost Relics, "blockchain items" are indestructible compared to "virtual items", which are worthless in real life and are also lost after your character dies.
Where can I buy and sell a NFT?
How do I buy a NFT?
NFT marketplaces base their transactions on different cryptocurrencies (crypto). For example, Opensea uses ether (ETH) to power their transactions, while Enjin Marketplace uses its own Enjin coin (a decentralized application on the Ethereum network). To buy a NFT, you should buy and securely hold certain amounts of crypto to be able to complete transactions.
You can buy crypto on crypto exchanges, including popular choices such as Coinbase, Robinhood, and Binance. These exchanges are easy to use and provide a diverse number of cryptocurrencies to trade. On the other hand, cryptoexchanges are the least viable method to store your crypto securely.
NFT marketplaces like Opensea require you to have a wallet (specifically MetaMask) in order to be able to buy NFTs. You can create one online with MetaMask, but the most secure way to store your crypto is with a hardware wallet like Ledger Nano X. Once you have a wallet and you have bought crypto, not only will you be able to buy NFTs, but also use it in place of a fiat currency.
The user base of most cryptocurrencies are not yet big enough to be considered actual functioning economies, but as more and more individuals use crypto, a wider spectrum of transactions can be made. Currently, most transactions are confined between NFTs and other cryptos, but one day, you might be able to buy and sell anything from anywhere almost instantaneously.
How do I sell a NFT?
On the very same marketplaces where you can buy NFTs, they give you the option to sell your own NFTs. You can upload any file (.png, .jpg, .gif, .mp3, etc), set the name and description, and sell it for a fixed price or at an auction. Unfortunately, there are two fees involved that the creator, you, must pay before profitting from your art.
First, you must pay a "Gas" fee to process the listing. This is a fee that comes with every transaction on the Ethereum blockchain, and it goes to the "miners". Second, the marketplace takes a small percentage of the profits after the transaction is complete. On the bright side, you also have the ability to set royalties on your NFT, so that you can make money on any secondary transactions in which ownership of the NFT transfers.
How do I verify the authenticity of a NFT?
Every transaction using cryptocurrency and blockchain technology is recorded on a public ledger that is accessible by everyone. On the Ethereum blockchain, these transactions are facilitated by smart contracts, which complete transactions using lines of code in an act that is both trackable and irreversible. When an NFT is bought and sold, all of the necessary information about the transaction except for identity is recorded on the blockchain forever.
In other words, the authenticity of NFTs are determined officially by the blockchain technology. One's claim to ownership is written permanently on a public ledger, confirmed only by the community within which the technology prevails. In retrospect, it is a flimsy relationship as anonymity is one of the top priorities of crypto enthusiasts.
What is preventing someone from taking another person's art and creating an NFT with it? Absolutely nothing. Due to the fact that cryptocurrencies are decentralized for a reason, it is difficult to determine whether or not a NFT is authentic or not. That is why context is crucial when calculating the value of a NFT. You should have the token ID, token contract, and wallet address that minted the NFT for validation; but you should also confirm that the artist is selling their work as NFTs.
It is crucial that the crypto community maintains a certain level of trust so that the community can grow and thrive. Cryptocurrencies are decentralized because it is getting increasingly harder to trust the government to manage our economy in a way that is rational and ethical. As part of the solution, we can make rational decisions about our own personal finances that can benefit the community as a whole.
What can I do to learn more?
Since cryptocurrencies and NFTs are relatively new concepts being practically applied on a global scale, established and trustworthy sources of information are hard to come by. Significant events with the potential to affect the prices of cryptos occur sporadically yet frequently. Consequently, the only way to become proficient with cryptocurrencies is to stay updated.
Here are some reputable sources for information about crypto and NFTs: