A Beginner's Guide: What Are NFTs(Non-Fungible Tokens)?

Consider scrolling through your social media feed and coming across a lovely painting that catches your eye. It’s a landscape scene with vibrant colors and a peaceful atmosphere that draws you in. You click on the link and discover that the painting is for sale in an online marketplace. It could be, say, a Van Gogh or Dali replica, and you know that the original, the one that must have been hand-made by the artist, would be sitting in some museum somewhere, or it could be with someone so rich that they have millions to spare just to have the original. Wouldn’t it be nice if you could have an original artwork? For most of us regular folks, it seems like a dream.

But not anymore! NFT is the way anyone can own a piece of something unique (like an original) and be completely sure that it is not a replica. For example, the former Twitter CEO, Jack Dorsey bought the first Tweet that was ever made on Twitter. Sounds strange, right? That digital asset was converted into an NFT, and even though the entire world can see that Tweet or have its pictures or even frame it for their living room, the original tweet would always belong to Jack Dorsey unless he decides to sell that NFT explicitly (and FYI, now it has been sold to others).

You must be curious about NFTs, so let’s get started!

What is an NFT, or What Does NFT Stand For?

NFT stands for ‘Non-Fungible Token.’ The word ‘fungible’ loosely translates to ‘replaceable,’ and ‘non-fungible’ implies non-replaceable. ‘Token’ generally means a digital asset. An NFT is therefore, a non-replaceable digital asset. It is a unique item that cannot be exchanged or replaced with another item on a one-to-one basis. This means that each NFT is distinctive in its own right.

Consider an NFT like a special trading card you might want to collect. NFTs are frequently used to demonstrate ownership of digital items such as artwork, collectibles, and other virtual items (even physical items are being tokenized now) They are stored on a computer system known as a Blockchain, which contributes to their security and verifiability. Think of Blockchain as the backbone technology that makes all of this happen.

NFTs are a novel and exciting way for people to acquire and own rare digital items. Assume you made a beautiful digital painting or designed a virtual trading card. You can convert that into an NFT, and once you do that, YOU (the account holder) would be the owner of THAT specific digital asset. Again, people can make copies of it (like one can make copies of a Van Gogh painting), but the original art would unarguably belong to you.

Sometimes buying a very expensive NFT can be out of reach for a single individual, in which case it can also be jointly owned by a group of individuals. This is called fractional ownership.

NFT transactions are made secure and conflict-free to some degree by using smart contracts. Smart contracts are contracts built on Blockchain that can execute automatically when certain agreed-upon and pre-coded criteria are met.

Key Features of NFTs:

• NFTs denotes ownership of a digital asset, such as artwork or a collectible. They enable people to own and trade one-of-a-kind digital items.

• NFTs are verified because they are stored on a Blockchain, which is a decentralized, secure (cryptographic security) computer system. This enables the authentication and ownership of an NFT to be confirmed.

• NFTs are generally produced in limited quantities, which maintains their rarity in some sense.

• NFTs can be divided into smaller units representing fractional ownership or smaller units of value.

• NFTs can be programmed using smart contracts. These are self-executing contracts in which the terms of the buyer-seller agreement are directly written into lines of code. This enables the automatic execution of specific actions or conditions.

• NFTs can be used on various platforms and applications, allowing for multiple usage and possibilities.

How do NFTs work?

Tokens like Bitcoin and Ethereum-based ERC-20 tokens are fungible. Ethereum’s non-fungible token standard, as used by platforms such as CryptoKitties and Decentraland, is ERC-721.

Non-fungible tokens can also be created on other smart-contract-enabled blockchains with non-fungible token tools and support.

Though Ethereum was the first to be widely used, the ecosystem is expanding, with blockchains including Solana, NEO, Tezos, EOS, Flow, Secret Network, and TRON supporting NFTs.

Non-fungible tokens and their smart contracts allow for detailed attributes to be added, like the identity of the owner, rich metadata, or secure file links. The potent of non-fungible tokens to immutably prove digital ownership is an important progression for an increasingly digital world. They could see blockchain’s promise of trustless security applied to the ownership or exchange of almost any asset.

As is the challenge of blockchain to date, non-fungible tokens, their protocols and smart contract technology is still being developed. Creating decentralized applications and platforms for the management and creation of non-fungible tokens is still relatively complicated. There is also the challenge of creating a standard. Blockchain development is fragmented, many developers are working on their own projects. To be successful there may need to be unified protocols and interoperability.

Types of NFTs or Digital Assets

• ARTWORK

NFTs can be used to represent digital art ownership, allowing artists to sell their work directly to collectors while also allowing collectors to verify the authenticity of their purchases.

• COLLECTIBLES

One of the most common applications for NFTs is digital collectibles. These can include virtual trading cards, in-game items, and other collectible digital assets.

• REAL ESTATE

Real estate NFTs can represent ownership of the virtual real estate, such as virtual world plots of land.

• MUSIC

Musicians can use NFTs to sell digital copies of their music and provide fans with exclusive experiences like backstage passes and meet-and-greets.

• DOMAIN NAMES

NFTs for domain names can represent ownership of unique domain names and other online assets.

• TICKETS

Tickets NFTs can represent ownership of event tickets, allowing for ticket authenticity verification and resale on the open market.

• IDENTITY

NFTs can represent a person’s identity or reputation, allowing for personal information verification and protection.

These were the basics you needed to understand before moving to the advanced topic of How to Buy/Sell an NFT. Let’s delve into it!

How to Buy and Sell NFTs

To buy and sell NFTs on OpenSea, you must first complete the following steps:

• Create an account on the OpenSea website. You must enter your email address and create a password.

• Connect your OpenSea account to your crypto wallet. This enables you to purchase and sell NFTs using Ethereum or other supported cryptocurrencies.

• Browse the OpenSea marketplace for the NFT you want to purchase. You can browse through different categories or search for specific items or artists.

• When you've found the NFT you want to purchase, click on the listing to view more information and double-check that it's the one you want.

• To complete the purchase, click the "Buy" button and follow the prompts. You must pay the listed price in the supported cryptocurrency, plus any transaction fees.

You must take similar steps to sell an NFT on OpenSea. First, you must list your NFT on the marketplace by providing asset information and setting a price. Then you must wait for a buyer to make an offer and complete the transaction. OpenSea delivers several tools and resources to assist you in successfully buying and selling NFTs on their platform.

Famous NFT Transactions & Industry Insights

• A digital artwork by artist Beeple sold for a record-breaking $69.3 million at Christie's auction house in March 2021, making it the most expensive NFT ever sold at auction.

• The NBA has embraced digital trading cards and other collectibles to allow fans to own and trade digital versions of their favorite players' trading cards and other collectibles. In just one week in October 2020, the NBA's Top Shot platform sold $230 million.

• Kings of Leon released their album "When You See Yourself" as an NFT in February 2021, allowing fans to purchase a digital copy of the album and exclusive bonus content and experiences.

• Rarible, an online marketplace, has seen explosive growth in NFT sales, with more than $300 million in sales in just the first quarter of 2021.

• Traditional investors and institutions have expressed interest in the NFT market, with companies such as Grayscale and CoinFund launching NFT investment funds.

Overall, the NFT market has experienced rapid growth and widespread adoption in recent years, showing no signs of slowing down.

Who's making waves in the NFT space?

CryptoPunks

Dating back to 2017, profile picture (PFP) series CryptoPunks is one of the earliest NFT projects in existence. Created by development studio Larva Labs, CryptoPunks are a series of 10,000 24x24 pixel art images depicting "punks" with randomized attributes, including gender, headgear and eyewear.

Originally released for free, CryptoPunks now command huge sums; at time of writing, the cheapest punks are on offer for six-figure sums, while the rarest punks, including aliens, apes and zombies, sell for millions of dollars. Even payments giant Visa has got in on the action, snapping up CryptoPunk #7610 as part of its collection of "historic commerce artefacts".

But what can you do with CryptoPunks? They're chiefly used for "flexing"—demonstrating membership of an exclusive fraternity, with owners using them as avatars on social media sites. Indeed, the craze has prompted Twitter to roll out plans for verification of NFT avatars, to prevent people from passing off saved CryptoPunk images as the real deal. And we could be seeing them on the silver screen soon; Larva Labs has signed with United Talent Agency to explore bringing its properties to film, television, video games, and more.

Bored Ape Yacht Club

Like CryptoPunks, Bored Ape Yacht Club is a series of NFT avatars—in this case, taking the form of disinterested-looking apes. And, also like CryptoPunks, there are 10,000 of them, each one has a randomly generated set of attributes, and a thriving community has sprung up around them.

Perhaps most importantly, owning a Bored Ape NFT makes you eligible for drops of additional NFTs, such as Bored Ape Kennel Club (a series of dog NFTs), and Mutant Ape Yacht Club (a series of, er, mutant apes). Think of it as a ticket to an exclusive club that offers perks for members.

That exclusive club has become increasingly exclusive in the past year, with a growing number of celebrities scooping up Bored Apes—including Eminem, Snoop Dogg and Stephen Curry. Like CryptoPunks' Larva Labs, Bored Ape Yacht Club creator Yuga Labs has secured Hollywood representation, with an eye on extending the brand into film, TV and other entertainment formats.

Did you know?
In December 2021, the floor price of Bored Ape NFTs overtook that of CryptoPunks for the first time, a mark of the PFP collection's growing popularity.

Axie Infinity

NFT collectibles like CryptoPunks and Bored Apes are one thing, but non-fungible tokens have a wide variety of applications—one of which is to represent digital objects in video games. And the biggest NFT video game around right now is Axie Infinity, which became the most traded NFT collection ever in Q3 2021, with trading volumes over $2.5 billion.

The game itself is a Pokémon-style affair that sees you collecting cute monsters called Axies, pitting them against each other in battles, and breeding them to create new Axies. The game's "play to earn" mechanic has seen players in countries like the Philippines making a living from breeding and trading Axies. However, the game itself has a steep learning curve, and with individual Axies trading for hundreds of dollars, assembling a team to get started isn't cheap.

The future of NFTs

For the time being, much of the attention around non-fungible tokens is focused on artwork, gaming and crypto collectibles. Increasingly, recognizable brands are licensing their content for NFTs; fantasy soccer game Sorare has signed up over 100 football clubs to its platform, while the likes of the Smurfs, Minecraft, and the BBC's Doctor Who have all been rendered as NFTs. Twitter launched its own collection of NFTs in June 2021; months later, it announced plans to verify users' NFT avatars.

For gaming, non-fungible tokens could be used to represent in-game items like skins, potentially allowing them to be ported to new games or traded with other players.

Their potential, however, is much wider; possible applications include copyright and intellectual property rights, ticketing, and the sale and trading of video games, music and movies. In September 2021, thriller film Zero Contact became the first feature-length movie to be released as an NFT; weeks later, pandemic-themed thriller Lockdown followed suit. In October, Tom Brady's NFT platform Autograph launched a music vertical, with The Weeknd as its first signing.

Video game companies have seized on the possibilities of NFTs, with Assassin's Creed publisher Ubisoft becoming the first major gaming company to launch in-game NFTs in late 2021. Other game companies including Konami have experimented with NFTs, but many gamers remain skeptical of the technology; in December 2021, developer GSC Game World abandoned plans to include in-game NFTs in its game S.T.A.L.K.E.R. 2: Heart of Chernobyl, following a widespread backlash among fans.

NFTs are also expected to become a key component of the metaverse, a persistent, shared virtual world where users can interact as 3D avatars. Companies such as Meta (formerly Facebook), Adidas, Nike and Samsung have all ventured into the metaverse, and more brands are expected to follow suit.

Metaverse platforms such as Decentraland and The Sandbox already make use of NFTs to represent plots of virtual land and in-game items such as clothing for avatars. The next step towards a single, persistent metaverse will likely make use of NFTs' interoperability, enabling users to move virtual items between different metaverse platforms.

Non-fungible tokens add potential to the creation of security tokens and the tokenization of both digital and real-world assets. Physical assets like property could be tokenized for fractional, or shared, ownership. If these security tokens are non-fungible, ownership over the asset is completely traceable and clear, even if only tokens representing part ownership are sold.

Further application of non-fungible tokens could include certification for qualifications, software licensing, warranties, and even birth and death certificates. The smart contract of a non-fungible token immutably proves the identity of the recipient or owner and could be stored in a digital wallet for ease of access and representation. One day, our digital wallets could contain proof of every certificate, license, and asset, we own.