What is an NFT

The thing is, many people have heard about NFTs, but most of the people have no idea what it is, including you.

Thankfully, this article will answer your question “what is an NFT?” and provide a thorough overview of how they work, why you should or shouldn’t own one, and other important details.

The goal is to equip you with as much information you need to make an informed decision about the hyped digital asset.

An NFT is a  non-interchangeable digital asset that employs technology to store or log unique content ranging from art to music, videos, and even GIFs on a cryptocurrency blockchain, which is usually Ethereum. This is to say that an NFT is primarily encoded with the same software that many cryptocurrencies use.

NFTs are usually sold and bought online, often with crypto, on crypto exchanges like Binance

What makes them so popular now? You may wonder. NFTs have been around since 2014, but are becoming one of the most-talked-about digital assets today because they can now be used to trade digital artwork.

The technology behind NFTs makes it easy to own and sell digital images online.

When you say non-fungible, it means something that cannot be replaced with something else, one of a kind. Unlike other forms of cryptocurrency like Bitcoin, which is fungible, (because you can trade a Bitcoin for another), NFTs have unique cryptographic codes that make them irreplicable.

If you trade an NFT, you get something else in return, you cannot get the same token, since it is one of a kind (or very limited in availability).

If you’re looking into NFTs as a potential investment, it’s important that you take a look at their pros and cons to help you make careful and informed decisions.

Pros

NFTs improve market efficiency

Making physical assets digital is very effective in streamlining sales processes, improving the supply chain, getting rid of unnecessary intermediaries, and even improving security.

Artists who sell their artwork digitally no longer have to use expensive agents to push their work. Now, they are able to connect better with their fans for more authenticity.

Privacy for corporations and public persons

Looking forward, NFTs can become valuable for organizations or individuals who will want to manage or distribute sensitive information within a private network. It could effectively help to save time and cost for this category of people.

Useful for separation of assets

When you’re able to convert your physical assets into digital assets using NFTs, it becomes easier to fractionalize. Fractionalized assets become easier for multiple people to claim ownership of.

For instance, fractionalizing real estate can lead to increased liquidity and higher prices.

Creates a diverse investment portfolio

Adding NFTs to your portfolio improves its efficiency. Although investing in NFTs may come with its own risks, these risk profiles are different from that of regular stock and bond investments.

This diversified portfolio helps to create a better ratio of risk and returns for your investments.

Blockchain tech is safe

All NFTs stored on blockchain technology are impossible to manipulate, hack, delete, or duplicate. Once stored on the technology, it contains a distinct detail of ownership and authenticity. It is up to the owner to determine the scarcity of the asset as it cannot be altered or stolen by anyone else.

Cons

May be difficult to trade

Although NFT fame is widespread, the number of people that truly understand its worth are few and far between. This may make it a tough trade because the number of interested sellers and buyers is still quite small.

No income generation

When you buy an NFT, there are no guarantees that they will produce any income, unlike stocks that pay dividends, property that receives rent payment, or bonds that bear interest. The only way NFTs will generate income is if their value appreciates, and that’s not very predictable.

May enable fraud

The safety of blockchain technology remains unquestionable, but human beings may have found a way around its ability to preserve the authenticity of an artwork. Some artists have reported that they found replicated copies of electronic images of their artwork sold without any credit to them.

Fraudsters can replicate images of original art (not the NFT itself) to sell as theirs on different online marketplaces. This is a fraudulent reproduction. It is worth noting,  however, only one person can own the original.

Like we’ve explained, NFTs exist on a blockchain. Blockchains are the technology that makes certain cryptocurrencies like Ethereum work. NFTs exist on blockchain because they help to store information in a way that makes them difficult to replicate, steal, or manipulate.

Owning an NFT gives you exclusive rights to it because an NFT can only have one owner at a time. The unique data contained within the digital asset makes it easy for you to verify its authenticity and ownership. You can also store specific information within NFTs, such as a signature that further makes it an original or traceable to the original owner.

The main similarity between an NFT and a cryptocurrency is that they’re made with the same kind of technology used to make crypto. Otherwise, they have no other similarities.

Cryptocurrency is fungible. This means you can trade one for the other and they're always equal in value. For instance, one ETH is always equal to one ETH, the same for Bitcoin and other types of currency like dollars.

NFTs on the other hand, are non-fungible. An NFT may not always necessarily be equal to what you trade it for. The varying digital signature contained in each one makes it so. Jack Dorsey's NFT tweet is not equal to an NBA Top Shot clip, even though they're both NFTs.

Over the years, since NFTs started gaining recognition, some pretty expensive ones have been sold. Let's see a few of them below:

1. The Merge

It was almost impossible until it happened. Topping the number one most expensive NFT ever sold, The Merge was auctioned and sold at $91.8 million. However, the artwork was later fractionalized and sold to over 28,000 buyers in 312, 686 pieces. The artwork was created by an artist under the alias "Pak" who desires to remain anonymous.

1. The First 5000 Days

Sold for over $69 million, this NFT artwork by Beeple was, at some point, the most expensive NFT ever sold. The work contains thousands of images from the digital artist, Beeple's work for over 13 years. The digital artwork sold at such a huge price at an auction at Christie's and made history as the first most expensive digital collectible of 2021.

1. Human One

This is another artwork by Beeple selling for $29 million at another auction at Christie's. It was Beeple’s second-largest NFT sale in 2021, adding to the fame and credibility of the digital artist.

1. Covid Alien/CryptoPunk #7523

This NFT collection sold for $11.75 million at Sotheby in London. It was created by Larva Labs and is just one of 10,000 uniquely generated characters based on Ethereum Blockchain.

1. CryptoPunk #3100

Another CryptoPunk from the famous 9 Alien Punk series, CryptoPunk #3100 sold for $7.58 million in March 2021. The Alien is wearing a blue and white headband, making it one of the lucky 406 CryptoPunks (out of 10,000) to have a headband.

What Can You Turn Into an NFT?

Almost anything unique that you can store digitally and holds some form of value can be converted into an NFT. The idea behind NFTs is that they’re like collectibles or antiques. It’s just like when you sell a painting or a vintage item. But in this case, you’re not selling a physical item, but converting your unique item into a digital file that you can sell to someone who will have proof that they own the original copy.

Some examples of items that have been converted and sold as NFTs include:

• Jack Dorsey, the Twitter CEO’s sold his first tweet as an NFT
• In-game purchases have been sold as NFTs
• Taco Bell turned 25 taco-themed GIFs & Images into NFTs
• NBA turned trading cards into NFTs
• Musicians sell rights to their work as NFTs
• Architects sell digital real estate as NFTs

There’s no limit to what you can turn into an NFT as long as it offers value and can be stored digitally.

If you've gotten this far and you’re wondering if you can join the league of NFT millionaires, well, never say never. Here is a quick breakdown of the steps to creating an NFT:

1. Select your item: This can be anything you own the intellectual properties to. It should be unique because it’s the rarity of the item that gives it value.
2. Select the Blockchain you’ll use: The most popular one is Ethereum, but there are others like Tezos, Binance Smart Chain, etc., that you’ll need for minting your digital asset into an NFT.
3. Create your digital wallet: This is necessary because you’ll need some crypto to fund your investment. When your account is set up, buy some cryptocurrency -- likely Ether since it’s the cryptocurrency of the Ethereum Blockchain. If you already own cryptocurrency, connect it to your digital wallet to be able to use it to create NFT.
4. Choose your NFT marketplace: This is where you’ll hopefully sell your NFT. Top marketplaces include OpenSea, SuperRare, Nifty Getaway, and more.
5. Mint your file: Most marketplaces allow you to mint your digital file. Upload the file to the platform following the minting instructions. You’ll be able to turn any file type into a sellable NFT.

Continuing from the production process, here are the next steps to help you earn money from your NFT. Once you have uploaded and minted your file on your preferred platform, it’s time to decide how to monetize your NFT.

The platform you choose will usually provide options through which you can sell your NFT.

1. You can sell at a fixed price: This way, you can allow whoever is able to meet your fixed price to buy your NFT.
2. You can set a timed auction: Timed auctions give your NFT the opportunity to sell as high as possible at the end of the time limit. Here, whoever is interested in buying your NFT can bid for it until the timer is up.
3. You can run an unlimited auction: Unlike the timed auction, this one can run as long as you want it until you are satisfied with the final bid.

For both auctions, you must set a minimum price in a way that you don’t lose money. Setting the price too low can put you at a loss. Minting and selling NFTs can be quite expensive. Some platforms require a fee for almost every step of the process, so you have to factor all this into your sales price.

Like any investment, choosing to invest in NFTs is a personal decision. However, you should know that they’re relatively new to the market, and so their future is still quite unpredictable. Again, NFT prices are driven by demand rather than the regular indicators that usually fuel stock prices.

Before deciding to invest in NFTs, it’s important to conduct extensive research to understand the potential risks that may be involved in your investment. You may choose to start with small investments to help you judge their performance before taking a big leap with your hard-earned money.

This article has provided an insightful review of NFTs and what they are to help you understand what the hype is all about.

Despite the uncertainty regarding NFTs today, one thing is for sure, there’s a lot of money circulating in the NFT space. If you have rare items worth some value, you can give NFT trading a shot. Learn more on how to make money with NFT in these 4 easy steps.