What is an NFT?
Your Best Guide to Non-Fungible Tokens
NFTs mean Non-Fungible Tokens. They refer to a relatively recent type of financial asset that is based on blockchain technology. Despite being new, they are already transforming finance, art, sports, fashion, and many other sectors of society. NFTs became generally accepted in 2021, and they have been a source of confusion ever since. In this article, we will explain the most important things you need to know about them.
What is a Non-Fungible Token (NFT)?
A collage of 5,000 photographs was sold for an eye-popping $69.3 million at a Christie's auction in February 2021. Apart from the price, what made the piece of art so surprising was that it was not in physical form. It was a non-fungible token.
A non-fungible token (NFT) is a blockchain-based digital proof of ownership of an asset. It is a cryptographic unit of data that can be used to tokenize a piece of art, digital content, real estate, or any other unique asset. In simple words, NFTs are unique digital assets that people can buy and sell like pieces of personal property. Crypto investors and collectors buy non-fungible tokens through special online marketplaces.
NFTs are secured by the Ethereum blockchain, and the data cannot be changed. An asset's ownership can be traced and verified the moment it is minted as an NFT. Assets can be sold as smaller units or as a whole, all in exchange for Ether (ETH), the cryptocurrency of the blockchain. An NFT can only have one owner at a time.
Understanding NFTs
A fungible currency can be exchanged or traded for another. Banknotes and cryptocurrencies are fungible. In other words, the value of a bitcoin is the same when compared to another. Similarly, a euro equals one euro anywhere in the world. This is why it can be used to make transactions.
With NFTs, every token is unique and cannot be replaced by another. One NFT is not equal to another. Here, each token digitally represents an asset that has been linked to a digital passport, and this makes it different from other tokens. However, NFTs can be combined to create a new one.
How is an NFT Different from Cryptocurrency?
The fact that NFTs and cryptocurrencies are both digital tokens that are based on blockchain technology does not make them the same. In terms of differences, cryptocurrencies, like physical money, are fungible, while NFTs are not. Therefore, you cannot trade NFTs equally. For example, the most valuable NFTs “Everydays: the First 5000 Days” and “Charlie Bit My Finger” are non-fungible tokens; they are unique and cannot be interchanged.
Why are Non-Fungible Tokens Important?
Today, financial systems are complex and involve different types of assets. While blockchain technology is being used to enable smart contracts, there was a need for a similar system that could represent physical assets in digital forms. Hence, non-fungible tokens were created. The idea behind cryptocurrencies was used to develop NFTs.
Market efficiency is a very clear benefit of having NFTs today. Middlemen are removed and processes are simplified when physical assets are converted into digital ones. NFTs on a blockchain represent digital or physical artwork. They make people have no need for agents and allow artists to communicate directly with their fans. Businesses can use NFTs to develop better and faster processes. For instance, an NFT for a pair of shoes will make it easier for various players in the supply chain to engage with it and trace it all the way from manufacturing to sales.
NFTs are also important for identity management or online identity verification. Individual passports can be converted into NFTs that have their respective unique characteristics that help to identify each of them. If this system is accepted by administrators of different territories, it could create a simplified entry and exit process for people.
Non-fungible tokens can be used to fractionalize a physical asset so that different people can own separate parts of it. This can be applied to creating shared ownership of a digital real estate asset. Besides, the digital copy of a painting can belong to many owners, with each person being responsible for a part of it. In this way, the value and revenue of the artwork can be increased.
Why NFTs Have Popped in Price?
There are two reasons why the values of NFTs have shot up. Firstly, people are buying NFTs and quickly reselling them at higher prices. Secondly, some people are participating in this kind of exchange to own a piece of history. For this reason, they do not mind paying millions of U.S. dollars for digital materials that they have placed so much value on.
How to Buy NFTs
If you are interested in NFTs and would like to start your own collection, here are the important things you need to do:
- Get a digital wallet that supports NFTs and cryptocurrencies. You can download one from the Google Play Store or App Store.
- Use your wallet to buy ETH or any other currency that is accepted by your NFT provider.
- Pay attention to the fees charged by crypto exchanges so that you can choose the most affordable one.
- Connect your digital wallet to a supported NFT marketplace and start browsing its collection to make a purchase.
Popular NFT Marketplaces
The most popular online platforms where you can buy NFTs are OpenSea and Rarible. Other well-known NFT marketplaces include Foundation, Axie, Larva Labs or CryptoPunks, NBA Top Shot, SuperRare, Nifty Gateway, Theta Drop, and Mintable. These marketplaces allow artists and digital content creators to issue NFTs and put them for sale. They host art, photography, music, trading cards, and other popular NFTs.
In terms of payment methods, most NFT marketplaces do not accept fiat currencies like euros and dollars. OpenSea, which is user-friendly for beginners, accepts many cryptocurrencies, including Ether, USDC, and Solana. Only a few, like Nifty Gateway, recently started to allow people to use their credit and debit cards to make payments in fiat money.
Concerning costs, most NFT marketplaces, including OpenSea and Rarible, charge a fee of around 2.5% per transaction. They also require users to pay a “gas fee” for completing NFT payments with Ethereum. Gas fees are paid to miners.
Services That Let You Use NFTs
There are reliable alternatives to the marketplaces mentioned earlier. You can try the cryptocurrency exchanges, digital wallets, and payment solutions listed below. They work with NFTs and are good for personal or business use.
Coinbase
The Coinbase NFT marketplace allows users to trade in unique NFT collections, find, and follow creators and collectors using any crypto wallet. Unlike OpenSea and several others that charge trading fees, Coinbase promises its users that they can connect to its NFT marketplace and trade at a 0% transaction fee for a limited time. However, they will still have to pay miners their gas fees.
Stripe
Stripe launched its crypto services in March 2022. It announced that it is now ready to allow businesses to use its payment gateway and flexible APIs for cryptocurrency and NFT transactions. In addition, Stripe crypto product users will get know-your-customer and fraud protection services.
BitPay
Through its support for 100 crypto wallets, eight different cryptocurrencies, and five stable coins, BitPay can help you sell NFTs and grow your business. It allows businesses to accept crypto and NFT payments without asking them to pay any set-up fee. Nevertheless, it charges a 1% fee for every transaction.
ZenGo
The ZenGo crypto wallet now supports WalletConnect. As a result, its users can now connect their blockchain wallet to OpenSea and other NFT marketplaces. So, you can use ZenGo to buy, sell, and trade non-fungible tokens.
Binance
Apart from being one of the largest exchanges for cryptocurrencies, Binance also offers an NFT marketplace, which was launched in 2021. However, it is owned and operated by Hash Muse Pte Limited, a Singapore-based company. On the Binance NFT Marketplace, you can buy and sell artwork, in-game assets, and other digital collectibles for a low fee of 1% of your transaction.
How Businesses Can Create and Sell NFTs
Businesses can make money from NFTs. Through the practice of buying and selling NFTs in exchange for money, some investors and entrepreneurs are already treating these assets as if they were stocks. So, your brand can cash in on this trend.
It is not difficult to create a non-fungible token for yourself or your business. If you are interested in doing this, you will need to mint your NFTs and put them up for sale on the blockchain using marketplaces like OpenSea or Rarible. However, such services usually require users to pay a fee. When done, think about the value of your digital asset, and list it at a befitting price, hoping to profit from selling it.
Companies like Coca-Cola, Taco Bell, PacSun, and Pringles have started to create and build awareness for their brands through the use of NFTs. For example, in 2021, the first NFT collectibles of Coca-Cola earned the company over US$575,000 through a winning bid in an online auction. Many businesses have used non-fungible tokens to improve customer engagement and increase their loyal fanbase. Most of them are able to achieve this by creating NFTs and allowing their customers to purchase them, thus making them the only owners of the digital assets.
The Potential Downsides of NFTs
A major disadvantage of an NFT is its high risk. Compared with foreign currency, cryptocurrencies, real estate, and other investment options, NFTs are the riskiest. Imagine creating an NFT for your brand only to discover that there is little or no demand for it on the market.
In addition, NFTs are not interest-yielding assets. This means that you cannot rely on them for income generation. You can only wait for their prices to appreciate before selling to make a profit.
Thirdly, it is possible for digital files to be duplicated. Access to your NFT can be stolen and your work can be presented for sale on an online marketplace without your consent.
Last but not least, NFTs are not environmentally friendly. It takes a large amount of computing energy to create records on blockchains, and there is growing concern about the long-term environmental impact of the process. According to some calculations, the carbon emissions related to mining cryptocurrencies and NFTs will exceed those linked with the whole city of London in the next few years if current trends continue.
Is NFT Investment Right for You?
You should make sure to understand how non-fungible tokens work before investing in them. Do not just rush into it because you have heard some major success stories about NFTs. The number of creators who have not been able to announce such impressive gains is very large, probably amounting to millions of people. Nonetheless, if you want to use NFTs as promotional tools alone, then you can mint them and use them to connect with new audiences and grow the number of followers of your creative works.
NFT Trends to Watch
There are popular NFT trends that you need to be aware of in different industries. They include the following:
- Shoes – NFTs as proof of ownership in the real world. The sneakers market is flooded with counterfeit shoes. For this reason, Nike has come up with plans to create NFTs to serve as proof of ownership of shoes in the real world.
- Luxury NFTs – Gucci, Jacob & Co, and other top luxury brands have entered the NFT market
- Virtual real estate – Investors can now build on plots of virtual lands offered by Decentraland.
- Music – Musicians are selling music as NFTs. These artists include popular names like Snoop Dogg and the Kings of Leon.
- Gaming – There are now play-to-earn NFT gaming models. An example is digital horse racing.
- Sports – digital records (memorabilia) are being sold by DraftKings, NBA Top Shot, and other big names in the sports industry.
5 Tips for a Successful NFT Release
Interest in NFTs is increasing globally. As many people are looking forward to the next mind-blowing news on the launch of non-fungible tokens, we offer the following five tips to help you manage a successful NFT release:
- Choose your blockchain
To sell your asset as an NFT, it must be put onto a blockchain through a process called minting. The blockchain options on the market are many. They include Ethereum, Polkadot, Cardano, Binance Smart Chain, Flow, Tezoz, and Wax. Most NFTs are minted on Ethereum.
- Create a strategy for communication
Your customers will place more value on your NFT release if the excitement and wonder around it are high enough. For example, the $69 million “Everydays” NFT release by Beeple was the first to be sold at a fine art auction house. The exciting and spectacular thing about it is that the release featured 5000 artworks made over 14 years!
Whether you use fixed-price or auction release, your communication strategy is very important if you want to announce a product that will succeed. In addition, you need to find out why your NFTs are significant, how they are different from others, and why people will try to buy them. You will be able to communicate an effective message to your customers if you thoughtfully answer these questions.
- Prepare your team for the release
You need to ensure that your team is professionally ready for the launch of your NFTs. Your customer support should be active on the official chat, your business line, email, social media platforms, and your website. Your customers should be able to get fast responses to their questions and feel satisfied with their experience during your NFT release. This will make them place high value on your work and look forward to coming back for more.
- Prevent bots
NFT launches can be targeted by bots. It is better to avoid them so that they will not manipulate the price of your NFT, take it out of the reach of your real customers, or bring down your website. Invest in bot prevention measures to keep your website online for a successful NFT launch. - Prepare your website for a high traffic
Businesses experience high volumes of traffic on their websites during their NFT launch. Customers expect a product release that is free of problems. Your website could crash if it was not prepared to handle the high volume of users during this kind of event.
FAQ
An NFT is not a cryptocurrency, although it is a type of cryptographic token. Unlike cryptocurrencies, NFTs cannot be interchanged. In other words, it is not possible to trade them equally because each one is unique.
Although non-fungible tokens have become popular recently, they are not actually new. NFTs can be traced back to 2012 when there were blockchain-backed coloured coins.
Yes, NFTs are generally safe. Non-fungible tokens are difficult to hack because of the distributed nature of blockchains. But if the online platform hosting your NFT closes, you could lose the asset.
Conclusion
Minting NFTs would benefit your business if you are into the creation of digital products or works of art. It can help you connect your brand with new customers and followers. But you must be well-educated about this kind of technology and the risks involved before investing in it. To avoid finding yourself in an emotionally and financially painful situation, do not put a lot of money into NFTs.
