What is a NFT? Everything you need to know
What is an NFT?
In essence, an NFT, or non-fungible token, is just a record that someone owns something. That record lives on the Ethereum blockchain, an ongoing, impossible-to-fake public ledger that shows everyone who’s ever owned the thing in question. (So even if someone can copy and paste your cartoon of an ape, the real one, the only real one is clearly and incontrovertibly yours.) Of course, NFTs aren’t just small artworks; they can serve as contracts or tickets to events or memberships in clubs. And, in some cases, they’re shockingly valuable. It’s not unheard of for certain NFTs to run to six figures. And, uh, people spent around $20 billion buying and selling these things last year. But that’s getting ahead of ourselves. What NFTs are, fundamentally, is that the record of ownership of the thing that’s owned is almost secondary.
Got it. But why do they matter, again?
Some people who are bullish on NFTs think that this sort of radical transparency can save art, liberate the internet, and restore democracy. Others think NFTs will accelerate societal collapse through grift and greed and melt the polar ice caps thanks to the insane energy demands required to store all the data required to keep the blockchain running. That’s a pretty wide range of outcomes: total triumph or total disaster. How terrifying! How fun! Predicting what comes next in a space that moves as fast as NFTs is a futile exercise, but it’s hard to imagine that all of this energy adds up to nothing.
Okay, so what’s the history of NFTs?
One-of-one blockchain-based collectibles emerged years ahead of the recent NFT boom in the form of Rare Pepes. Set up on the Bitcoin blockchain in 2016, these memes which unfortunately feature the same sad frog character that became a white nationalist symbol around the same time are virtual trading cards of varying rarity that reference strange, meme-y inside jokes.
Rare Pepes appealed to a very niche audience digital-art and blockchain nerds but they set a precedent for blockchain-based collectibles like the now wildly popular CryptoPunks, which in turn inspired CryptoKitties, another Ethereum-based collectible set with a gamified twist: Owners could “breed” their kitties to spawn even rarer new ones with specialized traits (like fur color). Buyers’ enthusiasm for CryptoKitties generated enough activity to slow down transactions on the Ethereum blockchain in December 2017, demonstrating that blockchains could be used for fun, not just finance. Most importantly, one of the creators of CryptoKitties also cemented a token standard called ERC-721. Simply put: It’s the set of rules that allows true digital ownership, and is responsible for the exchange of billions of dollars and millions of ether (ETH), Ethereum’s currency for colorful JPEGs.
What makes an NFT valuable?
NFTs are valuable because they verify the authenticity of a non-fungible asset. This makes these assets unique and one of a kind. Picasso’s paintings are non-fungible. While anyone can make copies of his paintings, the original painting remains irreplaceable and unique. NFTs make digital content irreplaceable, hence valuable.
To understand the value of NFTs further it is necessary to understand ‘fungibility’ better.
‘Fungible’ is the term used when you are able to exchange an asset that you own with another asset of equal value. Currency is an example of a fungible asset. For example, imagine you have $20 and you get two 10 dollar bills in exchange for the $20. You still have the same value but you have exchanged your asset and received a new asset.
Bitcoin is another example of a fungible asset. You can exchange Bitcoins for getting valuable goods and products and services. The difference between NFTs and Bitcoin is the non-fungibility of the NFT. NFTs are unique and non-fungible.
Ok, let’s go back to the example of the artwork by Picasso. Since Picassos’s artwork is unique and irreplaceable its value depends on multiple factors. Usually, the value for non-fungible assets will depend on the utility, ownership history, future value, and liquidity premium.
What are blue-chip NFTs?
Blue chips are the NFTs with the best chance of staying power: the projects with the biggest war chests and most plausible plans to grow and grow and grow. And right now the market leader is indisputably Yuga Labs.
In its first year, Yuga Labs’ marquee collection, Bored Ape Yacht Club (BAYC), yanked the mantle of best-selling PFP from CryptoPunks then Bored Ape bought up CryptoPunks’ I.P. One of the reasons people gravitate to BAYC is because it grants various rights to holders: A BAYC owner can monetize their NFT’s likeness, which allows for odd spin-off projects like a Universal Music–signed band fronted by apes.
Today, Yuga’s NFTs have accounted for as much as 40 percent of the NFT trading volume. The company receives royalties from every sale, and it’s also branching out. It dropped a merch line, available only to NFT holders. It helped to set up ApeCoin, a publicly tradable cryptocurrency that it gave to its holders for free, which almost instantly hit a fully diluted market cap estimated to be $10 billion.
It’s small wonder that BAYC inspires such loyalty from NFT holders, whether they’re the lucky nerds who minted in April 2021 for around $200 each or celebrities who bought in at six figures. Is BAYC’s domination of the marketplace good for anybody else? Well, at least the next NFT David has a clear Goliath to take aim at.
How permanent are NFTs, really?
They’re here as long as the blockchain exists, since there’s no way to delete an NFT once it’s on the blockchain. But you can dispose of an NFT by “burning” it, which means sending it to a particular wallet called the null or burn address where it will be permanently irretrievable.
Burning an NFT is sometimes done out of buyer’s remorse. And some NFT creators actively encourage owners to burn their NFTs, which takes them out of circulation, in exchange for something else. For example, collectors of a set of rocket ship components from the Tom Sachs Rocket Factory can burn them in order to “build” a complete rocket. Then they can receive a physical version in the mail.
So how do I buy an NFT?
Getting your hands on an NFT isn’t exactly simple, but it doesn’t have to be terribly complicated either. Here’s how to grab your first, in five easy steps.
Set up a MetaMask wallet
MetaMask makes one of the O.G. digital wallets, which is where you’ll store your NFTs. It’s a popular choice because it works across NFT marketplaces and is easy to install in your browser. MetaMask will generate your “secret recovery phrase,” 12 words that act as the private key to your wallet. Write those down like, on real paper and hide them somewhere, like in a safe, or use a secure password manager. Don’t show them to anyone else and don’t lose them. If you do, you’ll lose access to your wallet.
Buy some ether
Head to a crypto exchange like Coinbase, connect your bank account, and use some good old-fashioned fiat to buy cryptocurrency. Most NFTs are tokens on the Ethereum blockchain, so load up on that chain’s currency, ether (ETH). NFT prices range from practically free to in the millions, so fill your wallet with whatever amount you feel comfortable losing if your NFT’s value tanks.
Discord is where the NFT chatter happens. Specific communities cater to different interests and can help you figure out which NFTs are dropping, which projects are scams, and which ones might just make you a pile of ETH…or at least make for a killer Twitter profile pic.
Visit an NFT marketplace
OpenSea, the biggest and most varied marketplace, aggregates NFTs from all over the web meaning you can find just about anything there (including an NFT of the word “porn,” which has been listed for as much as $15,000). Other marketplaces have their own areas of expertise: Nifty Gateway caters to streetwear fans with drops, and KnownOrigin and Snark.art are better for fine art.
Buy your NFT
Platforms like OpenSea let sellers list prices or hold auctions, and buyers can make offers. It’s exactly as simple as clicking the Buy Now or Place Bid button just like you’re purchasing a pair of pants online. Unlike buying pants, blockchain transactions charge for “gas,” or the cost of energy it takes to run them so be prepared to spend a little more than the NFT’s price. And just like that, you now own a little piece of the blockchain.
I feel like I’m coming in late. How can I stay in the know?
You’re not that late! The whole world is just starting to spin. Besides an infinite supply of ETH, the next best thing for an NFT trader is to seek out a reliable stream of actionable info what real heads call “alpha.” The best stuff is often shared in private Telegram groups, where whales, an old borrowed stock-trading term referring to those wealthy enough to single-handedly sway the market, discuss whale stuff.
Some traders pay to join gated alpha groups on Discord, like MVHQ or Origins, which promise endless discussions, raffles for mint spots, and access to trading tools. There are plenty of free tools too: WhatsMinting surfaces trending NFT mints. And Context is like an Instagram feed of other people’s wallets. Great for lurking.
Just out of curiosity, can I make my own NFT?
Few succeed, but it’s not hard to try: The Zombie Zoo collection was drawn by an eight-year-old in Japan in 2021. Why can’t that be you? PFP artists can use Photoshop or Procreate to design their characters’ traits alien skin and cowboy hats and whatnot then generate the final art with a no-coding-required tool like Bueno.
For fine artists, marketplaces like Zora let you mint and sell individual images, videos, audio, and text.
Depending on your goals, you might want to hire a developer to write your smart contract and maybe hire a community manager so someone else can get yelled at online instead of you, should shit hit the fan.
How do I protect my NFTs from getting stolen?
Billions of dollars have flooded into the NFT industry, attracting scammers like moths to a flame. Here are some common NFT scams to watch out for.
The rug pull
A buzzy NFT project debuts, perhaps with a celebrity endorsement from the likes of a Paul brother. The price of the NFT or associated crypto coin rises…only to drop dramatically after the projects’ founders cash in their gains from the early pump, leaving the remaining holders with a pile of worthless digital goods.
The false mint
Most NFT projects derive value from scarcity. Popular, sold-out collections like Bored Ape Yacht Club have inspired scammers to tweet calls to mint brand-new Bored Apes…that don’t exist. Clicking the link to mint, rather, lets the scammers steal right from their victims’ wallets.
The plagiarized collection
Yes, NFTs are supposed to verify a digital work’s authenticity, but anyone can turn a JPEG into an NFT, even if they didn’t create the work. Watch out for collections that resemble popular NFT projects but aren’t listed by verified creators or are reverse images of well-known collections.
Anything else I can do on a personal level to avoid getting scammed?
These require pressing physical buttons or touchscreens in order to move NFTs around, which thwarts most virtual attacks.
Using an expensive PFP can make you a target for social engineering, especially if your account is doxxed.
Spread your NFTs across multiple wallets, so if you compromise one wallet you don’t lose everything.
Read smart contracts
Don’t accidentally agree to send someone $20 plus your Bored Ape for free.
Ignore DMs and weird NFTs strangers send to your wallet, both of which can have malicious contracts attached.
Some Basic Terms and Acronyms You Should Know
As if the tech underlying NFTs weren’t impenetrable enough, fans and collectors seem to speak a language all their own. Here are a few terms to get you started.
We’re All Gonna Make It, shorthand for the optimism sometimes merited, sometimes delusional around NFT projects.
Not Gonna Make It. An insult reserved for inept investors, rip-off projects, and NFT haters generally.
The ability to hold onto NFTs for the long haul. If you can wait out early losses in hopes of a big payday, you’ve got diamond hands.
The opposite of diamond hands: Someone who bails out and sells early.
Picture for Profile, used to refer to a collection of NFT-linked images designed to work as Twitter avatars. (See CryptoPunks, Bored Ape.)
What’s up with fashion NFTs?
Lots of established fashion brands have dabbled in NFTs: Pepsi, Nike, Adidas, Gucci, Louis Vuitton, streetwear brand The Hundreds, and the watchmaker Jacob & Co, to name just a handful. There are digital-forward fashion houses like Auroboros, which launched its own private community at a virtual concert by Grimes. Really, the business model is not so different from normal: Companies known for selling limited-edition luxury goods continue to do exactly that, usually with small drops that have very high prices.
So I bought my first NFT. How do I display this thing?
While your NFT lives on your computer, a few products bridge the gap between digital art and physical display. Canvia’s frames use proprietary tech to make your digital artwork look like a print or painting, and Infinite Objects lets you buy your NFT already framed for as little as $120. Lago’s new $9,000 NFT frame already promises to be a status symbol: It looks like a TV and responds to voice commands.
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