What is NFT (Non Fungible Tokens)? How Do NFTs Work?

Except you’ve been living off-grid over the past year, you’ve probably heard about the NFT vogue. Non-fungible tokens (NFTs) are a once-in-century opportunity making them a chart-topping commodity flowing with ease and definiteness; from teeth x-rays to tacos, these digital assets are selling for millions. For some, ignorance and wealth collide, but people feel motivated to embrace their inner collector with the millions generated from the market.   

What is NFT? NEXT FRESH THING?? 

Cryptographic assets on a blockchain, each built with a unique set of identification codes and metadata, are referred to as the NFT. These tokens can be bound with digital or virtual properties as a sign of their distinct identifications.

In simple words, NFTs are digital resources that can be sold and bought like other property types. They depict tangible world assets such as artwork or real estate. Every NFT is tokenized with a digital certificate making it duplication proof. For instance, a meme owned by a NyanCat cannot be copied by another creator.

NFT as a type of cryptocurrency has been mushrooming in recent years and will be used for a variety of computation activities:

• Digital Contracts
• Video Games
• Digital arts
• Audio and Music

While NFTs are often confused with cryptocurrencies, unlike classical cryptocurrencies, NFTs are unequivocally not interchangeable and, therefore, cannot be traded at equivalency. As a result, NFT differs from fungible tokens that are identical and could be used as a medium or currency for commercial transactions.

The prime attributes of NFTs are 

• Interoperability
• Individuality
• Ownership
• Transparency
• Rarity
• Liquidity
• Uniqueness.

An NFT can be made from anything that can be digitalized.

Types & Examples of NFT (Non-Fungible Tokens)

While typically, NFTs are associated with art in the non-physical form NFTs can potentially represent any digital asset including digital artwork. In a short timespan since when NFTs have gained popularity, artwork has emerged as the most prominent form of NFTs. As NFTs became popular, many artists saw it as a prime opportunity to sell their art online and developed various forms of digital artwork.

Let’s get a quick overview of some NFT examples and their value points: (TABLE) 

NFT Digital Artwork 

Beeple’s “Everydays: The First 5000 Days”- the first NFT artwork auctioned for $69 million in March 2021.

Sports Memorabilia and Ticketing 

Many trading cards, tickets, and other memorabilia like limited edition baseball cards have also taken the form of NFTs and have been sold for several thousand dollars per item. The LeBron James Dunk, Throwdowns (Series) was sold for $380,000, marking it the most high-priced sports memorabilia NFT ever.

Personal Memorabilia 

William Shanter sold 125,000 units of NFTs in 9 minutes depicting his 60-year-old fruitful career in the form of photographs. 

Virtual Land/NFT Real Estate

This allows an individual to own land in Metaverse and video games. A virtual piece of land might sometimes seem like a redundant asset, but it’s true potential can be extracted by using it in placing advertisements inside virtual spaces like video games. 

Video Game Assets

With the gaming industry’s prominence in the last 20 years, NFTs have also emerged as an important frontier for gamers where they sell in-game content like characters and collectibles to other players and collectors. One of the most famous NFT video game assets was Axie Infinity, followed by games like Gods Unchained, Sorare, CryptoKitties, etc. Over 2 million individuals play with little blobs on Axie Infinity daily, indicating the high demand for NFT in the gaming industry.

Gaming is really exciting, as you already have billions of people who are buying digital goods inside of games.

Opinion of Devin Finzer, Ceo of OpenSea

One of the most renowned NFT collections has to be Bored Ape Yacht Club (BAYC), launched by Yuga Labs as it is now trending as a status symbol for exclusive celebrities. Some of the celebrity owners of Bored Ape Yacht Club NFTs are Justin Bieber (BAYC #3001 for USD 1.3 million) and Eminem ( BAYC #9055 for USD 400,000). Other legendary names associated with the purchase are Timbaland, Dimitri Leslie Roger, Marshmello, Dez Bryant, The Chainsmokers, Shaquille O’Neal, Kevin Hart, Jimmy Fallon, and Neymar Jr.

On the Ethereum blockchain, an exclusive collection of over 10,000 unique apes wearing stylish and eccentric clothing and posing against colorful, dazzling backgrounds was developed. It’s already partnered with Adidas and Gucci, and a Bored Ape featured on the front of Rolling Stone magazine last year.

Like any other NFT, these are also contentious; they promote jealousy amongst the owners and confusion among those who don’t own them. The value of Apes is tied to ether which is the second-biggest cryptocurrency. Each of the 10,000 Bored Apes is ranked based on different traits, for instance, background, clothes, hat, fur, or mouth. Apes with golden fur are rare and hence sell for a higher price. One sold for $1.3 million in January, another sold for $3 million with gold fur and laser eyes, two sub-1 percent features.

The Bored Ape Yacht Club’s relationship with The Hundreds (high-end streetwear), which resulted in community products. The fashion industry is currently scratching the surface; however, the eager audience and heavy investments will deduce new ways for acquisition and monetization. 

NFT Memes 

The current NFT wave has transformed the financial value dynamics attached to memes; for instance, the Doge meme created a whopping fortune of $4 million in 2021. Nyan cat is another remarkable artefact sold for 300 ETH, which equals $852,300. Some of the other memes functioning as valuable digital assets are Bad Luck Brian, Disaster Girl, etc. 

Domain Names

The NFT fever has also engulfed domain names, and an individual can now register a domain name on blockchains like Ethereum or Binance Smart Chain and sell it subsequently on the NFT market.

Music

Music is rated significantly high on the NFT spectrum, with many musicians and DJs selling their music as NFTs, especially since music has been a fungible good for several decades. For instance, Leon’s album ‘When You See Yourself’ traded as multiple NFTs in March 2021. 

Real Word Assets

One might wonder if the NFTs are limited to virtual and digital assets, but it too has applications connected with tangible world assets. Real World asset NFT (rwANFt) allows an individual to hold virtual ownership of real objects. 

NFT Fashion

Apart from being an uncanny space, virtual fashion is currently booming with products like accessories and clothing designed for video game characters and digital avatars. Market leaders like Louis Vuitton and Burberry designed particular commodities for digital avatars. On the other hand, Nike Inc secured and applied for a patent that will allow the business to merge virtual and physical sneakers. This will enable the virtual owners of the product to attain the sneakers in the real world. One of the other prominent products in the NFT space is RTFKT’S digital sneaker, which holds a value of $10,000 for a pair.  

Miscellaneous Online Items

This classification involves Instagram posts, blogs, tweets, etc. In other words, something non-fungible and minted on a digital ledger falls under this category. Jack Dorsey, CEO of Twitter, sold an NFT of his very first tweet in 2006 for approximately $2.8 million.

Identity

NFTs are now providing individuals with identification certifications with the assurance of transparency. Real word use of NFT’s individual Id-ing can be seen in illustrations like Bridge Protocols and Self-Sovereign Identity. 

The History of NFT – How and Why Did it Start?

NFTs as digital tokens were derived from the smart contracts of Ethereum, aiming at distinguishing each token with a solitary sign. The tokens have garnered considerable attention from scientific, digital, and industrial communities. It may seem like NFTs showed up out of nowhere, but they have a long history that led to their current advancement in popularity. 

Overview of NFT Timeline

Why Are NFTs So Valuable?

Generally, commodities on a digital platform are valuable as long as they are viewed to be scarce. ‘Fungible’ is the term used to describe the trade of an asset with another commodity holding equal value. For instance, Bitcoin is a fungible asset that can be exchanged for acquiring more valuable services, goods, and services. First things first, NFTs are non-fungible, implying that the item’s ownership will remain intact with the owner. The verification of the NFT makes them one of a kind and places them in the high-end market. Unlike cryptocurrencies, NFTs cannot be exchanged to purchase valuable commodities, making them more lucrative and exclusive as an investment tool. To understand the value of the NFTs, it is essential to get a deep insight into “Fungibility.”

by creating marketplaces for illiquid assets such as digital art, collectibles, music, gaming, and other assets, the NFT universe is surely set to continue to grow strongly over the coming years because it helps to solve the problem of injecting liquidity into naturally illiquid assets such as collectibles.

J. P. Morgan

This above statement by J. P. Morgan clearly demonstrates the potential of the NFT market in the upcoming times. 

In support of the above analysis, it should be noted that the factors mentioned below should be taken into consideration before determining the value of NFTs: 

• Underlying value (Value associated with the creator or ownership history) 
• Potential Value (Future value, coming creators, celebrities, and creators) 
• Buyer Perception (How do you associate with the NFT investment) 
• Similar market value ( Valuation of other pieces sold by the creator) 
• Liquidity Premium  (Security to achieve the predefined objective)

How Non-Fungible Tokens Are Beneficial? 

Other than being a game changer for digital ecosystems, NFT has some additional benefits stated below: 

1. Intellectual Property 

The core benefit of owning an NFT is the ownership of intellectual property. It becomes accessible to track ownership of the commodity when it is blockchain embedded. It becomes more convenient to ensure that the owner of the IP is not violating others’ IPs. 

2. Insurance 

Objects with associated value can gain insurance from NFTs. A smart contract on the blockchain, for example, can be integrated into a product. The smart contract can keep track of serial numbers, model numbers, manufacturing dates, and other details about the product. The smart contract can also track who owns the product and the owner’s details. If the product is lost or stolen, the owner can show that they own it and that it is unique by using the smart contract. Based on the data recorded on the blockchain, the owner can then obtain compensation from an insurance company. 

3. Digital Ownership 

One of the essential advantages of NFTs is digital ownership. There is a clear record of who owns something and where the ownership is documented with digital ownership. With no need for a third party, possession can be transferred from one person to another.

4. Collectibles

NFTs are used in the production of valuable collectibles. CryptoKitties, for example, are digital kittens with distinct personalities that users may purchase. Kittens are traded on-chain and have their market value. 

5. Property Titles 

Property titles can be recorded using NFTs. Tokens can also be used to represent real-world properties, for example. After then, the tokens can be traded on a blockchain, and ownership can be transferred using a smart contract.

6. Digital Collectables 

Remarbale digital collectibles can be designed by using NFTs. The ERC721 standard, for example, can be used to generate one-of-a-kind digital collectibles that can trade on a blockchain. Collectibles can be sold on a stock exchange and have a market value determined by market forces.

7. Decentralized Apps 

Tokens can also be used to fund decentralized app development. For example, CryptoKitties, a decentralized software built on the Ethereum blockchain, raised $12 million during its initial coin offering (ICO).

8. Voting 

To achieve a transparent voting process, votes can be counted on blockchains. 

9. Representing Real-life assets 

Real-world assets can be represented using NFTs. A firm, for example, may construct a one-of-a-kind asset on the blockchain to express a part of the company. After that, the purchase can be exchanged on a stock exchange.

How Does NFT Work? 

As NFTs are a method of storing information on the blockchain, they will have all of the following core qualities of a token in general:

• Ownership: Nobody can steal your assets or rights to the NFT. 
• Uniqueness: It can be regarded as a one-of-a-kind token; even if others try to “create” the original, they won’t be able to “fake” the blockchain data. You can assess whether or not this is a scam NFT based on the blockchain data.
• Permissionless: As it exists on blockchains, purchasing and selling the commodity does not need any permission. 
• Permanent: NFTs exist permanently, relating to other data such as messages, time spent creating them, sounds, and images, among other things.
• Programmable: NFT is made up of several lines of code; we can trace who wrote it and the NFT’s transaction history, such as how many people have bought it before.

Non-Fungible Tokens Use Cases Across Multiple Industries

Why Has NFT Become So Popular?

With the growth of NFTs, people are embracing their NFT trading practices at a global pace. Several exceptional traits that make NFTs desirable are: 

• Data stored on the blockchain can never be destroyed, replicated, or removed in any possible manner. 
• Constant Value maintained through scarcity  
• Entirely indivisible making them undividable into smaller denominations like Bitcoin 
• Eradicates the hustle for third-party verification 

NFT Market Right Now in 2022

The market capitalization of non-fungible tokens, or NFTs, has  increased nearly ten-fold between 2018 and 2020. 

However, friendly regulations, authenticity solutions, interoperable cross-platform trading, secure NFT solution, and participation at scale from firms holding significant IP are some of the factors that are assisting the NFT market to boom in 2022.

For now, the lookout for 2022 is directed towards a positive flow; the average price of an NFT is currently $161, demonstrating the breadth of the NFT fanbase. Ninety-four percent of past NFT buyers and 42 percent of those who haven’t yet purchased one say they are somewhat or very interested in purchasing one in the upcoming year.

Against the backdrop seen in the previous year, analysts are positive towards the growth of the NFT market. JP Morgan Chase commented on the NFT rise saying “the NFT universe is surely set to continue to grow strongly over the coming years. 

The market cap of Art Blocks NFT projects available on the Ethereum blockchain and published on OpenSea was around 840 million US dollars as of March 31, 2022. 

Art Blocks is a generative art-focused online art platform. It allows users to choose a style and have an algorithm generate different combinations of NFT-based digital artworks at random on the Ethereum blockchain.

What Is the Internet of Assets?

The Internet of Assets (IoA) is a term coined and popularised by Sushila, a Blockchain startup inspired by Ethereum’s State of the Internet Comparison.

This arose from the desire to construct a barrier between the Metaverse development and the Blockchain realms. NFTs and Ethereum are two technologies that address some of the current issues with the internet. As the world becomes more digital, tangible attributes like proof of ownership, scarcity, and uniqueness must be replicated. Besides, digital items are limited to the context of their product; for instance, a company’s loyalty points cannot be exchanged for another platform credit given the existence of the market. 

Comparison Between an NFT Internet and The Internet Today

NFTs VS Cryptocurrencies: What Makes Them Different? 

List of NFT Marketplaces

Best NFT marketplaces right now:

What Do You Actually Own when You Buy an NFT?

When an individual pays for a token representing a one-of-a-kind object from one of the various NFT markets, they are paying for a concise digital record (sometimes only a few bytes in size and commonly containing a URL or a serial number) to be transferred to their blockchain address. That is all there is to it. Owning this token permits one to establish that you own a particular item and that the object you own is genuine—similar to having a certificate of authenticity. 

Unless the NFT is sold or given to someone else, no one can have it. Having custody of the deeds to a house is equivalent to owning an NFT. The acts represent the record ownership and not the place. In a similar context, owning an NFT is like a user’s own record and not the actual asset. 

All NFTs include a link with a digital signature that takes us to the original artist’s work.

Example Metadata Hidden in The Digital Signature of An NFT

This is an NFT Metadata example as per the The Property Law of Tokens U Iowa Legal Studies Research Paper No. 2021-44

A Bumpy Trail- Challenges and Risks of NFTs

1. Smart Contracts

The risk associated with smart contracts and NFT maintenance is a significant concern in the NFT market. Hackers can attack a DeFi (Decentralized Finance) network and steal a substantial sum of cryptocurrency. For instance, hackers recently targeted the most well-known DeFi technology, Poly Network, and stole $600 million in the NFT crime. The reason for the theft was the lack of smart contract security.

2. NFT Fraud 

NFTs are vulnerable to fraud in fake ownership, fraudulent NFTs, or fake creators attempting to impersonate other creators. Fraudsters can construct phony marketplaces that are exact duplicates of the original market and sell false NFTs to collectors while the original digital asset is original with the owner. 

3. Challenges in Price and Value Evaluation 

As the price for NFT is directly dependent on the scarcity and uniquenesses, the fluctuations remain a constant issue for traders. 

4. Legal and Regulatory Challenges 

With no international body for NFT to ensure legalization on a global pace is another prominent issue affecting the marketplace. Unified strategies and policies will add a firm ground for compliance for NFTs. 

Investment Opportunities with NFT 

Designing NFT 

Individuals with expertise in design and art can exploit opportunities prevailing in the fertile NFT markets like OpenSea, Rarible, and others to earn fortunes. 

NFT Minting and Secondary Market Sales 

Before listing your NFTs on the marketplace, one should wait for the minting period to end for other users. This will allow the user to list the NFT at a relatively higher price. 

Secondary Market NFT Trading 

This method is similar to traditional stock trading; the trader buys NFT at a lower price and sells it overvalued to gain profits. 

Participating in NFT Gaming 

 Games like Axie reward the user with their token after finding missions. This allows the user to sell the NFT and can earn back the money invested in the first place to buy the NFT to do in-game tasks.

What Is the Future of NFT Tokens?

NFTs still is an unexplored area and is under construction in the technological landscape, and however, it entails endless opportunities to move from the experimental age to the mainstream zone. Despite the massive growth NFTs have recently experienced, the space remains young and has enormous growth potential. 

The uncertainties that might have affected the general perception regarding the field, NFTs are here to stay and will be a significant part of the art world. The last few years marked a revelatory era for the art market, especially amidst pandemics; however, the industry had to distance itself from the conventional modus Operandi.  

The sudden boom through royalties, tokenization, collaboration, programmability, and more direct engagement between creators and artists will establish NFTs as a technological vital to everyday operations. Concepts like token-based meta-verses,  DAOs, NFT art, and community-owned financial protocols are some multi-billion communities that will undoubtedly emerge in decades to come. 

How to Create an NFT?

Let’s walk you through a general guideline to make your own NFTs; it is not a comprehensive guide as the methods depend on the tools used for the development. 

STEP 1: Decide the type of NFT you want to design 

NFTs are multifaceted and versatile commodities that provide the developer with ample options like tickets to events, games, virtual items, games, memes, etc. One can create an NFT for real-life artifacts, like a photo autographed by a celebrity or valuable collective figures of art. The most common form of NFTs is PNG, JPG, MV, MP4, image, video file or audio, and the like. If you plan to design a simple NFT, the developer is not needed.

However, NFTs with smart contracts ( Sale conditions) need assistance from a professional developer. The main objective behind creating the NFT should be clear to add value to the target audience.

STEP 2: Research 

Perform thorough research on the pros and cons of the market choices. The most popular are SolSea, OpenSea, and Rarible. Gas(Fees for beginners) needs to be considered before minting or selling your NFT. 

STEP 3: Creating a Crypto Wallet Setup 

The next step in creating an NFT is to choose a digital wallet to store NFTs and cryptocurrencies. Ensure that the selected wallet is compatible with blockchain and the NFT marketplace used for minting. The best crypto wallet in the space is the MetaMask browser extension wallet, as it is easy to set up and connect with blockchain. Other available wallets are Trust Wallet, Alpha Wallet, and Enjin. 

Note: It is recommended to use hardware wallets like Ledger Nano X to maximize security.

Step 4: Purchase crypto through a reputable exchange

The next step is to buy some cryptocurrencies to pay the gas to min NFTs. Account opening with exchanges like Crupto.com, Binance, and Kraken is the best way to do this. Follow the following steps to transfer from an exchange to the wallet: 

• Log in to the chosen exchange 
• Open the Wallets Tab in the bottom or top navigation 
• Tap on Withdraw and opt for the relevant currency 
• Choose the network (Solana for SOL, ERC-20 for ETH) 
• Enter the amount 
• Hit Withdraw 

STEP 5: Connecting Wallet with NFT platform and mint 

The next step in the process is connecting the wallet with the NFT platform used to create digital assets. 

Let’s use Rarible as an illustration to understand the steps that need to be taken to achieve a successful connection: 

1. Go to Rrible.com and then click on Connect wallet placed at the right-hand corner of the screen. 

2. Select the chosen digital wallet and permit Ribble to view accounts. 

3. Click Connect and accept the terms for service and age confirmation.

4. Go back to the Rarible homepage and click the Create button placed at the top right. 

5. Choose the number of digital copies of NFT that you wish to create. 

6. Upload the file that needs to be minted as an NFT. 

7. Now, you will be asked to choose the method to sell the NFT file. Well, it is not mandatory to decide while creating the asset, and you have the option to put it on sale and set pricing at minimum pricing after minting.

8. Choose the desired version for NFT, for instance, full high resolution, or add unlockable content through a secret download web page or link. 

9. For collection for the NFT, choose Rarible. 

10. Add the description and title. 

11. Specify the royalty percentage you want for secondary sales. 

12. Specify the file’s properties, like the size in pixels or color. 

13. Click Create item. 

14. Approve the transaction (Pay gas Fees) 

15. Click Confirm > Upload file and Mint token 

16 Confirm contract integration in the wallet (Gas fee will be deducted for creating a smart contract) 

17 Click on Sign in the wallet to sign a sell order. 

And you are done. Your NFT is now successfully minted. To find the NFT created, click on Profile > My Items, and NFT collectibles will pop upon. 

How Your Brand Should Use NFTs?

Wading into the NFT space can be daunting for brands, but the stakes of not engaging are much higher. NFT is everywhere, thanks to the global interest that they have managed to create around consumer interaction and brand storytelling. Businesses have endless opportunities with NFTs like auctioning their branded assets, selling designs for their products, selling tickets, changing licensing models, or creating one-off experiences that only exist in the digital arena. 

Brands can use NFT for:

• Creating unique brand experiences
• To increase customer engagement and brand awareness 
• Boost interest in product or brand 

Conclusion

In conclusion, this piece has currently analyzed the pointers from NFT  platforms available to traders. Deciding to buy NFT can be daunting for beginners, although if you need technical assistance or have any questions, we can assist you in streamlining the process significantly. If you’re thinking about giving this opportunity a try, contact us right away. 

Frequently Asked Questions about NFTs