What is an NFT?
An NFT stands for non-fungible token, which means that it’s unique and can not be replaced with anything else. One way to look at is, Bitcoin for example is fungible because you can trade one bitcoin for another and you’ll end up with the same thing. But for something like a one of a kind trading card, trading for another card will always give you something different. One of the main benefits of owning a digital collectible versus a physical collectible like a Pokemon card or rare minted coin is that each NFT contains distinguishing information that makes it both distinct from any other NFT and easily verifiable. Here some key characteristics:
Non-interoperable: collectibles such as trading cards; a Blockchain Heroes card cannot be played in the Gods Unchained trading-card game.
Indivisible: NFTs cannot be divided into smaller denominations like bitcoin satoshis. They exist exclusively as a whole item.
Indestructible: Because all NFT data is stored on the blockchain via smart contracts, each token cannot be destroyed, removed or replicated. Ownership of these tokens is also immutable, which means gamers and collectors actually possess their NFTs, not the companies that create them. This contrasts with buying things like music from the iTunes store where users don’t actually own what they’re buying, they just purchase the license to listen to the music.
Verifiable: Another benefit of storing historical ownership data on the blockchain is that items such as digital artwork can be traced back to the original creator, which allows pieces to be authenticated without the need for third-party verification.
How do they work?
NFTs are unique crypto tokens that are managed on a blockchain. The blockchain acts as the decentralized ledger that tracks the ownership and transaction history of each NFT, which is coded to have a unique ID and other metadata that no other token can replicate. This process gives NFTs the attributes of originality and scarcity that makes them so attractive when coupled with digital media.
NFTs are coded with software code (called smart contracts) that governs aspects like verifying the ownership and managing the transferability of the NFTs. Like any software application, NFTs can be further programmed beyond the basics of ownership and transferability to also include a variety of other applications and functionality, including those linking the NFT to some other digital asset. For example, a smart contract could be written to automatically allocate a portion of the amounts paid for any subsequent sale of the NFT back to the original owner, thus giving the owner an ability to realize the benefits of the secondary marketplace.
Why are they important?
Thanks to the advent of blockchain technology, gamers and collectors can become the immutable owners of in-game items and other unique assets as well as make money from them. In some cases, players have the ability to create and monetize structures like casinos and theme parks in virtual worlds, such as The Sandbox and Decentraland. They can also sell individual digitals items they accrue during gameplay such as costumes, avatars and in-game currency on a secondary market.
For artists, being able to sell artwork in digital form directly to a global audience of buyers without using an auction house or gallery allows them to keep a significantly greater portion of the profits they make from sales. Royalties can also be programmed into digital artwork so that the creator receives a percentage of sale profits each time their artwork is sold to a new owner.
Why do they have value?
Like all assets, supply and demand are the key market drivers for price. Due to the scarce nature of NFTs and the high demand for them from gamers, collectors and investors, people are often prepared to pay a lot of money for them.
How to buy NFTs?
Tap the profile icon on the top right of the OpenSea website.
Click “Get MetaMask.”
Choose “Install MetaMask” for Chrome, or the supported browser of your choice. This installs a Chrome plug-in.
Choose “Get Started.”
Select “Create Wallet.”
Choose “No thanks” for sharing feedback.
Create your password.
Write down the secret phrase it gives you. This is super important and is your backup to access your account. Don’t lose it.
Tap “Next” and confirm the secret phrase.
Click “Next” to connect your OpenSea account with the MetaMask digital wallet you’ve just created.
Click “Connect” again.
How to sell NTFs?
Go to Rarible.com and tap “Create” on the top right.
Create a single or multiple collectible — the latter for a collection of, say, photographs or collecting cards you’ve created.
Select “Choose File” to upload a PNG, GIF, MP3 or another file type. The max size is 30MB.
Enter in the price you’d like, or leave “put on sale.” I’ll list this picture of Porto, Portugal, I took for 0.5 ether. After a 2.5% service fee, I’ll get the equivalent of $826.91. If this thing ever sells. Seems reasonable.
Enter in a name for your NFT and a description.
Set your royalties. You’ll continue to get paid if it resells on the secondary market. This is based on the current sale price.
Choose “Connect wallet and create.”
Connect your wallet, which we set up in the earlier section above. So, tap “MetaMask.”
Pay the “Gas” fee to process the listing. In this case, it’s $75.64, or 0.044091 ether.
Click “Start” to sign the sell order using your digital wallet.
Click “Sign” in the MetaMask pop-up.
Since NFTs use the same blockchain technology as some energy-hungry cryptocurrencies, they also end up using a lot of electricity. There are people working on mitigating this issue, but so far, most NFTs are still tied to cryptocurrencies that generate a lot of greenhouse gas emissions. There have been a few cases where artists have decided to not sell NFTs or to cancel future drops after hearing about the effects they could have on climate change.