A Beginner’s Guide to NFTs

NFTs guide
NFTs. You may have heard of them, but what are they? In this beginners guide, we'll explain in jargon-free terms exactly what they are and how you can use them.

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There are many strange and wonderful things you can find in today’s digital world. Perhaps one of the strangest, but potentially lucrative are NFTs. You may have heard the term NFT, or people talking about ‘Crypto Kitties’ and ‘Bored Apes’ and wondering what on earth they are. Well, wonder no more – in this guide we look at NFTs in detail including what they are, what you can do with them, and how you can buy them!

In This Guide…

What is an NFT?

NFT = Non-Fungible Token

A non-fungible token is a digital asset that contains specific identifying information in the form of a smart contract. The information within this contract makes each NFT unique – no two NFTs can be exactly the same.

It is important to understand the difference between fungible and non-fungible – this will help you understand NFTs. Something like Bitcoin, or USD is fungible. You can give someone 1 BTC or 1 USD, and receive 1 BTC or 1 USD back and still have exactly the same item. The items are not unique, and there can be multiple of the same item, i.e. there can be thousands of one-dollar banknotes. Bitcoin and USD are also divisible. I.e. you can send someone 0.1 BTC or 50 cents.

Non-fungible tokens are unique. No two NFTs are the same. Also they are not divisible. You can’t send someone part of an NFT – only the whole.

Think of an NFT as a unique digital item that you can own via a smart contract. The smart contracts and buying/selling process is predominantly done via blockchain technology. 

Here’s digital marketing guru Gary Vee to explain more about NFTs

How are NFTs Used?

You now know the basic definition of an NFT and what it is. Still confused? This is understandable. Simply knowing the definition of an NFT only helps so much. You must also understand how NFTs are used.

NFTs can be created for virtually anything. Most commonly, they are created to represent digital collectibles. For example, NBA TopShot NFTs are digital trading cards that showcase single moments from NBA basketball games – like physical trading cards.

However, that is just one use of NFTs. NFTs are also commonly used to represent artwork, music, virtual land, and even in-game items like player skins and accessories. The potential application is vast and in time, we can expect NFTs to be used for everyday purposes such as driving licenses, software licensing, and product warranties.

How Can You Buy an NFT?

NFTs are generally sold via dedicated NFT marketplaces. Examples of popular online NFT marketplaces include Rarible, SuperRare, and OpenSea. On these marketplaces, you can buy a huge range of NFTs from different creators. Alternatively, other NFT marketplaces like the NBA TopShot marketplace and LavaLabs marketplace are tied to specific NFT series.

In most instances, you need some type of Cryptocurrency wallet to buy and sell NFTs. This is because NFTs utilize blockchain technology and are often tied to specific cryptocurrencies like Ethereum. Some platforms like NBA TopShot do allow for deposits and payments using Debit/Credit cards, however, using a crypto wallet like MetaMask is usually the cheaper and quicker option.

Once you have the means to buy an NFT, you can typically buy it in a similar manner to an online store. Select the NFT you want to buy, enter a bid amount, or pay the fixed amount. A transaction will then take place on the blockchain in the background, and a smart contract is created to show the NFT is now owned by you.

What are the Pros and Cons of NFTs?

It is important to understand the advantages and disadvantages of NFTs before considering buying one or entering this exciting world.

Pros

  • Smart contracts and blockchain technology is incredibly safe.
  • NFTs have a great potential for massive profit margins.
  • They have virtually limitless applications.
  • Could eventually be used for a wider range of business purposes.
  • Collectible NFTs are fun for fans and avid collectors.

Firstly, NFTs are inherently safe due to the underlying blockchain technology used and smart contracts. The transactions for NFTs have non-repudiation i.e. there is physical proof on the blockchain the transaction occurred, and proof of ownership.

Also, as you will see below, the value of NFTs can increase wildly and you could potentially gain thousands overnight. We also foresee that eventually, NFTs will see much wider use in general business. Lastly, for those who enjoy collecting, NFTs collectables can represent a fun hobby.

Cons

  • The method of purchase is not always straightforward.
  • Buying NFTs usually involves cryptocurrencies.
  • It can be difficult to know which NFTs are worthwhile.
  • The value of NFTs can also plummet instantly.
  • The NFT ecosystem is not environmentally friendly.

On the flip side, as NFTs involve cryptocurrencies and crypto wallets, they are not immediately accessible to everyone. Also, many people will be dissuaded from buying NFTs simply due to their association with the cryptocurrency industry.

Also, there are so many NFTs available, it can be incredibly difficult picking one to start with! Lastly, while their value can indeed surge, some NFTs will also result in losses. There is also the chance that an NFT can be a complete bust and you can waste your money completely.

If we have piqued your interest, you are now probably wondering where you can buy NFTs. Luckily, there is a range of marketplaces and specific NFT platforms to help start your NFT collection. We have listed some of the most popular NFT marketplaces and collectable platforms below:

Crypto Punks

The Larva Labs marketplace is one of the best-known in the world of NFT collectables. Their most notable series is the Crypto Punks NFT collectables. Crypto Punks is a collection of 10,000 characters that are randomly generated in pixel art style.

Originally, you could get Crypto Punks for free! However, now, the cheapest available Crypto Punks NFT is around $285,000!

NBA TopShot

Dapper Labs have paved the way for an exciting new wave of NFTs – NFTs linked to sporting competitions. One of the best examples of this is NBA TopShot. The NBA TopShot platform allows you to purchase “moments”. Think of a “moment” as a digital trading card. 

The moment captures a single play from an official NBA game in video format. Each moment has a rarity, such as common, rare, and legendary. Also, each moment has a unique mint count number. TopShot users can buy packs, and buy and sell moments on the TopShot marketplace. These moments sell for huge amounts – especially for NBA superstars. Currently, the highest-selling moment was a legendary LeBron James play that sold for a whopping $230,023!

OpenSea

OpenSea is one of the first peer-to-peer NFT marketplaces ever launched. It is also currently the largest and has a trading volume of over $6.5 billion. To use this platform, you must have a cryptocurrency wallet such as a MetaMask wallet. 

On this marketplace, you and buy and sell NFTs of virtually anything. It is possibly one of the most diverse NFT marketplaces and you can find things like in-game items, collectables, artwork, animated GIFs, and music.

Axie Marketplace

In recent years we are seeing a new wave of NFTs developed – NFTs that can be used in NFT-powered games. One of the best examples of this is Axie Infinity. Axie Infinity is the game, and players can buy items/characters for the game via the Axie marketplace in the form of NFTs.

While many NFTs are simply collectable items, Axie NFTs have an actual purpose – you can use them in-game to battle other players and earn tokens to progress in the game!

The Most Valuable NFTs of all time (currently)

Most NFTs have some intrinsic value depending on different parameters. For example, the rarity, the design, or the associated brand. However, there are occasional NFTs that are so rare/in-demand, that they sell for ridiculous amounts of money. We have listed some of the best and most valuable NFTs of all time below:

  • Crypto Punks Number #7804 sold for $7.5 million due to it being the only one to contain a COVID facemask.
  • Jack Dorsey (founder of Twitter), created an NFT of the first Tweet ever published. This was auctioned for charity and sold for $2.9 million.
  • Mike Winkelmann created the digital NFT artwork entitled, “Everydays: the First 5000 Days”. This composition of 5000 single images sold as an NFT for $69 million!
  • Tim Berners-Lee created the World Wide Web in 1989. Move forward a few decades, and the original source code of the WWW was turned into an NFT and sold at auction for $5.4 million.

As you can see, the potential for life-changing amounts of money is real. However, it is important to understand that these are rare cases. Most NFTs will never reach that type of value. Indeed, profiteering is not the only purpose of NFTs. They have many purposes including being a fun hobby for collectors or fans, and hopefully having real business use in the future.

If this article on helped you, please recommend DigitalSupermarket.

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