NFTs for dummies

Non-fungible assets can include things like houses, for example, or a painting like Starry Night, which is one of a kind. You can take a picture of the painting or buy a print, but there will only ever be one original version out there. Similarly, NFTs are unique assets in the digital realm that can be bought and sold like any other property, but they have no tangible form of their own. You can think of NFTs as something like certificates of ownership for physical or virtual assets.

How Do They Work?

While traditional art such as paintings or sculptures are valuable because they are one of a kind, the same can’t be said about digital files that can be endlessly duplicated with a click of a button. NFTs can "tokenize" artwork and create something like a digital certificate of ownership that can then be bought and sold on the market. Like crypto-currency, a record of who holds that certificate is then recorded on the blockchain. These records cannot be forged or tampered with in any way because the ledger is maintained by thousands upon thousands of computers around the world. Due to this decentralization, the blockchain is one of the most secure systems in the world. NFTs can also include smart contracts that can give an artist a cut of any future sale of the token (often called royalties).

What Makes NFTs So Important?

Like we mentioned before, you can think of NFTs as something like a digital certificate of ownership or authenticity. However, they're not just used for artworks; there is a huge range of virtual collectibles online, including:

• - Video art
• - Music and music videos
• - Virtual trading cards
• - Virtual real estate
• - Even tweets

As cryptocurrencies have soared in value over the last year, NFTs also grew an estimated $338 million in 2020 alone. Every NFT is stored on a blockchain (Etherum’s, most of the time), and anyone can track the tokens as they change hands. NFTs have raised some deep philosophical questions about the nature of ownership. That's why so many people are confused about their nature in the first place, especially since digital artifacts can be infinitely copied. However, you could say that any kind of collecting isn’t necessarily based on inherent value. For example, old comic books were made with pennies worth of ink and paper, yet their value far exceeds that. Some paintings end up in the Louvre, others to pawn shops. You can take a great picture of the Mona Lisa, but that's not the Mona Lisa. It doesn't have any value because there is no history or provenance to the work. A significant part of the value of an NFT is who's behind the token in the first place.

What’s Stopping People From Copying NFT Art?

Nothing, absolutely nothing. Right now, you can go online and find Beeple's famous $69 million collage and download it to your computer or phone. However, that doesn't matter since only one person owns the NFT token, and the token is what is being bought and sold. In fact, in most cases, the artists themselves retain the copyright ownership of their work, so they can continue producing and selling copies, even if someone else holds the NFT token. You can compare buying an NFT to purchasing something like an autographed print but in the digital world.

But Is It a Bubble?

The big question every potential collector wants to know the answer to. The answer is "it's hard to say." Beeple, on the eve of his record-breaking auction, said that he believes there will be a bubble and that it might be happening already. Others are even more skeptical. David Gerard, a prominent author in the crypto realm, said that he saw NFTs as something like buying official collectibles like real-life trading cards. He warned that while people are making a lot of money in this space, you probably won't. Gerard also characterized NFT sellers as "crypto-grifters," accusing them of selling, as he put it, "worthless magic beans."

The How and Why of NFTs

Asking why you should buy or make NFTs is an interesting question, with different answers depending on if you’re a buyer or an artist.

I’m an Artist

There are many reasons why an artist should sell the work as an NFT. First off, it is a way to sell work that otherwise doesn't have much of a market. Let's say you came up with a fantastic digital sticker. There isn't much you can do with it other than maybe sell it on the iMessage App Store. In addition, NFTs have the potential to change the nature of ownership in the art world. To put it simply, you, as an artist, retain all of your copyright. While you and anyone else can buy and sell the NFT freely and profit. This setup is a favorable shift for all the artists out there. That shift combined with the smart contracts (royalties) feature makes this crypto-world of NFTs an incredibly interesting and exciting space for artists out there.

I’m a Buyer

Buying NFTs is a great way to support the artists you love, and they usually come with some extras. For example, if you purchased a Beeple NFT, you would get a package that included an enclosed tablet to display the artwork, a physical certificate of ownership, a cleaning cloth, and a hair sample from Beeple himself. However, most people buy NFTs as collectors. They are hedging that the value of the NFT will increase over time and that they will be able to sell it at a higher price and make a profit. In that way, NFTs work like any other speculative asset.

So, How Do I Drop My First NFT

Good question. Assuming you have the artwork already done, turning your regular art into NFT art will be easy. All you need to start is to choose a marketplace you want to sell on, a crypto-currency wallet, and a bit of Ethereum. There are many NFT marketplaces out there to choose from, and you should research carefully, as they can be quite different from each other. There are also many invite-only marketplaces that are more heavily moderated. After you’ve chosen a marketplace, you need to set up a cryptocurrency wallet. There is a huge number of different ones out there, but most of them do the same thing. Finally, you'll need to purchase a bit of Ethereum. Why? Because when you create an NFT, you create a token that is put on the blockchain (this is called minting), and you need to pay miners to enter that transaction into the blockchain ledger. This price is called "gas money," and it changes every day, or sometimes even every hour, depending on how busy the blockchain is. Afterward, all you have to do is sit back and let the bidding for your art begin.

How Do I Buy NFTs?

Buying an NFT is fairly easy. First off, you'll need Ethereum and a crypto-wallet. The wallet's importance is two-fold here; it will store your Ethereum as well as your NFT after you've purchased it. Most NFTs are on the Ethereum blockchain, and the purchase and selling of NFTs are made in Ethereum rather than standard currencies. That's the reason you need to purchase Ethereum. After you’ve purchased some Ethereum and stored it in your wallet, you will need to find an NFT you want to buy. Simply browse a marketplace of your choice and find the right NFT. Afterward, just bid, and hope you outbid all of the competition.

How NFTs Can Change Industries

Over the last couple of years, the value of the virtual economy has been decidedly proven to investors. People are paying thousands, sometimes millions of dollars, for digital art, digital real estate, digital wearables, and many other digital goods. NFT proponents are now faced with the problem of how to create and sustain real value for their digital assets. Why, where, and for what purpose should you use NFTs? It is predicted that NFTs will be widely used as a form of economic exchange in the Metaverse. However, there remains a question of which Metaverse will prevail among the many up-and-coming metaverses.

Advertising

Perhaps the best example of how NFTs are changing advertising can be seen in the NBA. One of the most popular NFT markets in the world is the NBA Top Shot. To put it simply, it is a modernized digital take on collecting baseball cards (except its basketball). However, instead of collecting physical cards, you’re collecting non-fungible tokens of amazing NBA moments in digital card form. While to the uninitiated, this might seem silly, it's no joke! These NFTs have led to the rise of new millionaires, who see this as the future for collecting. Mark Cuban, the billionaire owner of the Mavericks, thinks that there is a vast potential future for digital assets in the NBA because almost anything can be made into an NFT. It's just a matter of finding the right market, and NBA Top Shot proves that.

Real Estate

The benefits that NFTs can bring the real estate are pretty obvious. If you've ever bought or sold any property, you know what a colossal hassle the stacks and stacks of paperwork, the maze-like bureaucratic process, and the often insane fees can be. NFTs can change that and make the transaction a simple transfer of ownership that takes place in a single ledger entry on the blockchain. There already are real estate companies that are creating NFTs for property rights. Thus cutting down the money and time needed for these transactions. In addition, imagine buying a house as an NFT and instantly borrowing against the NFT using DeFi or TradFi (key players in the emerging world of crypto-banking). Such options seem in the cards for the future of real estate. However, it remains to be seen how quickly the industry will adopt these new tools and whether governments will acknowledge the benefits and legislate accordingly.