Understanding NFTs: What You Need to Know

0
134
Understanding NFTs: What You Need to Know

Did you know that the most expensive NFT ever purchased was for $91.8 million dollars? NFTs have gained tremendous popularity in the art world and will only continue to become more popular in the future.

Are you having trouble understanding NFTs? You’ve come to the right place.

In this article, we’ll explain everything you need to know about NFTs.

What Are NFTs?

Non-Fungible Tokens, or NFTs for short, are digital assets based on the Ethereum blockchain. This blockchain structure makes them very similar to cryptocurrency.

Almost any digital media can be an NFT. Art, music, pictures, videos, and even memes can all get turned into an NFT.

How Do NFTs Work?

NFTs are considered “non-fungible” because when you buy them, they cannot be traded for something else of equivalent value. Let’s look at an example.

Suppose you have in your possession a rare, one-of-a-kind Derek Jeter MLB rookie card. Because this card is the only one of its kind, any other card you exchange it for wouldn’t have equal value.

No two rookie cards are considered equal, and the same is true for NFTs.

NFT Crypto Art Marketplace

The Keys to Understanding NFTs Value

Much like the actual art world, NFT pieces have a subjective value. While there are several factors that can determine the value of an NFT, there are two factors that most affect value. They are utility and rarity. Let’s understand each.

Utility

What really separates NFTs from traditional art pieces is their utility. Because of their ability to be just about any kind of digital media, NFTs have high utility.

For example, game developers use NFTs as exclusive downloadable content. Here, you can check a list of the best NFT metaverse games to play. Certain levels, characters, and abilities can get redeemed with the purchase of an NFT.

They also get used to verify documentation, such as licenses, diplomas, passports, and birth certificates.

Rarity

The rarity of an NFT is largely determined by who is creating it. Suppose a celebrity like Kanye West created an original NFT. Because of Kanye’s status as a wealthy entertainer, anything he says or does gets regarded as highly valuable.

The person who purchases his NFT would be in possession of a one-of-a-kind original creation from the mind of Kanye West, which could then potentially get sold for tens or even hundreds of millions of dollars.

How Do I Buy an NFT?

Hand Holds Smartphone With Type of Cryptographic NFT Marketplace With Art Sale

NFTs get bought and sold through smart contracts. Smart contracts are digital agreements that, once conditions have been met, automatically execute without human input.

These digital agreements make every transaction transparent and verify the authenticity of each and every NFT. While some NFTs can be bought using fiat currency, most get bought with cryptocurrency.

If you don’t already have one, this means setting up an account on a cryptocurrency exchange like Coinbase or Kraken. From there, you can buy crypto and store it in a digital wallet.

You can then purchase an NFT from an NFT marketplace, such as OpenSea, Nifty Gateway, or SuperRare. If you’re interested in learning even more about them, SuperRare has a magazine that covers the latest and greatest NFTs.

NFTs get bought using the currency it was minted in. For example, if the piece you want to buy was mined using Solana, then Solana is the currency you would use to purchase it. Once purchased, NFTs get stored on digital wallets, just like cryptocurrency.

Anyone Can Make an NFT

If you’re willing and have the know-how, you can build your own NFT. Let’s go over everything you would need.

First Things First

Before making your own NFT, you first need to have a crypto wallet. As noted earlier, any cryptocurrency exchange that allows you to buy and sell crypto will do.

Your wallet will allow you to freely access your assets and buy or sell more assets on an NFT marketplace.

Choose a Blockchain

In order to create the digital asset of your dreams, you must choose which blockchain you want to mine with. Most NFTs get minted with Ethereum, but there are a few other options to choose from. Those options include Binance Smart Chain, Polygon, Polkadot, and Celo.

Choose a Marketplace

With your choice of blockchain squared away, you now need to choose a marketplace. Like crypto exchanges, there are several markets to choose from. The most popular are OpenSea, Rarible, Binance, Nifty Gateway, and SuperRare.

Choosing a marketplace should be based on the type of digital asset you are making. It’s up to you to do your research and make the best decision possible.

Upload and Sell Your NFT

Concept Nonfungible Token or NFT Sale of Electronic Creativity

Once you’ve settled on a marketplace, uploading, also known as minting, your NFT file is the next step. Each marketplace has its own specifics for selling NFTs, but every marketplace follows the same process of minting.

This process has three minting options. They are fixed prices, timed auctions, or unlimited auctions.

Fixed price sets your asset to get sold at a certain price, and the first person to meet that price will be the owner of the asset. Timed auctions set a time limit for anyone interested in your NFT to bid on it.

Unlimited auctions have no time limit, and you decide when the auction ends. Once your minting options are set, one lucky buyer can become the owner of your one-of-a-kind NFT.

The Bottom-Line on NFTs

Hopefully, after reading this article, you’re at least one step closer to understanding NFTs. The popularity of NFTs will only continue to grow, and consequently, so will their value.

Join the fun by making your own! If you enjoyed what you read here, check out our cryptocurrency section for more articles just like this!