Exploring the World of NFTs: A Beginner's Guide
Non-Fungible Tokens (NFTs) have been gaining a lot of attention in recent years, and for good reason. NFTs are a revolutionary new way for creators to monetize their work and for collectors to own and trade unique digital assets. In this blog post, we will explore the world of NFTs and explain what they are, how they work, and how you can get involved.
NFTs are digital assets that are unique and cannot be replaced by another identical item. They are created and managed using blockchain technology, which ensures that they are tamper-proof and decentralized. This means that once an NFT is created, it is assigned a unique digital fingerprint, known as a hash, that cannot be duplicated or altered.
The NFT market has exploded in recent years, with digital art, collectibles, and in-game items being some of the most popular types of NFTs. Many artists and creators are turning to NFTs as a way to monetize their work and protect their intellectual property. The potential impact of NFTs is not limited to the art world though, and it is being considered as a new paradigm for various industries, such as gaming, music, sports, and virtual real estate.
Understanding the technology behind NFTs
Blockchain is the backbone of NFTs, and it is a decentralized and tamper-proof digital ledger that records all transactions. Each NFT is represented by a unique digital token on the blockchain, and it can be bought, sold, and traded like any other digital asset. When an NFT is created, it is assigned a unique digital fingerprint, known as a hash, that cannot be duplicated or altered.
Smart contracts are also an essential component of NFTs. These are self-executing contracts with the terms of the agreement written directly into the code. Smart contracts are used to define the rules for NFT ownership and transfer, such as the price, the payment method, and the rights associated with the NFT.
Now that we have a basic understanding of what NFTs are and how they work, let's take a closer look at the different types of NFTs.
Types of NFTs
- PFP NFTs: Profile picture NFTs (PFPs) are often used as digital avatars for a person's profile picture on social media sites, particularly on Twitter. The first PFP NFTs were CryptoPunks, which were created in 2017 by Larva Labs. CryptoPunks are a set of 10,000 algorithmically generated punks with different attributes. The most famous NFTs in this genre to date are the Bored Ape Yacht Club (BAYC) PFPs, created by Yuga Labs in April 2021. The highest-priced droopy-eyed primate is Bored Ape #8817, which sold for $3.4 million dollars. The BAYC NFT collection is also notable for giving owners the intellectual property rights (IP) of their Bored Apes, thereby allowing holders to have commercial usage rights and monetize their NFTs.
- Generative art NFTs: Generative art NFTs are created using a range of software and artificial intelligence tools, resulting in a specified aesthetic. These NFTs have a common look and feel but are unique pieces. Artists like Larva Labs, Tyler Hobbs, and Erick Calderon have been leaders in this space.
- Music NFTs: Music NFTs grant ownership of the music file as opposed to just a license to listen. This allows fans to invest in and own a piece of their favorite artist's work, while also giving artists the opportunity to engage with their fans in new ways.
- Soulbound Tokens: Soulbound tokens (SBTs) were inspired by the idea of "soulbound items" in the online game World of Warcraft. SBTs are non-transferable digital tokens that represent social identity in a decentralized society. Potential uses for SBTs include functioning as a blockchain resume, managing medical records, and holding digital ID or membership cards.
- Sports collectible NFTs:Sports collectible NFTs: Sports collectible NFTs have a current market valuation around $1.4 billion, and are used to represent virtual collectibles such as trading cards, autographed jerseys, and more. These NFTs can be bought, sold, and traded like physical collectibles, but exist entirely in the digital realm. Companies like Sorare and NBA Top Shot have been leaders in this space, creating and selling officially licensed collectibles from major sports leagues and teams. These NFTs can also be used to gain access to exclusive experiences and perks, such as meet-and-greets with athletes or VIP seating at games.
- Play-to-earn gaming NFTs: Play-to-earn (P2E) gaming NFTs, also known as GameFi, allow players to earn cryptocurrency by playing online games. These games typically require an initial purchase of one of the game's NFTs, which can then be used to earn in-game rewards or cryptocurrency. Popular examples of P2E games include Axie Infinity and Gods Unchained, which give players ownership over their in-game assets and the ability to sell and trade them.
- Fashion NFTs: These are linking real-world fashion with embedded chips to NFTs, offering a unique designer experience for consumers to engage in new ways with brands they love. Major designers including Tommy Hilfiger and Dolce & Gabbana have released digital-garment-only collections sold as NFTs that could be worn by your avatar within the metaverse platform Decentraland.
- Utility NFTs: Utility NFTs are being used to link digital tokens to real-world rewards and experiences. These NFTs can offer access to a real-life club, tickets to an event, nightclub or other experience. For example, Bored Ape Yacht Club now offers exclusive access to parties and events, and Dolce & Gabbana and UNXD’s Collezione Genesi was one of the first luxury NFT collections to include digital and physical items and future experiential benefits.
How do we buy and sell NFTs?
NFT marketplaces are the main places to buy and sell NFTs. Some of the most popular NFT marketplaces include OpenSea, Rarible, SuperRare, and KnownOrigin. These marketplaces allow users to browse and buy NFTs, and they also provide tools for creators to mint and sell their own NFTs.
Before you rush to buy NFTs, there are four things you need to consider first:
- What marketplace do you intend to buy the NFTs from?
- What wallet do you need to download in order to connect with the platform and purchase NFTs?
- Which cryptocurrency do you need to fund the wallet with in order to complete the sale?
- Are the NFTs you want to buy being sold at a specific time, i.e. via a pack or art drop?
When buying NFts, it is essential to evaluate their value. This can be done by looking at the NFT's rarity, the creator's reputation, and the demand for the NFT. It is also important to research the marketplace and the seller to ensure that the transaction is safe and secure.
To sell your NFTs on a marketplace, you’ll need to locate them in your collection, click on them and find the “sell” button. Clicking this will take you to a pricing page where you can define the conditions of the sale including whether to run an auction or sell at a fixed price.
Ether and other ERC-20 tokens are the most common cryptocurrencies you can sell your NFTs for, however, some platforms only support the native token of the blockchain they were built upon. VIV3, for example, is a Flow blockchain marketplace and only accepts FLOW tokens.
When selling NFTs, it is important to set a fair price and to promote the NFT to potential buyers. It is also essential to ensure that the NFT is stored and managed safely. This can be done by using a digital wallet that supports NFTs, such as MetaMask or MyEtherWallet.
NFTs are a revolutionary new technology that has the potential to change the way we think about digital ownership and the value of digital assets. As the market continues to evolve, we can expect to see new and innovative uses for NFTs in a variety of industries. Whether you are an artist, a collector, or a gamer, there are many exciting opportunities to explore in the world of NFTs.
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