What the heck are NFTs? A kickstart for beginners | by Gayle Kurtzer-Meyers | December 2022
A kick start for beginners without a clue
“Make sure you know and understand enough about NFTs before buying your first NFT.” – Anuj Jasani
What the heck are NFTs?
If you’re asking, this article might be what you need to get you in a conversational loop with your social circle. Or it can prevent you from being NFT faceless.
Introduction
Investing in digital assets has been a trend for some time, and as technology evolves, innovative and exciting digital asset investment opportunities will emerge. For example, the growing interest in non-fungible tokens, or NFTs, has created a bubble for people about whether it is worth investing in them.
NFTs have been on the market since 2014 and continue to gain popularity as a method of buying and selling through digital art. As a result, there has been an astounding $174 million in allocation to NFTs since November 2017. In addition, NFT market capitalization is increasing with the increasing digitization of payments, capturing the attention of investors.
I hope to give you a better understanding of the basics and some beginner insight from my experience.
What are NFTs?
NFTs depict digital assets that denote real-world objects such as art, videos, music, and in-game objects. You can buy and sell them on various online marketplaces – which usually share the same underlying software. In addition, NFTs use blockchain technology and have the same encryption codes as cryptocurrencies.
NFTs are highly valued since they are considered a scarce resource. In addition, each NFT has a unique identification code since demand exceeds supply, which explains the high value of NFT.
Differences
It is a misconception that NFTs and cryptocurrencies share the same characteristics. However, this is not the case as both have unique characteristics. The only similarity is that both use blockchain technology like Ethereum and Bitcoin, but that’s where the similarity ends.
NFTs are referred to as a subset of cryptocurrency as you need cryptographic currency to buy or sell NFTs. However, the primary characteristic of crypto is fungibility, which can be traded or exchanged for one another. For example, one Bitcoin is always worth another Bitcoin. Therefore, it builds a reliable foundation for conducting transactions on the blockchain, which is not the case with NFTs, and they have opposite properties.
Each NFT has a digital signature, making it impossible to exchange them for another. Furthermore, the non-fungible nature of NFTs does not equate their value with another. For example, one NBA Top Shot clip is not equal to the value of EVERYDAYS just because they are both NFTs. Creating an NFT is known as minting; Non-fungible tokens (NFTs) are generated and stored on a blockchain.
A fine line between embossing and buying
The process of converting all digital data into a blockchain-based virtual collectible is known as NFT minting. Almost any digital file, including MP3, WAV, GIF and JPEG, can be converted into a token. A distributed ledger or decentralized database stores digital products or files that you cannot change, update or delete. Thus, it adds a digital asset or object to the blockchain.
The only requirements for minting an NFT are the file to be stamped and the cryptocurrency, typically Ethereum, required to pay the gas tax. On the other hand, buying an NFT may be less risky if you invest early in a well-established project. Each investor will have individual preferences.
How does the NFT market work?
An NFT marketplace is a digital marketplace for buying and selling NFTs. These platforms allow individuals to hold and display their NFTs and sell them for cryptocurrency or debit/credit cards. Some NFT marketplaces allow users to create their NFTs directly on the platform. The NFT marketplace will typically facilitate the transfer of an NFT between two parties for a fee.
Each NFT marketplace has its own operating system. Therefore, the types of NFTs available, fees, payment methods, allowed blockchains and other provisions will vary depending on your platform.
How can NFT become a profitable resource for you?
NFTs have become an integral part of every domain – finance, marketing, metaverse or art. They have evolved from being once considered worthless digital art for wealthy individuals. Now savvy companies and brands are using them as marketing tools.
The most common way to generate returns from NFTs is to sell them on NFT-specific markets. There are many marketplace options and platforms where you can create, list, sell and trade NFTs. There are several ways to generate returns, as outlined below:
Renting out NFTs may come as a surprise to many.
- Rent
The rental process is uncomplicated; it works in the same way as letting property and collecting rent. Renting an NFT involves lending it to someone for a predetermined period of time in exchange for payment. It is possible to generate returns from NFTs without losing ownership by renting them out.
2. Royalties
You must have heard of the royalty income from intellectual property, franchises, books and music, but NFT? Yes, you heard right! You can afford to earn royalties from something as intangible as NFT.
Even after selling a digital asset to another party, the creator can continue to receive passive life royalties. However, the creator must impose these conditions in order to receive royalties for a lifetime.
Royalties are proving to be an effective source of passive income for artists. Therefore, royalties are essential when generating returns from NFTs, even though they may initially seem confusing.
3. Trade
In addition to selling NFTS, some investors buy and sell NFTs as financial securities to generate returns. If you currently have a collection of NFTs, you can sell them as easily as if you had created them yourself. The only step you want to skip is the embossing process.
Investment
You can find NFTs on a blockchain, a distributed public ledger that keeps track of transactions. For example, you may have heard of blockchain as the underlying process that allows cryptocurrencies to function – similarly, the Ethereum blockchain has the NFTs.
Digital characters that reflect both tangible and intangible values from NFTs. NFTs are digital versions of physical collectibles. For example, the buyer gets a digital file instead of a physical painting to hang on the wall.
Many are concerned about the verification system and the security of NFT. Using unique data, advanced technology makes it easy to verify ownership and transfer tokens between owners. The owner can also encode specific information. For example, artists can sign their work by including their signature in the metadata of an NFT.
Access to blockchain technology and NFTs has opened up opportunities, especially for artists and content creators, to monetize their work. Old days are gone. Now artists no longer have to rely solely on galleries or auctions to reflect the value of their art.
Technology, finance and art have collided and created a loud thump of innovation. The artist can now sell directly to the consumer as an NFT, allowing them to keep a more significant portion of the profits.
Furthermore, artists can set up royalties to receive a percentage of sales as their work is purchased. This platform is effective because most artists still need to receive future income after selling their work. A 2011 GIF of a cat called Nyan Cat with a pickled body sold for nearly $600,000 in February. By the end of March, NBA Top Shot had sold more than $500 million.
However, art is not the only way to earn NFTs. Charmin and Taco Bell, for example, offer auction-themed NFT art to raise money for charity. Charmin’s offering, called “NFTP” (non-fungible toilet paper), and Taco Bell’s NFT art quickly sold out with bids as high as 1.5 Packed Ether (WETH), or $3,723.83 at the time of writing.
Additionally, a single LeBron James highlight NFT sold for more than $200,000 on eBay. Celebrities Snoop Dogg, Lindsay Lohan, Amitabh Bachchan and Salman Khan also jumped on the NFT bandwagon, releasing secured memorabilia, artwork and moments.
The art of getting started
Are you eager to start your NFT collection and maximize your investments and your time?
To begin, you need to create a digital account that allows you to hold both cryptocurrencies and NFTs. Then, depending on the currencies accepted and the NFT you choose, you need to buy cryptocurrencies, such as Ether or another.
Many payment methods are available thanks to the digital world. For example, you can buy cryptocurrency with a credit card on platforms such as PayPal, eToro, Coinbase, Kraken and Robinhood, which allow you to quickly transfer it to your digital wallet and continue investing in NFTs.
However, you need to consider transaction costs and other hidden fees, as different platforms have different policies. For example, when you buy cryptocurrency, most exchanges will charge you at least a percentage of the transaction.
Should you become part of the NFT community?
Just because you can invest in NFTs, does that mean you should? NFTs are risky because, with a short history, their future is uncertain and there is limited data to evaluate their performance.
In other words, investing in the following token is a personal decision, but you can learn the trends and take advantage of the opportunity to make greater returns. To understand today’s movements as a beginner, you need to invest a small amount or the level of risk you can tolerate.
The value of an NFT depends entirely on the price someone else is willing to pay for it. Consequently, demand determines the price rather than fundamental, technical or financial indicators, which usually influence stock prices and serve as the basis for investor demand.
Nevertheless, one must approach NFTs in the same way as any other investment. Therefore, I always recommend extensive research to understand the risks before any financial investment, including the possibility of losing all assets.
“NFTs are birth certificates for the offspring of creators. “— Dane Scarborough
