Did you know that thanks to NFTs, people have been able to sell a video clip of LeBron James’s slam dunk for almost $200,000, a decade-old “Nyan Cat” GIF for $600,000, and Jack Dorsey’s first tweet for over $2,900,000? As a result, NFTs are sweeping the world of digital art and collectibles. In 2021, sales of NFTs hit over $20 billion, and these massive sales to new crypto audiences are transforming the life of digital artists.
Although it may be difficult for beginners to understand, the payback has been enormous for many artists, influencers, and others, with investors paying top cash for these NFTs. This article will explain
- what the buzz is,
- why NFTs are a phenomenal innovation,
- the problem related to NFTs,
- and how NFTs work.
What is NFT?
NFTs stand for non-fungible tokens. They are a type of cryptographic token representing ownership of pieces of art or collectible. NFTs are blockchain technology to verify who has the original of a digital asset indisputably.
Individual images—or perhaps an entire collage of pictures—can be viewed for free on the internet, but NFTs are a one-of-a-kind token of ownership that has value. When people buy and sell NFTs, they buy and sell their virtual ownership over something.
Differences Between Cryptocurrency and NFTs
Cryptocurrencies like BTC are fungible tokens. In economics, fungibility is the characteristic of goods or commodities where each unit is interchangeable. One BTC, for example, is always worth the same as another BTC.
On the other hand, your limited edition basketball card is a good example of something non-fungible. Each card is treated as a unique collectible. A card with one player does not have the same value as another player. Another example of a non-fungible thing is a piece of art, like a painting. It is usually created as one original copy.
So, why are people willing to pay millions of dollars for something they can just screenshot or download?
What Are the Features of NFTS?
- Uniqueness: Each NFT has its individual properties. Factors like the production year or how the cards/tokens are preserved can make a difference.
- Scarcity: The number of non-fungible tokens is proven to be scarce. Each token has a token ID and the amount that has been produced, both of which are recorded on a blockchain.
- Ownership: When someone buys an NFT from the creator, they get ownership. After all, an NFT is a blockchain-traceable digital certificate of ownership representing the acquisition of a digital asset.
- Verifiable: NFTs can be traced back to their original owner because they are kept on the blockchain. The NFTs can now be verified without the need for third-party verification.
Understanding How NFTs Work?
NFTs are created using a process known as “minting,” creators make a blockchain network representation of their digital assets. Then, it creates a blockchain-based digital certificate for the NFTs—game accessories, land, sports cards, arts, etc. The certificate gives the NFTs a unique identity. The underlying technology and the programming language used by NFTs are the same as cryptocurrencies such as blockchain and smart contracts.
NFTs can be implemented on any blockchain that supports smart contract programs. However, most NFTs are minted on the Ethereum blockchain and are sold using ETH token—the native cryptocurrency on the Ethereum network. NFTs on the Ethereum network are made using ERC-721 and ERC-1155 token standards. These token standards are used to deploy smart contracts on the blockchain.
ERC-721 is a common standard for making non-fungible tokens that create contracts that can be used to create indistinguishable tokens with different properties. A good example is the famous Crypto Kitties, a game that will enable collecting and breeding virtual kittens.
Then, the ERC-1155 standard allows for deploying smart contracts that support both fungible and non-fungible tokens. It was created by Enjin, a project that focuses on blockchain-based gaming, e.g., Decentraland. This standard allows developers to define fungible and non-fungible tokens and decide how many should exist.
Though Ethereum is the most popular network for NFTs, there are other networks such as Solana and Cardano on which NFT projects are run.
Why Do People Want to Own NFTS?
- Earnings. It is a way for artists to earn income while selling their products on various NFT platforms or marketplaces. The creators can set the rules for how they want to sell the NFTs.
- Collectors. It is the dream of most people to know that they own something rare since there are no two copies of an NFT. Think of that sports card NFT that has your favorite athlete on it. Since it is one-of-kind, you have ownership and can display it. The “digital bragging rights” are almost as valuable as the item itself to collectors.
- Investment. Many investors believe that these NFTs, like cryptocurrencies, are the world economy’s future. They see the potential in the project, so they purchase and probably hold with hopes it will be a profitable investment.
- Community. The world of NFTs gives most people a sense of belonging. For instance, the Bored Ape Yacht Club (BAYC) with 10,000 unique ape images and a floor price of 109ETH. If you own one, you will be in the same club with celebrities like Justin Bieber, Paris Hilton, and Jimmy Fallon, who own the NFT. There are also in-person events for NFT holders. Recently, Yuga labs—the creators of BAYC— launched Apecoin cryptocurrency. Holders of these NFTs were allocated 10,094 tokens which they can claim within 3 months of the launch.
The Problems Associated With NFTs
Many NFTs are made using the Ethereum blockchain network, and transactions are made using ETH tokens. However, Ethereum has a harmful impact on the environment as it uses a security mechanism called proof-of-work to confirm each block. Though PoW is a big part of NFTs’ fraud-proof, it allows the use of so many computers, which means large energy use.
With the Ethereum 2.0 upgrade, Ethereum is looking to transition to a proof-of-stake mechanism. It’s been working on the change for years; it was supposed to be implemented in June 2022, but it was pushed back to an unknown date— few months after June. Alternatively, blockchains like Cardano and Solana use the proof-of-stake system and support NFTs.
A GIF or Picture can be sold for millions of dollars because they are a ‘one-of-a-kind token of ownership.’ However, the price of some NFTs is jaw-dropping. The 3 most expensive NFTs are:
- The Merge- Sold in Dec 2021 for $91.8 million.
- The first 5000 days- Sold in March 2021 for $69.3 million.
- Clock- Sold in February 2022 for $52.7 million. As stated above, most of these NFTs run on the Ethereum blockchains and are purchased using ETH tokens. So the cost of minting and transaction fees of these NFTs is usually high. However, other options like the Solana and Cardano network—known for their low transaction fees—are now available for creators and buyers alike.
Where to Purchase NFTs?
NFTs like digital arts (collectibles, GIFs) can be bought on NFT marketplaces like Rarible, SuperRare, and OpenSea. However, as mentioned above, most NFTs are purchased using Ethereum. Some NFTs can also be purchased in the platform’s marketplace in which they can be used, e.g., Decentraland, Axie Infinity, etc. These NFTs can also be purchased with the native token of the platform like Dencentraland—MANA or with a supported token like ETH.
Most of these tokens, like MANA, ETH, AXS, SAND, and APE, are listed on Guarda. Therefore, they can be exchanged, staked, and stored on the crypto wallet exchange platform.
Future of NFTs
The more people are jumping on the NFT train, the more need to launch new NFT projects. Various blockchain networks also support NFT creation giving more room for creators to introduce NFT’s upcoming trends. While some claim NFTs are here to stay, others believe it is simply a bubble waiting to burst. While the metaverse train has not taken off, NFTs will have more significant uses in the metaverse, allowing for unlimited possibilities.
We have seen various NFT projects gain so much attention in the previous year and probably wonder what the next NFTs to blow up will be.
Millions of individuals around the world are currently participating in blockchain-based games. They are the closest to what the future metaverse would look like. Blockchain gaming is set to become a major driving force behind the use and investment in NFTs. In these play-to-earn games like Decentraland, players can buy and own in-game assets in NFTs, which can then be sold at NFT marketplaces for profit.
We predict that with the increase in play-to-earn opportunities (play, create an experience, and earn passive income), more people will begin to spend more time playing online games.
It is advisable to approach NFTs like any other investment. The market is highly speculative and relatively. So do your analysis, understand the risks (including the possibility of losing all of your investment), and proceed with caution if you decide to invest in them.
Disclaimer: This text is written only for information purposes and never constitutes a call to action. All financial transactions carried out by you are made at your own risk. The Guarda editorial staff reminds you of the risk of speculation on all kinds of financial markets.