Non-Fungible Tokens (NFTs): Everything you need to know

Introduction

NFT stands for a Non-Fungible Token. Before we get to the token, let us first understand what are fungible assets and non-fungible assets?

Fungible asset is something that can be exchanged for another asset for the same value. This simply means that there are assets in the world which can replace a fungible asset, without any change in value. For example, a $100 note (asset) can be exchanged with Bitcoin having value worth $100. Or the $100 note can be exchanged with another $100 note or with two $50 notes.

Examples of fungible assets: cryptocurrencies (like Bitcoin, Ether), currency.

Whereas non-fungible assets are unique with unique properties. They cannot be replaced by any other asset in the world. For example, any car is unique. It has its unique properties.  It is only one in the whole world. There can be cars of the same model, but the one car is not same as any other car of even its own model. Similarly, any collectible like a painting. Like the painting of Monalisa. The original painting is only one in the entire world. You can copy the picture, but it will not be the original painting.

Examples of no-fungible tokens: house, car, digital art, painting, a recorded song, etc.

Pro-tip: Think of fungible and non-fungible assets like this- If I replace a fungible asset with another asset you will have no issue accepting it. For instance, let’s say you have a $100. If I give you two $50, or ten $10s or one $100 notes you will have no issue accepting it. Because you know the value remains the same.

Whereas, let’s say you have a car. If I tell you to take another car of the same model, you will think twice (not in the case of a higher model, of course). Because your car is unique and is only one in this world.

What is an NFT?

A token (in the Ethereum blockchain) which represents and proves the ownership of any non-fungible asset, or a unique asset is known as a Non-Fungible Token (NFT). These assets can be in the real or the digital world.

Example: NFT can represent and prove ownership of a real-world car or even real estate. The person (represented by a public key) who has the NFT assigned to him will have the ownership of the car or the real estate item.

NFT can also prove ownership of a digital art.

Some points to be noted:

  • NFTs are maintained in the Ethereum Blockchain.
  • Once recorded, in the Blockchain, an NFT cannot be changed (practically impossible) This is because the NFTs are secured by using cryptographic Hash methods.
  • Each token (NFT) has an owner which is easily verifiable.
  • NFTs can be bought and sold on any Ethereum based NFT marketplaces.
  • NFTs are tokenization of assets (unique or non-fungible). The person who has the NFT assigned to him/her owns the asset. This record is practically impossible to change. Hence, NFTs are one of the most secure ways of record management of ownerships of unique assets. It might happen soon that you will be proving ownership of your house by an NFT.

Use Cases

The various use cases of NFTs are given below.

  1. Digital Content: Getting better compensation of value for the Digital Content Creators
  2. Gaming: Creating compensation opportunities for gamers and better compensation for game developers
  3. Domain names: Creating easy to remember domain names, which have values attached to them also
  4. Physical items: Tokenization of physical assets to prove ownership, which is verifiable by all and immutable
  5. Investments and collaterals for loans

Digital Content

Digital Content can be anything from a text file, audio file, image, icon, video file. In the conventional internet system which we see normally, the digital content is owned by the platform which hosts it. For instance, your digital content on Facebook is owned by Facebook itself. Facebook uses advertisements to earn from these digital contents. You are compensated with a fraction of the total earnings.

Whereas in the NFT ecosystem you own your digital content which is represented by a unique token (NFT) present in the blockchain. It is easily verifiable and seen to anyone who a part of the blockchain network. When you sell your content (in the NFT marketplace) you are directly compensated. You may get a royalty if someone who bought your digital content sells it further. Hence NFTS are a way for Digital Creators to be better compensated.

Some of the biggest deals

Last month, digital artist Mike Winkelmann, better known as Beeple, made $70 million by selling his digital artwork.

Read here and here to know how artists Grimes and 3LAU also earnt millions selling their digital art pieces.

Gaming

NFTs are helping boost the gaming industry by tokenizing the in-items that are used in games.

  • Gamers can buy the NFTs of the in-game items (powers, weapons, virtual land, etc. which are used in games). When they no longer need these items gamers can resell them in NFT marketplaces to gain profits.
  • Game developers can also issue the NFTs of the in-game items (powers, weapons, virtual lands, etc.) and earn profits by selling them. They can also earn royalties every time the item is resold.
  • Some of the Ethereum games where you can play, buy and sell NFTs for in-game items and create virtual lands are Cryptovoxels, Decentraland, Axie Infinity, Gods Unchained, Dark Forest, etc.
  • You can simply connect via an Ethereum wallet, play, buy and sell in-game items in the form of NFTs. So now play and earn both at the same time. Whether it’s virtual land or trading cards, your items are tradeable on collectibles’ markets. Your in-game items have real-world value.

Physical Items

Until now we have seen the tokenization or creating NFTs of digital items like digital art piece, music, text, gif, in-game items, etc. Now we will witness and understand the tokenization of physical assets like real estate, one of a kind fashion item, house, cars, etc.

  • The tokenization of physical assets is still at its nascent stage. It is not as mature an industry as the tokenization of digital counterparts.
  • NFTs are deeds for assets you own. Hence think tanks are working on the idea of tokenizing houses, cars, and other physical assets to prove ownership. This is highly recommended as these deeds (NFTs) which will be maintained in blockchains, will be easily verifiable and cannot be changed.
  • These NFTs representing real world assets can be used as collaterals for decentralized loans.

Easy to remember Ethereum Addresses

Ethereum Name Services (ENS) use NFTs to convert your Ethereum address into an easy to remember name.

Example, the address 0X1235464887789 can be converted to myethereumwallet.eth

This is like website domain name which makes IP addresses more memorable. Like domain names, ENS names have value which is determined by length and relevance.

Also, you do not need a domain registry to transfer ownership. You can simply trade your ENS names on an NFT marketplace.

Your ENS name can:

  • Receive cryptocurrency and other NFTs.
  • Point to a decentralized website, like ethereum.eth
  • Store any arbitrary information, including profile information like email addresses and Twitter handles.

Can you create or mint your own NFT?

Yes. You can create or mint your own NFT and earn by selling it.

Prerequisites:

  1. Connect to a blockchain via a crypto wallet. The most popular blockchain hosting NFTs is Ethereum. However, blockchain like Binance Smart Chain, Tron, Polkadot are also becoming increasingly popular.
  2. Share your digital piece (music, text, gif, video, etc.) in an NFT marketplace supported by the blockchain you are connected to. Example, if you are connected to the Ethereum blockchain you can share your digital piece in OpenSea, Rarible and Mintable.

Let me explain further.

  1. Connect to a blockchain
  • Choose and connect to the blockchain of your choice. Ethereum is the most popular one. But other blockchains which will also solve the purpose and are becoming increasingly popular are:
    • Binance Smart Chain
    • Flow by Dapper Labs
    • Tron
    • EOS
    • Polkadot
    • Tezos
    • Cosmos
    • WAX
  • You can connect to a blockchain via a wallet supported by the blockchain. Some of the best Ethereum wallets are
    • Trezor (Hardware Wallet)
    • MetaMask (Desktop and Mobile Wallet)
    • Exodus (Desktop and Mobile Wallet)
    • Atomic Wallet (Desktop and Mobile)
    • Guarda (Desktop + Mobile)
    • Jaxx (Mobile Wallet)
    • KeepKey (Hardware wallet)

Follow the link if you want to connect to the Ethereum Blockchain. You can see the below steps. Follow steps 1 and 2 in order to get an Ethereum wallet and connect to the Ethereum blockchain.

2. Share your digital piece in an NFT Marketplace.

As we have known by now, an NFT Marketplace is a platform where you can buy and sell NFTs. You will be able to sell your digital piece in NFT Marketplace supported by the blockchain you chose in the first step. The NFT Marketplaces that support Ethereum blockchain are given here. A snap of the page is given below. Out of these OpenSea, Rarible and Mintable are the most popular ones.

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For Ethereum you will need to put in $50-$100 of Ether in your Ethereum wallet.

Let me show you how to create and sell your NFT in OpenSea.

How to create and sell NFTs?

We will understand this by taking the example of OpenSea. OpenSea is used for buying and selling NFTs of digital collectibles. Let us go through the steps to create and sell your NFT in OpenSea.

Step 1: Visit OpenSea

Step 2: Click on “Create” at the right-hand top corner of the web page

Step 3: It will take you to the below page which will ask for an Ethereum wallet. If you still do not have one, you can click on “Get MetaMask” to register and get a MetaMask wallet. Else if you already have one you can click on “USE A DIFFERENT WALLET”.

Step 4: Click on “USE A DIFFERENT WALLET” and enter your credentials to sign into your account. This will connect your wallet with the OpenSea marketplace. You might be prompted to digitally sign using your wallet to further authenticate that the wallet is owned by you.

Step5: Now hover your mouse on the “Create” button in the right-hand top corner of the web page. Click on “My Collections”.

Step 6: Click on the blue “Create” button.

Step 7: Now upload your digital artwork, with a name and a description.

Step 8: Now its simply adding a banner image in your page and the image should look something like below.

How to sell your NFTs?

Now that you have created your NFT, you can easily sell it.

  • Simply select the NFT from your collections and press sell.
  • This takes you to a pricing page where you can either run an auction or sell at a fixed price.
  • You will be able to sell your NFTs in Ether or an ERC-20 token. This depends on the NFT Marketplace you are working upon.

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