You’ve probably heard all kinds of interesting — and maybe controversial — talks about NFTs. People have called them everything from disruptive innovation to short-lived fads.
So what exactly are these Tokens? How are artists making millions from it, and how can you get in the action? As it turns out, the answer to these questions is more straightforward than you think. In fact, if you’re familiar with Bitcoin or any blockchain-based tokens, you may already know more than you thought.
What exactly are NFTs?
NFT stands for Non-Fungible Token. If you’re like us, you may need a quick peek at the dictionary to realize that non-fungible refers to something that’s one-of-a-kind and not easily replicated.
So what makes them non-fungible? Well, NFTs are represented by a unique string of characters that may look something like 0c659f023of23e23. When a new NFT is created, copies of the transaction are stored on all the computers on the Ethereum network (the way blockchain works). This makes it virtually impossible to fake since the proof is literally everywhere.
NFTs are a digital representation of value for unique and sometimes physical valuables, like art or a song. Anything that has value can have an NFT. Note, however, that fiat currency like the $100 bill cannot have an NFT since there are millions of it in circulation.
These NFTs can be used to represent some of the most outlandish things, from memes to sports collectibles. In fact, the NBA launched Top Shot in 2019, which is a marketplace where you can buy NBA highlight reels via NFTs. NFT is favored by artists who use it to represent creative pieces like paintings, music, and even GIFs.
Should you invest in NFTs?
NFTs are a store of value, like any other cryptocurrency. They are only worth as much as someone is willing to pay for them. But they also have an edge above traditional currencies like Bitcoin.
Non-Fungible Tokens are backed by an item with real-world value. In this way, they are similar to other value stores like Gold or the dollar. You can buy and store them digitally, but they also have tangible forms. This edge makes investing in NFTs slightly different.
For one thing, there’s already a large market for the items that NFT represents. An estimate is that the total value for all the artwork ever produced plus collectibles like comics and film props may cross the $1 trillion mark. That’s much higher than Bitcoin’s highest market cap of $614 billion.
Ian Rogers, who’s spent most of his career working with digital music, says, ‘NFTs give artists and fans a way to connect digitally.’ They give you a sense of ownership, and as long as the art retains value, the NFT will too.
However, the fact that NFTs have a lot of potential value shouldn’t encourage you to buy everyone you see. Since you don’t buy every piece of art you come across, it makes little sense to buy NFTs on a whim. A savvier approach is to only invest in pieces that you believe will rise in value.
NFTs are a different kind of cryptocurrency
It’s also important to remember that investing in NFTs isn’t just a question of how much value exists. It’s also a question of your investment’s security. Cryptocurrencies are notorious for volatility and price fluctuations, with some losing more than half their value in a 24-hour period. NFTs are subject to the same fluctuations, being digital currencies.
Additionally, there’s the risk of theft. A savvy hacker a break-in and steal your tokens since they are stored on digital wallets. The laws of cryptocurrency investment still apply to NFTs.
How can I create an NFT?
Anyone can create an NFT. All you need is an item unique item that you own, a digital copy of the said item, and a Market place.
Most marketplaces accept image, text, music formats. You can use several applications to create your NFT, from photoshop to Kapwing Studio Editor. Once you have your digital file, you can start selling. If yours is a physical item, you’ll need to create a digital copy and indicate its physical properties.
Selling your NFTs
First, you’ll need to create your wallet. Several platforms allow you to have an Etereum wallet, from Coinbase to Rainbow. Once you have an Ethereum wallet, buy a small amount. The price of Ethereum fluctuates. So it may be easier to select a dollar amount to buy. Note that you may also need to purchase extra Eth to cover the transaction fees. More on this later.
Finally, you’ll need to connect your wallet to a marketplace. As NFTs gain popularity, new marketplaces are popping up and offering all kinds of incentives to join. However, it’s wise to stick with the large and established ones like Zora, Rarible and SuperRare.
Rarible is great for creators and collectors alike. It allows you to put up NFTs for sale immediately you sign up, offering more flexibility than the other platforms. We recommend you begin with Rarible.
Zora’s philosophy is to give creators as much control over their work as possible. They’ve already collaborated with famous music artists like Toro y Moi, and Yaeji.
SuperRare is an exclusive space for digital artists. Membership is by invitation only, and NFTs sell for thousands of dollars on the platform. If you’re a digital artist looking for an audience that appreciates your art, SuperRare is the place to be.
Once you pick a marketplace, list your art and wait for bids. You may have to check your listing regularly because many platforms don’t notify artists of pending bids.
Why are NFTs so expensive to create?
There’s no fixed price for how much NFT tokens cost to create. However, it’s certainly more expensive than it needs to be, with transaction fees costing as much as $100.
These transaction fees are called gas fees, and they compensate for the effort and energy that goes into computing and minting your one-of-a-kind digital currency. Ehterum owners have long complained about the ridiculous gas fees, which is why cheaper substitutes like Polkadot, NEAR, and Cosmos are gaining popularity.
Ironically, NFTs are partially responsible for the high gas fees. The more people use Ethereum, the more data needs to be processed at every given time. Each block has tons of data, and Ethereum doesn’t have an effective way to break up each individual block.
The increased popularity of NFTs drives even more users to the network, bloating the blockchain protocol even more.
The good news is that the Mint Fund and other sources have offered to cover NFT creation fees.
What’s the most valuable NFT?
The most valuable NFL was Beeple’s JPG image that sold for over $69 million. The JPG was a collage of images that he made every day for the past 13 years. The digital artist describes it as a “catalog of his life and events in the world over time.”
We’ve also seen some ridiculous instances where NFTs sold for insane prices. Jack Dorsey, the CEO of Twitter, sold his first-ever tweet from 2006. All it said was, “just setting up my twttr.” Jack auctioned the tweet in the form of an NFT, and the highest bid was for about 2.5 million dollars!
If you think that’s ridiculous, how about the pixelated image that sold for $7 million? Titled ‘CryptoPunk #3100, the file is only one of 10,000, which means you can still invest in any one of the remaining 9,999 for a huge payoff.
Our favorite ridiculous NFT sale was for nine plots of “virtual land” that sold for $1.5 million. We’re not kidding; someone paid a million and a half for an estate on the gaming platform Axie Infinity. The nine plots are in an exclusive area of the game with unique esthetics and the buyer intends to use the space for an upcoming game mode that lets players decorate their own properties.
Is NFT a bubble?
Most experts will tell you that a 2006 tweet selling for $2.5 million is a huge red flag. Beeple, the now millionaire artist, also stated that NFTs are a bubble in an interview.
Bubbles are assets within an industry that have unreasonably high prices due to their buyers’ and irrational activity. Bubbles are also speculative, which means that people buy the assets in hopes that their value will rise even further, regardless of their intrinsic worth.
One of the staple examples of a bubble was the tulip mania of 1637. People bought the bulbs for as much as $150,000 even though their value was nowhere near that amount.
If NFTs are actually a bubble, it may not be a bad thing. Many disruptive movements start as bubbles, like the internet and cryptocurrency. However, both these innovations are here to say, and they are stronger than ever before because they have intrinsic value. And if there’s one thing we know about art, it’s that it will always be valuable to someone.