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What Are NFTs?

In this detailed manual, you will learn what NFTs are, how they work, how to mint and even sell them. They are revolutionizing ownership in an increasingly digital world.

Non-fungible tokens (or NFTs) are unique digital assets that prove the ownership and provenance of an item. In short, they are digital certificates. Think of them as title deeds to a car or a piece of property. A title shows ownership of the vehicle, but it isn’t the car itself. Similarly, an NFT token holds the metadata about an asset. This could be the asset’s ownership properties, description, and provenance – the asset’s history.

NFTs exist on a blockchain, but the assets they represent may or may not exist on the blockchain. This means that NFTs can represent digital and physical assets, from concert tickets and baseball cards to online in-game virtual assets.

Watch the video: What’s an NFT? Explained by Layah Heilpern

A Primer on Fungibility

An essential aspect of NFTs is the property of fungibility. Fungibility is the degree of similarity between two items. A fungible item lacks uniqueness and can be easily replaced by another identical item. Take, for instance, banknotes. A hundred-dollar bill holds the same value as the next hundred-dollar bill, and the two can replace each other.

On the other hand, non-fungible items are provably unique. For instance, two plane tickets may look similar, but they are not the same. You can’t replace one with another as they represent different seats. Similar to event tickets or property titles.

NFTs have only borrowed the same concept of non-fungibility and applied it to the blockchain, which helps lend properties of immutability and permanence to these non-fungible items.

An artist can create (or mint) an NFT token to represent their piece of art and store it on the blockchain. Once they do, this proof of ownership token will exist on the blockchain indefinitely. If stored on a public blockchain such as Ethereum, anyone can see the properties and ownership of the asset these tokens represent.

Best Crypto Exchange for Intermediate Traders and Investors

Invest in cryptocurrencies and 3,000+ other assets including stocks and precious metals.

0% commission on stocks – buy in bulk or just a fraction from as little as $10. Other fees apply. For more information, visit etoro.com/trading/fees.

Copy top-performing traders in real time, automatically.

eToro USA is registered with FINRA for securities trading.

30+ million Users worldwide

Get Started

eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk. Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more.

Unique Properties of NFTs

Non-fungible tokens are created with multiple properties giving them the uniqueness and verifiable authenticity that define their value. The unique properties are:

Scarcity

When minting an NFT token, the creator can create one copy of the token or multiple copies. This is akin to a ticket company creating both high and low-value tickets to a concert. The company can intentionally make limited numbers of the high-value tickets and create several low-value tickets. This way, they control the scarcity of the tickets and, to some level, the desirability of the high-value tickets.

Similarly, a digital artist minting an NFT token can deliberately control the scarcity of their art by controlling the number of tokens minted.

Ownership, authenticity, and provenance

The biggest problem that artists and collectors face is proving the originality and provenance of pieces of art. A painter may not have a way of ensuring that their painting’s story is passed on to subsequent owners of a particular piece they create.

NFTs solve this problem using blockchain technology. During the NFT minting process, the creator can include as many details about the piece as possible. Given that most NFTs are minted on public digital ledgers such as Ethereum, it is now easier to prove a given art’s originality and ownership.

Liquidity

Liquidity is the measure of how easy it is to convert an asset into spendable cash. NFTs, being digital assets, are inherently much easier to trade compared to physical items. However, they do stretch the concept of liquidity a little further.

Given that NFTs are designed with interoperability in mind, they can easily be created on one platform and traded on multiple marketplaces. Having access to numerous global markets also means more potential buyers for an NFT token than traditional assets.

Standardization

Most digital assets such as conventional images, photos, and art may lack this property. However, the good news is that NFTs are created based on preset standards depending on the blockchain hosting the NFT.

For instance, Ethereum, currently the most popular smart contract platform allowing the minting of NFT tokens, supports several NFT creation standards such as ERC721 and ERC1155. The idea of standardizing token creation also helps with interoperability which we discussed above. By adhering to popular standards, most NFTs can be supported across multiple platforms, including digital wallets and virtual showrooms.

NFTs are a new way to prove ownership of an asset digitally, and therefore, the idea is still developing and improving as more applications are discovered. In the next section, we will highlight some of the popular applications of NFTs so far.

Popular Applications of NFTs

Non-fungible tokens run on top of smart contracts, and these are supported on specialized blockchains. The most popular smart contract blockchain is Ethereum. Consequently, it has become the more popular platform on which to issue and mint NFTs. Its core developers have integrated several NFT minting standards, including ERC 721, 1155, 994, 809, 1201, and 998. The various standards allow for the creation of diverse tokens.

Other less popular smart contract platforms that support NFT creation are EOS, Tron, NEO, and Binance Smart Chain.

It’s worth remembering that NFTs are separate from the digital assets that they represent. They are valuable because they store information about the digital asset in an authentic and easily provable way. Similar to how a car or property title is not the property itself. The metadata that NFTs hold include the description of the asset, the price, the creation and ownership, implementation features such as royalties, and often links to the location of the asset they represent.

Once an NFT has been minted (created), the owner can proceed to sell it on a marketplace such as OpenSea, Rarible, Nifty Gateway, among others. It can also be exchanged peer-to-peer without using a marketplace.

The Copy and Paste Problem

A common criticism of non-fungible tokens is that they do not solve the digital duplication problem. An image on the internet can be copied and downloaded unlimited times by anyone, and NFTs cannot stop or help stop this.

It’s worth noting that NFTs are not designed to curtail digital duplication and theft. Instead, they are an ownership attribution solution. Even though they cannot stop replication, they can help identify the original copy and its owner.

In any case, NFT proponents argue that the more a digital file is duplicated and downloaded, the more popular and valuable the original copy becomes.

Notable Industries Using NFTs

As mentioned before, the idea of NFTs is still a novel concept, and therefore its applications are also expanding. But, NFTs have seen tremendous success in a few notable industries. Here are some of them:

Collectibles

Collectibles are rare and precious items. In the physical world, collectibles include classic cars, artifacts, paintings, and generally museum-worthy items. When it comes to the digital space, collectibles can range from conventional items such as images, pictures, and music files to more contemporary items such as 3D models, online gaming merchandise, virtual properties, and domain names.

With NFTs, you can virtually tokenize anything of value, whether or not it is tangible. The collectibles use-case has become the most popular application of NFTs so far, allowing digital artists to tokenize and quickly sell their artwork online.

Online Gaming

Gaming is a multi-billion dollar industry thanks to vibrant in-game economies and a growing interest in the sector from outsiders. NFTs are exponentially becoming assets of interest, especially to game developers looking to supercharge the within-game economies.

Domain Names

Domain names have value, whether it be in the conventional digital world or the blockchain. Domain names help disguise IP addresses that are difficult to remember. However, this use case has become even more valuable in the blockchain world.

Decentralized Finance (DeFi)

DeFi is a new way to interact with financial applications without using centralized parties such as banks, funds, and conventional financial players. DeFi takes advantage of the smart contracts hosted on blockchains such as Ethereum to facilitate financial transactions for financial instruments such as loans, savings. Investments and insurance, among others.

Using securities to acquire financing is a common practice in traditional finance, and this has been adopted for the blockchain world. However, the items used for collateral may differ. Initially, these were other crypto assets. For instance, someone would use their collection of ETH coins as security for a DAI loan.

How to Mint Your First NFT

Creating a non-fungible token may seem complicated, especially to a beginner, but it is not. In fact, the process is as simple as uploading a video to YouTube. In some NFT minting platforms, the process is much simpler and more intuitive than others.

This section will show you how to mint your first NFT using the popular Rarible marketplace. The exact steps to take may be different from platform to platform, but the process is similar. So here are the six simple steps on how to do it:

1. Create and load your Ethereum wallet;
2. Connect the wallet to Rarible;
3. Prepare your art (or item you wish to tokenize on the blockchain);
4. Add description details of the item;
5. Pay fees and upload;
6. List it in Marketplace.

Step 1 – Create Your Wallet

The digital wallet you create will depend on which blockchain you wish to list your NFT. In our example, we will use the popular Ethereum network. There are several wallets that can help you store your NFT safely, and we have explained how to choose a wallet and some of the best options in the market here. For this purpose, we recommend going with a web wallet that integrates with your browser through an extension which makes it easier to connect to an NFT marketplace.

Popular web wallets include MetaMask, MyEtherWallet (MEW), among others.

Once you pick your wallet of choice, create an account (address) and secure your private keys.

Before we continue, we need to have some Ether coins in the wallet. These will be used to pay for the minting fees. There’s no standard figure for minting an NFT token. The total cost of minting will depend on the network gas fees when you submit your transaction.

Step 2 – Connect the Wallet to Rarible

Now that you have your wallet all set up and ready to go, head on over to Rarible (or any other wallet-supported NFTs marketplace) and connect your wallet. Rarible automatically creates an account once you connect your wallet, and every time you visit the website, you will need to connect to your Ether wallet. Your Rarible account is linked to your wallet.

Once you scan the code, Rarible will automatically create an account associated with the wallet address you use. Do not lose the wallet’s private keys, as this means that you will also lose access to your Rarible account.

Step 3 – Prepare Your Art

Before we proceed, you need to have the item you want to tokenize ready to be uploaded. This can be almost any digital file.

Step 4 – Add Description Details to the NFT Token

Head back to Rarible and click on the ‘Create Collectible’ button found in the top right corner after logging in with your wallet details.

You’ll notice a section for royalties on the above image. That is the option where you include a percentage of royalties due to you as the creator of the NFT whenever it is resold in the future.

Step 5 – Pay Fees and Upload

Once you click on the ‘Create Item’ button on the description dialog box, Rarible will send a fund request to your wallet.

Step 6 – List Your NFT for Sale on the Marketplace

In the image above, you can see some of the categories available for listing your token (art, photography, games). Choose a category that best fits your art.

Finally, promotion is key to making the sale. Actively push your art on social media and cultivate a community of fans to which you will be promoting and selling your work.

Watch the video: Video: How to turn your art into an NFT – Step by Step Tutorial

Popular NFT Platforms

We have focused on Rarible above, but there are many alternatives to consider when choosing a solid platform to list your NFT. Here’s a list of some of the most popular NFT platforms:

• Rarible;
• OpenSea;
• SuperRare;
• Binance NFT Marketplace;
• Zora;
• Nifty Gateway;
• Foundation;
• Terra Virtua;
• Axie Marketplace;
• Async Art;
• NFT ShowRoom;
• Makersplace;

Watch the video: Video: Top Crypto Art Platforms – Reviewed by an Artist

There you go. You made it to the end of the NFT manual. We hope you now understand what NFTs are and why they are valuable assets. In the text, we discussed some of the properties of NFT tokens, how they work, how they are different from other blockchain tokens, and their use cases so far. Hopefully, you are now able to mint your own NFT token and sell it on the marketplace. Good luck!

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.