What You Need to Know About Non-Fungible Tokens
Non-fungible tokens are the hottest trend in 2022 for artists and investors alike. Called NFTs, they are digital assets that are provable to be unique.
NFTs are useful for representing tangible and intangible things. That’s because they are cryptographically unique, linked to digital content that provides proof of ownership.
In some instances, they can even be linked to physical content.
NFTs have numerous use cases, ranging from music to digital collectibles. Artwork is a popular choice, as are items needed for video games.
This guide explores what NFTs are, how they work for you, and the different ways they’re being used right now.
The best way to describe non-fungible tokens is as a digital asset containing identifiable information recorded in smart contracts.
What Are NFTs? That’s the information that makes each NFT unique. Each could be potentially replaced or swapped for other tokens without this data.
With this data, no two NFTs are exactly the same. It is a one-of-a-kind asset that proves ownership when in your possession. It’s not like exchanging fiat currency where one item has the same value as another.
If you have one U.S. quarter, you know it has a spending value of $0.25. Exchanging it for another one creates the same value.
What if you have more information about the quarter? For example, all U.S. quarters minted during or before 1964 are made of 90% pure silver. That means the material in the coin has more value than as a spending resource.
The silver alone in those older quarters makes its total worth about 15 times its spending value.
Some quarters before 1964 have more rarity than others. There might be errors stamped onto the coin or unique features that aren’t found on other coins. The 1932-S Washington quarter holds a value of more than $5,500 in 2022.
When more information is available about a particular item, its value can increase exponentially. If someone doesn’t know anything about quarters, they might see the 1932-S Washington coin as something worth $0.25.
NFTs provide this information for digital (and sometimes physical) assets. That way, there is no question of ownership, rarity, or other factors contributing to it. Anyone can verify the data.
Are NFTs Like Cryptocurrencies?
Cryptocurrencies are fungible tokens. When you have an NFT in your possession, you’ve got a non-fungible token.
“Fungible” is defined as something of such a nature that one part or quantity of it can be replaced by another equal part or portion. If you owe someone a debt, you could pay it off with Bitcoin by delivering the specific amount.
When you pay your rent or mortgage each month, you transfer fungible fiat currency (money) to the person or bank who holds the debt. In return for that payment, you continue living where you currently are.
You can send or receive smaller amounts of one dollar, one Bitcoin, or other currencies. Typically, the NFT meaning is that it cannot be divisible. You can’t rip a movie ticket in half so that you can see a show with a friend. You’d ruin the ticket so that no one could enter the theater.
Some investors have experimented with fractionalized NFTs, but that option could be seen as a financial security, subject to additional rules and procedures.
If you send an NFT to a friend and receive one in return, you’re receiving an utterly distinct asset than the one you provided. Depending on the community you join, collecting different non-fungible tokens is the point.
The trading volume for NFTs in Q3 2021 topped $10 billion for the first time. Some investors might have thought non-fungible tokens would be a passing fad. Still, the marketplace has demonstrated a desire to have more options, build communities, and create crypto opportunities for the average person.
How Are NFTs Used Today?
Non-fungible tokens are used for digital assets that require differentiation from each other. These different attributes help to prove the scarcity and value of each NFT.
The information found in these NFTs can represent everything from an ownership license to a virtual land parcel.
The easiest way to think of these NFTs for sale is to compare them to baseball cards. When you open a pack, you don’t know what players you’ll receive. Each one appears on a unique card with specific rarity and value assigned to it.
If you have a pack of “common” baseball cards, you might not see a monetary return on your investment in that pack. That’s why collectors purchase multiple packs. They’re looking for scarce items with limited numbers.
With NFTs, each investment has value because they are all unique. Although different gradients can exist for some collections (legendary, epic, ultra-rare), the value of these one-of-a-kind items comes from their uniqueness.
That’s why NFT art is taking off rapidly. It provides a digital medium for artists to express themselves while offering others the chance to build collections that look for ways to invest economically in other ways.
On December 2, 2021, The Merge by Pak became the most expensive NFT ever sold. Nearly 30,000 collectors came together to generate $91.8 million.
I Don’t Have Millions of Dollars to Spend…
Although some investors have put down a massive chunk of cash or equivalent to purchase non-fungible tokens, the average person can’t get into this space at that level. The idea of having more than a million dollars means you’ve funded your retirement.
That’s why NFT marketplaces have appeared. This resource allows artists to present collections from their own imagination for collectors who want to take a different approach.
It’s like visiting an art gallery to see a collection with different paintings or photographs, but each has unique qualities. You wouldn’t purchase all the art, but you might buy one. In return, the artist might send you email newsletters, work updates, and other information to let you feel like you are part of a unique community.
NFTs take that concept to another level.
Marketplaces like OpenSea let you find non-fungible tokens where actual community benefits occur. You might find an ape NFT, a boat NFT, or other NFT art that seems intriguing. When you get more information about the item, you’ll feel connected to the artist and others who love similar items.
OpenSea NFT options include three-dimensional designs, 2D options, and even pixels collections.
How to Buy NFT Art
Anyone can purchase non-fungible tokens. Several locations, including OpenSea, provide access to this digital resource.
The first step is to head to your preferred marketplace. You’ll be asked to connect your digital wallet to the platform to ensure transactions are successful. During this process, you might be asked to accept the site's terms of service before you can activate your account or profile.
OpenSea NFTs can be purchased with several crypto wallet providers. You’ll want to review the current list to ensure you can complete this initial step successfully.
Once your crypto wallet is connected and you have a profile or account activated, it’s time to search for NFTs you’d like to purchase.
After finding one, you’ll follow the purchasing procedures of your preferred NFT marketplace. Many will ask you to double-check the details of your order to ensure you’re satisfied. If you are, you can proceed to payment. If not, you have the chance to back out at that time.
The checkout process occurs through your wallet. You’ll be asked to confirm the amount in your preferred cryptocurrency. If you haven’t funded your wallet yet, you’ll need to do so to proceed.
An easy way to fund your wallet if you are new to NFTs is to use MoonPay. This third-party service provider allows you to purchase cryptocurrencies using bank transfers or other traditional payment methods, including a debit card. Once you’ve converted the money to crypto, you can complete your transaction.
Confirming the transaction ensures the NFT gets deposited to your address and becomes yours to keep.
One way to keep your costs down when purchasing NFTs is to avoid buying them at peak times. High gas fees can develop during those moments to the point where you’ll pay more to conduct the transaction than for the contract interaction.
The potential for NFTs as an investment is massive. One of the first options released came from CryptoPunks in 2017. They are 24x24 pixel art images in a profile picture series. A total of 10,000 were created with randomized attributes, and they were released for free. Today, you won’t find one cheaper than $100,000, and the rarer ones easily sell for seven figures.
What Are the Benefits of Buying NFTs?
NFTs allow creators to earn an income directly from their work. Some smart contracts even allow a commission to be paid each time the token changes hands.
Each NFT is unique. Only one can exist, and they are nearly impossible to counterfeit. If you’re purchasing one from a seller or artist that only makes a handful available, you’re guaranteed a certain level of scarcity.
All NFTs are collectibles in their own way. Although there are no wealth-building guarantees, many of them increase in value as time passes.
NFTs are a resalable asset. Although profits aren’t guaranteed, many early investors are already seeing tens of thousands of dollars in returns.
Token metadata cannot be altered by anyone with NFTs. It cannot be misplaced, removed, or erased from the blockchain. The data is meant to last forever, which is why there is more value and collectability with this asset.
Artists retain the full copyright of their NFTs. In other licensing agreements, it’s usually required to sign these over to make money as a creator.
Blockchains have a decentralized format, allowing the information to be stored in different nodes globally. An identical database record is available at each location, ensuring the info isn’t lost.
What to Expect with the Future of NFTs?
For right now, most of the attention in the NFT world is focused on gaming, crypto collectibles, and artwork. Some brands are licensing content in this area, including football, baseball, and basketball.
You can also find characters and scenes from popular games and shows becoming NFTs. Everything from the Smurfs to Doctor Who has been rendered in this way. Even Twitter launched a collection in 2021.
When looking at this technology’s potential for future applications, it could be used in everything from in-game skins to porting items from one player to another. Possible applications include ticketing, copyrights, intellectual property rights, movies, music, and other trading.
Metaverse platforms already use NFTs to represent in-game items and virtual land plots. Some non-fungible token communities are using the funds raised from sales of individual items to fund investments in these areas. In return, any profits generated get returned to the community for additional assets.
As the world moves toward a single metaverse, it will likely use the interoperability of NFTs to facilitate the transfer of different items and resources between individuals, companies, and platforms. Those who get involved early have the most opportunities to find their own corner of success in this area.
Additional options for NFTs could include qualification certification. Instead of a university awarding a paper degree that you hang on a wall, you’d receive what you earned in your digital wallet with authentic verification built into the smart contract. You wouldn’t need to get your transcripts ever again, nor would there be hours of hold with a customer service department to verify licensing or warranty assets.
The NFT’s smart contract feature provides the owner or recipient identity. Storing it in a digital wallet ensures ease of representation and access. One day, that spot might contain your driver’s license, property deed, and every asset you own.
Until then, one of the best ways to explore all the benefits of NFTs is to look for digital art that speaks to you.
Whether you grab a fun ape NFT on OpenSea or look at other NFTs for sale, the goal should be to get out there to start collecting. With new options available daily, there’s always something new to find!
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