Exploring the world of NFTs could feel like navigating through a mysterious maze, with experts from different domains holding diverse perceptions about the true nature and potential of blockchain technology.
It is important for everyone to grasp the essence of NFTs due to their burgeoning popularity. Grasping the concept is like unlocking a treasure chest that reveals the essence and extraordinary value of NFTs.
This section is a comprehensive exploration of NFTs – examining their origin, remarkable value, and the process of buying or creating them. Worry not, we'll bypass any unnecessary technical jargon and only introduce industry terms when absolutely essential.
So, let’s embark on this fascinating journey!
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Video Explainer: Unraveling Non-Fungible Tokens (NFTs)
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What is an NFT? (Explained with Animations)
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Unraveling the Mystery of NFTs
An “NFT” stands for a “unique token”, with each item being one of a kind and irreplaceable.
Consider your car (if you have one, of course) – although there may be similar cars, each has its own distinctive mileage, tires, engine, quirky interior gadgets, and individual imperfections. These unique traits make your car INIMITABLE, making it an IRREPLACEABLE possession.
To illustrate, think of the fungible $1 bill – its value is interchangeable with another $1 bill, unlike your priceless car. This depicts the concept of “fungibility”.
Going further, a token is essentially a digital certificate.
Tokens serve as virtual representatives of different assets. Since you can't physically transfer your car onto the internet, a digital representation is required, and that's where tokens come into play.
Imagine taking a picture of your car and creating a digital token – this is essentially the NFT of your car! It's non-fungible because it's unique, and it's a token as it represents the physical item in a digital form!
Most commonly, people associate NFTs with trading cards, digital artwork, or in-game items and characters. It's important to note that NFTs are not the actual assets, but rather, digital representations of those assets on the blockchain.
Blockchains, metaphorically speaking, are virtualized vaults storing valuable information. When a unique token (an NFT) is created on a blockchain, it's tagged with a distinct code for future identification. Since blockchains are primarily public, the original creator and authenticity of the NFT can be established by all participants.
Admittedly, this may sound overwhelming. But fear not, clarity awaits.
Allow me to elucidate with an example involving the former CEO of Twitter, Jack Dorsey. He transformed his first-ever tweet into an NFT and auctioned it for over $2.9 million.
While the tweet remains publicly available, the NFT version unanimously belongs to the auction winner – a fact easily verified through the blockchain.
On the blockchain, NFTs are abstract data profiles. This textual data references an image, a GIF, or any other asset that can be viewed on the trading platforms where the NFT is located. Hence, when you acquire an NFT, you are essentially attaining this referential data.
This is a crucial point to understand – ownership of an NFT signifies owning purely the data, not the physical asset it references, may it be an image, a GIF, or any virtual entity. Instead, you own the informational link to the aforementioned asset.
Digital assets are encoded and stored on the blockchain, referring to the location of the actual asset, such as a picture or GIF, which is hosted on a server.
Conceptually, the platform hosting the marketplace could potentially switch out the image on their servers, while your data would still point to the original asset on the blockchain. Even if the image is deleted from the server, your data on the blockchain remains immutable.
Initially, the notion of not owning the physical image, but rather the data on the blockchain, can be disconcerting. However, upon understanding this distinction, the appeal of NFTs becomes clearer.
So, what drives people to purchase NFTs, and what accounts for the lofty prices they command? Indeed, the earlier-mentioned sale of Jack Dorsey’s tweet serves as a good reference point, as do image collections from popular NFT creators like CryptoPunks and Bored Ape.
There are several factors contributing to the desirability and value of NFTs.
First and foremost, NFTs represent a genuine innovation, and they are widely viewed as a lucrative investment opportunity. Serving as a pioneering phenomenon, NFTs continue to elicit intrigue and uncertainty. Will they purely become a future art form? Could the gaming industry reap the most benefits from them? Might they have utility outside of these realms?
These questions highlight the novelty of NFTs, and people are naturally drawn to innovations that hold potential for profitable investment.
Another significant factor driving their popularity is the anticipated future value of NFTs. Some compare the current NFT market to the tech stock boom of the late 90s and early 2000s. In those early days of the internet, it was impossible to predict the future worth of stocks in companies like Amazon or Google.
Now, however, certain NFTs are being sold for enormous sums. For instance, Beeple's “EVERYDAY: THE FIRST 5000 DAYS” fetched over $69.3 million, and his piece “One” sold for $28.9 million. Additionally, various CryptoPunks have been sold for amounts ranging from nearly $8 million to over $10 million.
This parallels the fact that NFTs are still a very nascent concept, leading to a highly volatile market. It's akin to a carnival – enticing and unpredictable, with unexpected twists and turns, much like the fluctuating prices of many NFTs.
Subsequently, the pricing of certain NFTs reaching remarkable levels can be attributed to the straightforward economics of supply and demand.
Illustratively, imagine owning a highly rare painting. If auctioned on eBay without a minimum bid, it might attract some modest offers. However, due to its scarcity, it would likely garner substantial attention from art enthusiasts, resulting in robust demand for an exceedingly limited item – ultimately driving up its value.
A similar scenario holds true for many NFTs. If a token is part of an exclusive collection with only a finite number in existence, it becomes highly coveted, leading to an increase in value.
Social influence and prominence also exert significant influence. For instance, the NFT of Jack Dorsey’s first tweet, given his stature as a business figure, naturally attracted substantial attention and interest.
Looking beyond mere collectible purposes, the utility factor also plays a role in fueling the hype around NFTs.
Consider a scenario where your preferred clothing store issues a set of limited NFTs. These not only serve as captivating images or GIFs to possess, but also confer lifetime access to exclusive discounts at the store for the holders. This is a prime example of the utility aspect of an NFT, creating concrete, real-world value for a non-fungible token.
Adding the element of limited availability and competitive bidding to the equation, this dynamic often results in certain tokens acquiring substantial value.
In summary, NFTs command value and popularity due to their rarity, potential association with renowned individuals, provision of tangible real-world value, and their innovative nature. These attributes have propelled NFTs into mainstream consciousness, with even those unfamiliar with the broader crypto landscape likely having encountered discussions about NFTs.
When contemplating valuable NFTs, names such as CryptoKitties, CryptoPunks, Decentraland, the Bored Ape Yacht Club, and Banksy naturally come to mind. Undoubtedly, many of these NFTs played a pivotal role in elevating the niche industry to wider prominence.
Yet, the very first NFT produced, in the modern sense that we know today, traces back to 2014 and was created by a man named Kevin McCoy. His piece, “Quantum”, is currently listed for sale at over $7 million.
While contemporary pop culture-relevant NFTs may have propelled widespread recognition of the market, it's important to acknowledge that artists were experimenting with the technology well before its explosive rise to prominence.
Lastly, circling back to the theme of experimenting with the technology, let's explore how YOU, yes, YOU, can embark on creating your very own NFT. Contrary to notions of complexity, the process is remarkably straightforward.
Firstly, you'll need a cryptocurrency wallet, which serves as the repository for your NFTs and houses the necessary cryptocurrency for creating the token — a tool to make NFTs akin to the fuel for an automobile. In this analogy, a crypto wallet functions as a garage for your “car”.
The most widely used wallet for this purpose is MetaMask, available as a free browser extension that can be swiftly set up for use.
After setting up the wallet, the next step involves funding it. This can be accomplished by visiting an exchange platform and procuring cryptocurrency with fiat money. The particular currency needed, in this case, is Ether, commonly referred to as ETH.
Rather intriguingly, the digital world of NFTs mirrors tangible market dynamics, underscoring the fact that digital creativity possesses real-world value and can generate considerable interest and investment.referred to simply as Ethereum).
Before we dive into the details, let's ponder on the significance of Ether. A vast majority of NFTs are minted on the Ethereum blockchain. Thus, to fuel the creation process, you ought to employ the indigenous currency of this specific blockchain – Ether.
Once you procure Ether and shift it from the exchange to your MetaMask wallet, you're good to go!
Next, you'll need to browse through NFT marketplaces, akin to eBay or Amazon for conventional merchandise, where NFTs are traded. These platforms allow you to explore a myriad of distinctive non-fungible tokens and engage in bids, purchases, or sales of your preferred ones. In addition, these marketplaces provide a streamlined avenue for crafting NFTs. As an instance, OpenSea and Rarible are two widely patronized NFT marketplaces.
To get started, you must link your MetaMask wallet to OpenSea – this is akin to creating an account on the platform. Subsequently, you can kickstart the NFT creation process. OpenSea provides a comprehensive tutorial to assist you through the entire process. Even if it's your first rendezvous with NFT creation, you should encounter no major obstacles.
After uploading your image or GIF and configuring the properties to your preferences, all that's left to do is genesis the NFT. Once done, your wallet address (the unique label of your personal cryptocurrency wallet) will permanently embed with the NFT, substantiating you as the verified creator in the blockchain ledger, regardless of the owner.
Now equipped with the knowledge on how NFTs come into existence, procuring a token will appear to be a straightforward process.
How to Procure an NFT?
To secure an NFT, you must have the same MetaMask wallet linked to OpenSea, loaded with Ether. It's not feasible to acquire NFTs with fiat currency, thus, it needs to be exchanged for crypto.
With your wallet connected, you can proceed to purchase your desired NFT (if available for sale) or participate in an auction. If successful, the token will be transferred to your wallet. Voila, you are now the esteemed owner of a non-fungible token!
However, ensure to protect your tokens carefully – although you can store them in your MetaMask wallet, consider fortifying their security by exploring the possibility of acquiring a hardware wallet (a physical crypto wallet device) and integrating it with your MetaMask.
In closing, we've delved into the fundamental aspects of NFTs in an accessible, non-technical manner. We've discussed their nature, value proposition, and also walked through the processes of creating and acquiring your preferred non-fungible tokens.
Should you be keen on learning more about the MetaMask wallet, do peruse the section titled “What is the MetaMask?”.
