NFTs have been a raging topic for the past two years, taking the collectable market by storm. However, despite its fame, a lot of people are still unaware of what it is.
In this article, the aim will be to explain in their simplest form NFTs, what they are, where they can be found, and how to purchase (collect) them.
A Non-Fungible Token, or NFT, is a digital crypto asset in which each token is unique by the data it holds. This uniqueness in data can be used as a form of authentication for those digital crypto assets such as a recording, an art piece, or even a plot of digital land.
The name Non-Fungible Token is divided into two parts which are: Non-Fungible, and Token. The combination of these two is what makes NFTs a technological revolution. To further explain, look at the word Token. A crypto Token is a denomination of a cryptocurrency that represents a tradable asset or a utility residing on its own blockchain. The holder can then use that token for investment or economic purposes.
The term Non-fungible, on the other hand, represents the uniqueness of that token. This means that an NFT cannot be interchangeable with another of the same kind. An example of this in the real world would be something similar to a car or a house, where a 2-bedroom house in Central London and a 2-bedroom house in Texas cannot be fluidly exchanged as they do not hold the same value (monetary or sentimental). On the opposing hand, fungible tokens can be exchanged readily, and are not unique from one another. An example of this would be Bitcoin, where one Bitcoin will always be equal to another Bitcoin, and one US dollar bill will always remain equal to another US dollar bill. Hence, combining that non-fungibility characteristic with a crypto token characteristic gives us what we call NFTs.
So where could you acquire your first NFTs? Well, there are mainly two ways. The first is interacting with the creator’s smart contract on their webpage, and that is what people in the space refer to as minting. Minting an NFT is the process of purchasing an NFT on its initial release, and to add more excitement to the experience, the mint is often randomized. Thus, you don’t know what your NFT is going to look like pre-purchase. Think of it as opening a pack of Pokémon cards, whereby you know the brand but are unaware of its content. The second option you’ll have when purchasing an NFT is through the secondary market. This is where Web3 social marketplaces such as Coinbase NFT, SuperRare, MagicEden, and Opensea come into play. Marketplaces are also the place where you’ll be able to sell any of the NFTs you are currently holding. It is important to note that some marketplaces cater to specific blockchains, and an example of that is MagicEden, a marketplace which takes in and releases only Solana NFTs. This would also mean to buy those NFTs you would require the specific cryptocurrency associated with that blockchain. In the case of MagicEden, and the Solana blockchain, that would mean using Solana (SOL) as a cryptocurrency. However, some marketplaces do have a hybrid structure where projects on different blockchains (Ethereum, Solana, Polygon…) can be listed and bought using the appropriate cryptocurrency. Opensea is a great example to look into as it offers this structure and is the biggest marketplace in the NFT space in terms of project exposure and credibility.
But now how do people actually buy NFTs, and where do those NFTs go once purchased? That is where Dapps or wallets come into play. A crypto wallet is your visual gateway to see what you hold from NFTs to cryptocurrencies. Generally, different wallets will be needed to interact with different blockchains. For example, you might use the Phantom wallet to interact with MagicEden to trade Solana blockchain-based NFTs. One of the most famous wallets is Metamask, which is compatible with Opensea and can be used to store-in different types of cryptocurrencies including Ethereum (ETH), and Polygon (MATIC). It is important to note that Metamask and Phantom are considered hot wallets because they are connected to the internet and can be vulnerable to online attacks. However, these types of wallets are frequently used because they make trading crypto and NFTs faster and easier. On the other hand, cold wallets such as the Ledger Wallet, are typically not connected to the internet, so while they may be more secure, they are less convenient to users. Given these trade-offs between both types of wallets, it has become quite ideal for some users to get a combination of both. That way, users can find a balance between the swiftness of a hot wallet and the peace of mind and security that a cold wallet offers.
As mentioned earlier in the article, NFTs are widely considered a technological revolution, where the future possible use cases are countless and can be embedded in almost every industry. Authentication is one form in which NFTs will revolutionise the world we live in. However, there are other benefits associated with NFTs when it comes to the creator, and lifetime royalties are one of these benefits. Another main characteristic that the community has been extremely fond of is the transparency that the blockchain offers. Anyone can access the blockchain and track the creation, selling, and re-selling of these NFTs. It is important to understand that this space moves quickly, and NFTs have been gaining more exposure, especially with brands and companies like Nike and Hublot jumping in on this new and intriguing technology. So, if you the reader, are interested in understanding why NFTs are important and why brands will want to be a part of the Web3 movement stay tuned to our next article.
In the meantime, we know that this might have been a lot to digest in terms of information but we hope that you can leave this 5-minute read knowing that you have learned something new today and every day.