NFTs have a long history. Variations on this theme were being created in 2015. However, it wasn’t until 2017 when CryptoKitties was released that they started to gain mainstream attention.
In recent months, though, there has been stratospheric interest in NFTs. We’ve seen some of these tokens sell for millions of dollars. But what is an NFT and what makes them so special?
What is an NFT?
To discuss what an NFT is, we first need to understand what a cryptocurrency is. These are virtual currencies. They are decentralized and placed onto a ledger. This ledger, called the blockchain, is encrypted and contains all the transactions of that currency. The blockchain is then distributed amongst everyone in the network.
Because of this approach, it’s nearly impossible to double-spend a cryptocurrency. It also makes them impossible to counterfeit. The blockchain ensures that user data will be protected. Some of the most common cryptocurrencies in the world are things like Bitcoin and Ethereum. Though there are hundreds of smaller coins, like Dogecoin.
What Makes an NFT Different?
So, how are cryptocurrencies and NFTs different? Well, the clue is in the name. NFT stands for Non-Fungible Token. This means that they are unique, unlike cryptocurrencies.
This can be a bit confusing, so let’s explain with an example. Imagine a cryptocurrency as a dollar bill. They are interchangeable or fungible. If I give you $1 and you give me $1, nothing has changed.
However, an NFT is non-fungible. This best thought of like a piece of art. Because of this, they are unique and can’t be swapped. In this example, it’s like swapping a Pokémon card for an NBA card. It doesn’t work because both pieces of art are unique.
The element of NFTs that get people most confused is that, seemingly, anyone can own them. For example, Beeple sold a $6 million video. But anyone can download the same file online. The difference is the ownership of the file. While you might be able to view the video, only the NFT buyer is the true owner. The use of blockchain technology allows you to verify that you are the owner of the artwork.
In some cases, the creator might retain the copyright. This would give them the right to print multiple NFTs of the same artwork. However, if you bought one of these copies, you still own that version of the image. Think of this as buying a canvas painting. Though the artist might have other prints, you will always own that version. Because of this, NFTs create scarcity. This is what contributes to their high valuations, as we’ll discuss later.
What Can Be an NFT
One of the most interesting things about NFTs is the number of things that they can be used for. One of the most common examples is pieces of digital art. These are some of the most well-known pieces like CryptoPunks and CryptoKitties.
However, this isn’t the only way that an NFT could be used. For example, it could be used as a way for artists to sell their songs. There is the potential that it could be used to sell virtual assets. For example, virtual land or skins in video games. Sporting institutions like the NBA and UFC are using it to package their athlete’s greatest moments into virtual trading cards.
However, there is also the potential that this could extend beyond the computer and into the real world. For example, sneakers could be turned into NFTs. This would allow ownership to be tokenized and easily traded.
When thinking about the potential implications, it’s important to remember that this technology stretches back to 2012. It’s only been nine years. If the interest continues to grow, there is no limit to what the future of NFTs could look like. One day you could be using crypto to purchase an NFT home or car.
History of NFTs
While NFTs might have risen to prominence recently, they have a long history. Colored coins, working on the Bitcoin, would become the first iterations of NFTs. In this case, they would represent assets. This could be anything like shares in a company or a fragment of a property. However, this would be a limited system, as Bitcoin code wasn’t written to handle transactions like this.
The next step in the evolution of NFTs came with the development of the Counterparty website. This would represent a new way of using cryptocurrencies. This would lead to the creation and sale of rare memes, based on Pepe the frog. As Ethereum marketplaces started to get more popular during 2017, these memes started to appear there as well.
The next big step in NFTs occurred in June 2017 with the release of Cryptopunks. This was a limited collection of 10,000 characters. These would be released to anyone with an Ethereum wallet, because of this they were gone quite quickly. However, today these are some of the most valuable NFTs online.
In October 2017, CryptoKitties was released. This was a virtual game that would allow people to raise and trade cats in cyberspace. As you can imagine, this would gain the attention of the worldwide media. Even more compelling were the people who were making thousands by selling these virtual tokens. These would bring more attention to the world of NFTs. It also began to attract the interest of Wall Street, who sensed that this could be a profitable venture. Millions began to explore the emerging world of NFTs.
After this NFT exchanges would begin to emerge. This would make it easier for everyone to buy and sell these tokens. As a result, people started to pay attention to the world of NFTs. This resulted in more media coverage. Eventually, this would culminate in the booming environment that we are facing today.
What is the Appeal of NFTs?
Now that we know more about what NFTs are and how they were created, we can turn our attention to what benefits they could provide. One of the biggest advantages is how they can change the relationship between artists and fans. A supporter can purchase items directly from their favorite creators, without needing to pay money to a middleman. In the process, the artist gets more money in their pocket.
In the future, NFTs can help to create a more equitable world. Items can be broken into smaller chunks and spilt amongst multiple owners. The best example of this would be in real estate. You would be able to own a fragment of a house.
Blockchain technology also adds a few benefits. First, it makes ownership easy to verify. If needed, it can be traced back to the original artist. Also, the blockchain ensures that the piece of art will be almost impossible to destroy. It will also be impossible to duplicate or break down into smaller denominations. This adds an extra layer of protection, which you won’t be able to get with physical art.
Famous Examples of NFTs
NFTs are set to become a booming industry. As the number of people who are willing to pay for these works of art soar, so do their valuations. The best way of showing this is by looking at the eyewatering prices some people have paid to own an NFT.
One of the most prominent examples of this is Zoe Roth. When she was a girl, her father was a firefighter. He took a picture of her in front of a burning building. She was smirking. Once this hit the internet, it became a meme, becoming one of the most iconic images in the world. She decided to sell the rights to this image in 2021. This would raise $500,000, which was enough to pay off her college debts.
Some artists are beginning to specialize in NFTs. One of the most prominent examples of this is Beeple. He sold a piece of digital art through auction house Christie’s. It sold for just shy of $70 million. To put this into perspective, it is one of the largest sale prices for any living artist in history.
Twitter founder Jack Dorsey sold his first tweet. It made him around $3 million. This sparked a new trend of people selling converting their tweets into an NFT and selling them for huge profits.
With so much money to be made, celebrities have been getting involved. Grimes made the world’s first virtual NFT art collection. It sold for around $6 million. Lindsay Lohan has sold off a song as an NFT. It’s worth over $32,000. DJ Don Diablo went one step further, selling off an hour-long concert on a USB. It went for over $1.2 million. These are far from the only celebrities that are getting involved. Snoop Dogg, Lewis Capaldi, Kings of Leon, and many others are getting involved with the world of NFTs.
There are also plenty of sporting organizations that are getting involved. UFC and the NBA have announced that they are making NFTs celebrating pivotal moments and players in their sports. Taco Bell has launched a range of NFTs. There is talk that major brands like Disney and Funko will also be getting involved. This could signal that the market is set to boom into the future.
Buying an NFT
At this point, you might want to get involved with the NFT world. The good news is that, as long as you have the money, you can get started. As most of the platforms run on Ethereum, you’ll need to buy this cryptocurrency first. You will need to do this through a cryptocurrency exchange. After you have this, it’s time to get shopping.
Where to Buy an NFT
The first thing we need to do is head to the right place. The number of NFT exchanges is growing rapidly. However, there are a few prominent ones that you might want to explore. These are;
- Myth Market
- Async Art
The best marketplace will depend on what you are looking for. For example, ROCKI is aiming to specialize in musical NFTs. Myth Market will focus on digital trading cards.
Before you purchase an NFT, you should make sure that you investigate the exchange. You’ll want to make sure that you are using a reputable site.
When to Buy an NFT
Once you have chosen the right platform and funded your account, it’s time to start buying NFTs. Often, there will be plenty of NFTs available to buy at any time. However, if you want to get involved with a popular collection, you’ll often only get a limited opportunity to buy them. Because they are so hyped, it won’t be long until they are sold out. Sometimes, they will be gone within a few seconds. Because of this, you’ll need to get in at the moment when they are released.
If you are too slow, you’ll need to wait until the owners decide to put them up for sale. Often, this will be at an increased price.
Displaying Your NFT
Once you have bought your NFT, you’ll need to think about what to do it. Some people will want to hold it for a few months and sell it. However, as we’ll discuss later, valuing an NFT can be a risky prospect. Another good option is to display your NFT. This would allow you to appreciate it, as you would with a piece of physical art. In this case, you will need to get a digital frame. You will then be able to upload a JPEG of your NFT.
Making Money Selling NFTs
As the online marketplace has exploded, people have been making a lot of money flipping NFTs. In this case, you’ll need to get in quickly, buying a hot NFT. Hold it for a few months and allow the demand to grow. Then release it back onto the market for a profit.
While this is a simple strategy, it takes a lot of skill to execute properly. You’ll need to find the right NFT. This will take a lot of market research. You’ll also need to learn how to price them properly, so they resell at a good profit.
Reselling NFTs also comes with a lot of risks. There is a chance that the market might lose interest. You’ll then have an NFT that no one wants to buy. In some cases, you might even need to take a loss, to get some money back. Because of this, it’s recommended that you start with relatively inexpensive NFTs and build your way up. Furthermore, avoid putting too much capital into these investments. You don’t want to risk losing all your money because you picked dud NFTs.
Can Anyone Make an NFT?
If you’re looking at the growth of NFTs, you might be wondering how you can take advantage of this craze. The good thing about a decentralized market is that anyone can participate. You can try buying and reselling NFTs in the hope of making a profit. Or you can try creating NFTs. As we’ve seen, when done correctly this could earn you millions.
If you want to make and sell your own NFT, you’ll first need to decide what type of blockchain you are going to focus on. This will decide the tools that you will use to create it. In most cases, it’s best to use Ethereum. They are currently the leading crypto in this space.
Next, you’ll need to make sure that you have at least $50 in ether. Your wallet will also need to support ERC-721. This is the standard for creating an NFT.
Then, you’ll need to log onto the exchange and upload the image that you want to turn into an NFT. You will often be able to choose what other features you offer. For example, you might want to offer special content that only the owner of the NFT will be able to unlock.
Tips to Get the Best Price for Your NFT
While anyone might be able to create and sell an NFT, that doesn’t mean that everyone will be able to get millions for their piece of art. There are a few things you can do to help you stand out.
First, you’ll want to make your piece of art unique. Do some market research. Look at what everyone else is selling. Then find a way to make sure that your content will stand out. If you can be the first of your kind, you will add more value to collectors.
Next, you’ll want to work on building your public profile. People like to get tokens from those who have a high profile. These will have more inherent value, because of the high-profile name attached to them.
Another good marketing strategy is to hold an AMA session on social media. This is a good way to talk about your idea and discuss what sets it apart. It can also give people greater insight into your personality, building a connection with your audience.
How Much Does it Cost to Make an NFT?
How much you’ll need to pay to upload your NFT will depend on the platform. Some will allow you to do it for a fee. Others will require you to pay a small amount of “gas”. These are the charges required whenever you make a transaction on the blockchain. Usually, these will be small, just a few dollars.
One of the most interesting concepts of NFT is the ability to pay artists royalties. In this case, each time the piece of art is sold, the artist will get a small percentage of the sale price. Because of smart contracts, the artist wouldn’t need to do anything. The money would go directly into their account. This is a good way of incentivizing creators to make enduring pieces. The more valuable the art is, the more it will earn.
The concept of royalties is still being developed. Because of this, it might not be available on all platforms. If it becomes standard, though, it could have lasting impacts on the way that art is valued. This would be akin to the way that royalties work in the music world. Proponents argue that this would offer a fairer way of rewarding creators, allowing them to make a living from their artwork.
Valuing an NFT
One of the biggest problems with the NFT market is how you will be able to value them. After all, many of them have a limited use case. At best, you will be able to put your art into a digital frame.
However, economists point out that there is another way of valuing art. Based on its hedonic value. Hedonic value is essentially a way of determining how much you would like to own this cool piece of art. This is a concept that has existed in the physical art world for years. For example, the Mona Lisa has a long history and a significant amount of cultural importance. Because of this, it has a higher value. However, if there is work from an unknown artist it will have a lower price.
Supply and Demand
When valuing an NFT, the other important thing you need to consider is supply and demand. The NFT market is good at creating scarcity. Each token is unique. However, for the price to increase, there needs to be demand.
If you are planning on flipping NFTs for profit, you’ll need to keep this principle in mind. Paying $100,000 for an NFT is pointless if you can’t find anyone willing to buy it from you. Because of this, people tend to focus on the NFTs issued by celebrities. They can rely on their high profile to be able to find future buyers.
Determining the hedonic value is a difficult task. It requires you to be subjective, asking how much you would be willing to pay to own the art. However, there is a more objective way to value art. Most exchanges will allow you to check the price history of an item.
By using this tool, you will be able to see how much the price has increased over time. By doing this, you will be able to make a judgment about whether you will be able to sell the NFT for a future profit.
Is This a Fad or the Future?
As we’ve mentioned, NFTs are a very exciting technology. They might have the possibility to change the way content is created and owned on the internet. But, for some economists, the soaring prices have suggested that NFTs might be in a bubble. When that bubble pops, it could be a huge shock. In the worst-case scenario, most NFTs would become almost worthless. The collapse of the NFT market could send ripples through the entire world of cryptocurrencies. The price of currencies like Etherum could plummet, as everyone rushes to sell. But how likely is this doomsday scenario?
The main concern stems from whether the massive price increases seen in the NFT world are sustainable. This is based on historical evidence, specifically tulip mania. At one point, varieties of tulip bulbs were so valuable that they were the same price as a luxury house. When the market collapsed, it was sudden and dramatic. Prices crumbled by 95 percent. At its peak, tulip resembled gambling. People were paying top-dollar for bulbs without knowing whether they were common or rare variants. This is similar to the rampant speculation occurring in the NFT market.
Adding to the concern is the difficulty in valuing an NFT. Since it’s based on hedonic value, it’s difficult to come to an objective value. This increases speculation even more. Add to this the number of participants rushing in, eager to make a profit, and the requirements for a bubble seem to be met. Even top artists, like Beeple, agree that NFTs are in a bubble.
What Happens If the Bubble Bursts?
While not everyone agrees that NFTs are in a bubble, most will concede that the price is subject to plenty of volatility. On average, they fell around 70 percent between March highs and April prices. This raises the question of what will happen if the NFT bubble bursts.
The truth is that no one knows. The worst-case scenario is that the market never recovers and the craze dies. This can be compared to the fate of Beanie Babies. As we discussed, a dramatic crash could also damage the value of cryptocurrencies.
But, NFTs could recover and make a comeback. It will take a few years. For this to happen, the market will need to be driven by fans, not by speculators hoping to make money. If this happens, the future of NFTs would be very bright.
The high sale prices of NFTs, some going for millions, were enough to attract plenty of public attention. But there is more to NFTs than million-dollar deals. They are an innovative technology that promises to change the way we view ownership on the internet. Creating a new way for fans to show their support to their favorite creators. In the future, this could spread into real-world assets. Though the market is known for its rampant speculation and the concerns that it is turning into a bubble. Because of this, before you get involved, consider the risks involved.