What are NFTs? Everything You Need to Know About Non-Fungible Tokens
These are essentially cryptographic assets on blockchain with unique identification codes and metadata. These codes and metadata make them individual and unique.
NFT Definition and Advantages
Blockchain-enabled digital artworks, also known as NFTs, can take a variety of forms. Memes, video clips, pictures, music, and tweets are some of the most popular types of digital artwork.
One characteristic of an NFT, therefore, is that it cannot be copied or duplicated.
An example of an NFT from the real world would be a piece of art, such as the Mona Lisa. While Leonardo Da Vinci is known for numerous pieces of art, there is only one Mona Lisa.
While you can trade one Litecoin for another, you can’t trade one Mona Lisa for another Mona Lisa.
For the world of blockchain, a key advantage of NFTs is that they cannot be copied. And so, unlike the Mona Lisa, NFTs can be bought and sold without the possibility of fraud.
In the art world, a lot of money is spent to authenticate pieces of work before being sold. An NFT does not need middlemen to ensure authenticity.
What is Fungible vs. Non-Fungible?
According to the Cambridge Dictionary, fungible or fungibility means simply interchangeable. “This is a characteristic of most financial instruments and market assets.”
By contrast, non-fungible property/assets/funds are not easy to exchange or mix with other similar goods or assets.
In other words, stocks, Certificates of Deposits, Cryptos, etc. are fungible assets.
An example of a non-fungible asset would be land or even diamonds. While the land is a simple one to classify, each individual diamond is also unique. Each diamond has a different cut, size, grade, and so forth and therefore can’t be interchangeable with another diamond.
How Are NFTs Created?
NFTs are very simple to create, unlike blockchains and cryptocurrencies.
A number of NFT marketplaces allow users to freely create an NFT and no programming knowledge is required. Marketplaces that currently allow users to freely create NFTs include OpenSea, Raible, or Mintable.
Minting is the process of creating a nonfungible token. Digital assets are transformed into assets on the blockchain through this process. As with metal coins, NFTs are minted once they have been created. The digital item becomes tamper-proof, more secure, and difficult to manipulate after the process.
Having been defined as a nonfungible token, it can be bought, traded, and digitally tracked when resold or collected again in the future.
Creating art NFTs is particularly popular and these marketplaces cater for just that.
How Do NFTs Work?
NFTs are digital tokens that are on a blockchain ledger. Once created, the market then trades the NFTs across marketplaces.
Once an NFT is created, there is a proof-of-ownership that must be stored securely in an NFT wallet.
It is the proof-of-ownership that is ultimately the tradeable and non-fungible asset.
Once created, the blockchain ledger records the NFTs and their unique identifying codes. The blockchain ledger then also records each sale and resale and ownership.
This not only prevents the copying of an NFT but also removes fraudulent claims of ownership or even claims over creation.
Why Do NFTs Have Value?
This is simply a case of supply and demand. The key here is the supply side that drives up the value of NFTs. Since there is only one individual asset, high demand can lead to significant increases in value.
Taking the Mona Lisa as an example, experts estimate the value of the Mona Lisa at more than $800m. Had Leonardo da Vinci painted numerous Mona Lisa paintings to exactly the same quality, these would be fungible. Their value would also be significantly less than the single painting thought to be edging towards $1 billion.
As the NFT market expands, the number of NFTs are likely to increase significantly. At this stage, demand will likely become the key price dictator.
Market appetite will continue to dictate value. A unique NFT of interest versus one of little interest to collectors and investors will vary significantly in price.
For example, Twitter CEO Jack Dorsey recently tweeted a link to a tokenized version of his first-ever written tweet.
Bids have reportedly reached in excess of $2.5 million. Other Jack Dorsey tweets are unlikely to have a collectible value, however, even though each tweet is unique.
How Do I Buy or Trade NFTs?
For those looking to buy or trade NFTs, identifying the right marketplace is the first step.
There are numerous marketplaces at present that cater to different areas of the collectible world.
For instance, Axie Marketplace is the official marketplace for the game Axie Infinity.
Cryptoslam! is a site that lists the largest market places by sales volume for those looking to enter the NFT space.
There is also Sorare, which is a fantasy soccer marketplace, where you can manage, and buy and sell virtual teams. At the time of writing, Sorare ranked fifth on the all-time sales list, with $24.41m in total sales.
CryptoPunks ranks 2nd on the all-time sales volume list has 10,000 uniquely generated characters. Each can be officially owned and proof of ownership is logged on the Ethereum blockchain.
While there are many marketplaces, those wanting to purchase an NFT will need an NFT wallet in order to store any purchased NFTs.
There are a number of NFT wallet providers in the marketplace. As with cryptos, NFT holders must store-purchased NFTs securely. Hard wallets would be more secure, protecting NFT holders from hackers.
When it comes to purchasing NFTs, some marketplaces support purchases with a credit card. Others, however, require purchases with Ethereum.
For Ethereum purchases, you will need to fund your NFT marketplace account with Ethereum to proceed.
To purchase your NFT, most marketplaces sell NFTs in an auction. You simply need to place your bid and wait until the conclusion of the auction.
If your bid was successful, your account would be debited and your NFT wallet credited with your newly purchased NFT.
What Are the Most Expensive NFTs?
Of late, NFT market news has flooded the crypto and mainstream newswires. With tech-savvy investors looking to be first to market, there have been a number of eye-watering bids for NFTs.
The largest NFT market places ranked by sales volume (all-time) at the time of writing include:
- Axie Infinity – $3.99 billion
- CryptoPunks – $2.05 billion
- Bored Ape Yacht Club – $1.34 billion
Here you can view sales over a specified time period, the price change over the specified time period, and the number of buyers and transactions.
What is Axie Infinity?
Taking a look at Axie Infinity, there have been a total of 14m transactions that have led to total sales of $3.99 billion.
As part of Axie Infinity, you can purchase creatures called Axies and use them to explore, battle, and breed. Sky Mavis developed it based on Ethereum. Its Pokémon-like design makes it appealing to young children even if it has an 18+ rating.
In order to begin the game, you need to purchase three Axies. These initial Axies cost up to £1,115 in cryptocurrency. Axie is currently working on creating a free-to-play version of the game for iOS and Android users.
Axie Infinity can be linked-to Sky Mavis’ Ronin wallet, which is a digital wallet that Sky Mavis offers. Using your Ronin wallet, you can purchase Axies.
There are two main ways to play the game. The first is SLP. As you win adventures and complete daily quests, you earn SLP. Breeding Axies requires unlimited SLP.
Another resource is AXS tokens. The game only has 270,000,000 of these resources. Owners of AXS tokens can determine how the game is developed. That may also lead to the purchase of Sky Mavis and a fully decentralized economy in-game.
Axies can be exchanged for AXS tokens within the game or sold. Additionally, they can be converted to fiat currencies.
Looking At Individual NFT Sales
Christie’s Auction sold Beeple NFT for a whopping $69.3m. This is by far the largest sale to date.
The next 4 largest NFTs were the sales of CryptoPunk characters. Sale prices ranged from $7.6m for CryptoPunk #3100 to $1.3m for CryptoPunk #4156.
Film news of the year did not stop with Tarantino’s sale of the NFT. It was reported in late January that Blockbusters filed trademark applications for a deal to revamp home entertainment.
In addition, the arts, music, and sports have embraced NFTs, with even the United Nations planning an NFT display in March during International Women’s Day.
Digital asset advocate Melania Trump, who has shown a great deal of interest in NFTs, has also entered the NFT field. In December, the former first lady launched MelaniaTrump, a blockchain platform powered by Solana (SOL). With her first NFT, Melania’s Vision, she introduced the platform to the world.
The platform hosted the sale of Melania’s Vision following the sale of Melania’s Vision and 2022 NFT, the Head of State Collection. According to reports, Melania Trump purchased the painting for $170,000, an NFT from the Head of State Collection.
Trump had announced on Twitter that the Heads of State Collection was up for auction.