Non-fungible tokens (NFTs) are a new and exciting technology that is being used in all sorts of interesting ways… and it’s only the beginning. They can represent ownership rights, proof of authenticity, or other value-carrying data that is unique and cannot be replicated.
In this post, I’m going to cover:
- What are they & how they work
- How do you buy them,
- How do you sell them,
- And everything else you need to get started
Let’s get into it!
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So, what does Non-Fungible mean?
It means it is unique, it cannot be traded with something of its exact equivalent.
A dollar bill is fungible, it can be replaced with another dollar bill and you’re no worse or better off as they both are valued the same. Similarly, with Bitcoin or Ethereum, you can trade one coin for the other and it won’t matter from a perspective of value.
If two coins are trading at the same price, you can’t swap them even if they’re technically worth the same — they need to be functionally identical.
So an NFT is something unique that cannot be replaced with something else.
What does it mean to mint an NFT?
Minting an NFT is how your digital art or collectible becomes part of the blockchain.
Similar to the way that metal coins are minted and added into circulation, this is how NFTs are created. Once it is minted it can then be purchased and traded in the market which also means it can be digitally tracked as it is resold or collected in the future.
When a project is launching they’ll do a ‘drop’ which is when they launch so you can mint them into circulation.
The cool thing about NFTs is you have a complete history of them, who they belonged to, and how much they were bought and sold for. Unlike the traditional art world where paintings can be stolen and never found again, the blockchain keeps track of all NFTs.
Why are NFTs a game changer for creators?
Let’s compare this to the real art world. When an artist sells a painting to someone that’s the end of the journey with that piece of art. If they build their brand and make a big splash in the art world, the buyers of their art will be rewarded — not the original artist. Yes, they will be able to sell future paintings for more, but all their past work that has been appreciated goes to the owner.
Here’s why that’s different in the NFT space. Artists can build royalties into their art so that as they build their reputation and sellers make money, they also get a cut of the sales through commission.
Where can you buy and sell them?
Opensea is the biggest NFT marketplace there is. In August 2021 it did over 2 billion in sales. Some mints happen on Opensea if they’re an Opensea exclusive. However, for the most part, the initial mints happen on a project's website.
If you have a project you’re interested in and they’re doing a drop, you’ll need a browser wallet like Metamask and some Ethereum. You’ll connect your Metamask to the website and buy them, then when the transaction goes through you’ll be able to find them on your Ethereum wallet.
Now you can hold, or list them for sale on Opensea.
So how are these working JPEGs that have been selling for millions of dollars?
If I see one more tweet about someone saying uh I can right-click and save this and now I own it…
If you buy a poster of the Mona Lisa do you really think you own the Mona Lisa? No! Nor does the person or museum who owns it care that you have a poster of it.
If you caught my earlier post on intro to DeFi you remember that the whole point of the blockchain is to be a giant transparent ledger to keep track of where the money is and who owns what.
So it’s the blockchain and whoever owns the token that is the owner of that NFT. An NFT is more a certificate of authenticity more than anything.
But yeah keep right-clicking and save as.
What does floor price mean?
When you hear the term ‘sweeping the floor’ it means buying the lowest price items.
How to buy them
The majority of NFTs are on the Ethereum blockchain so you’ll need to get a Metamask browser wallet with some Ethereum in it to cover the cost of the NFT as well as any gas fees.
Gas fees are getting more and more expensive these days as NFT projects clog the Ethereum network.
Gas refers to the fee required to successfully complete a transaction on Ethereum. During minting for a popular project, gas prices might spike because everyone is trying to ensure they can mint an NFT.
So I minted an NFT, how do I check how rare it is?
So you’ve recently minted an NFT in a generative collectibles drop, and now you want to find out how rare it is. There’s a website called rarity.tools that will tell you the qualities of your NFT so you can understand how rare it is.
The result of this system then are rarity scores you can use to compare a project’s NFTs with one another. Consider the rarity.tools info bar for CryptoPunk 8348, the rarest CryptoPunk. That’s because there’s only one Punk with 7 attributes, and he’s it! So as you can see below, he dominates rarity.tools when you count up all his points and arrive at his total score:
Curious how else NFT technology can be used. Check out my post on the NFT ticket idea.