NFT or non-fungible tokens have exploded out of the digital currency world this year. Such a digital asset is now selling like a fine piece of art worth millions of dollars. That leads us to the question – is NFT worth all the money and popularity?
Table of Contents
- What are Non-Fungible Tokens?
- Types of Non-Fungible Tokens
- What Platforms Can You Use NFT For?
- How Does NFT Work?
- What is the Process for Creating NFTs?
- How Do NFTs Differ from Cryptocurrencies?
- How Can You Make Money Out of NFTs?
- Where to Buy and Sell NFTs
- Top Three Most Famous NFTs
What are Non-Fungible Tokens?
An NFT is a form of digital asset that acts as a representation of real-world objects. It exists in the form of art, games, videos, and music. You can buy and sell NFTs online, often using cryptocurrency. They are encoded using the same software as most digital currencies.
Additionally, a majority NFTs are one of a kind. If they are not, they only have a limited copy, each having unique identifying codes.
Types of Non-Fungible Tokens
Right now, a majority of NFTs are contrived on Ethereum as ERC-721 tokens. It is the standard for NFT that executes an API for tokens inside Smart Contracts.
Additionally, ERC-721 offers various functionalities. That includes transferring tokens between accounts, identifying the owner of a particular token, and finding out the current balance of a token account. It can also get the total supply of the accessible token on the network. A unique ID represents each ERC-721 asset.
Meanwhile, ERC-1155 provides “semi-fungibility.” It is a better and advanced version of ERC-721, offering an array of new possibilities to create NFTs. Unlike ERC-721, the unique ID for ERC-1155 tokens addresses a class of assets.
Using the ERC-1155 standard, you will be able to use infinite numbers of both fungible and non-fungible items in a single Smart Contract.
What Platforms Can You Use NFT For?
NFTs are present within a blockchain, a distributed public ledger that records transactions. It is also the underlying process that provides the possibility to cryptocurrencies.
Moreover, NFTs are commonly present on the Ethereum blockchain. Still, other blockchains also support them.
You can purchase NFTs either in the form of tangible or intangible digital objects. These items can be in the form of GIFs, art, collectibles, video, music, and designer sneakers. Tweets are also considered as an NFT. In fact, Twitter CEO Jack Dorsey sold his first tweet as an NFT for over $2.9 million.
How Does NFT Work?
You can find most NFT within Ethereum, which is also responsible for keeping all the digital records of NFT transactions. It also makes an unquestionable record of NFT exchanges.
While you can purchase NFTs, the copyright for the item you bought remains in the hands of the creator. It gives them the right to duplicate it as much as they want and sell the copies to other people. But if the buyer intends to make copies of their purchase, they need to acquire permission from the creator.
However, it is worth noting that the replications of an NFT will never have the same value as the original. The supply and demand will also affect how much they cost.
Moreover, some cases allow the creator to acquire royalties every time the buyer sells a copy of their NFT.
People consider NFTs as collectibles, and the IRS labels them as alternative investments. If you sell an NFT as a gain, it is subject to the long-term capital gains tax rate for collectibles amounting to 28%.
What is the Process for Creating NFTs?
Creating your NFT is a straightforward process. You do not even need extensive knowledge of the cryptocurrency industry. An NFT artwork can come in the form of a photo, GIF, or video.
The first step in creating an NFT is deciding on which blockchain you want to issue it. Every blockchain has its own NFT token standard compatible with marketplaces and wallet services. Meaning if you create NFTs in Ethereum, you can only sell them on platforms that support Ethereum.
How Do NFTs Differ from Cryptocurrencies?
Generally, NFTs are created using the same programming used for cryptocurrency. However, such is the only similarity you’ll find between NFT and cryptocurrency.
Digital currencies and physical money are fungible. Meaning you can trade them for one another. They also have an equal value, making them a trusted means when making transactions on the blockchain.
Meanwhile, NFT does not have a physical representation. Every NFT has a unique digital signature, so they will never have an equal value. As a result, you cannot interchange one NFT with another.
How Can You Make Money Out of NFTs?
You can make money through NFT by selling digital assets. If you already have a blockchain wallet, you can choose a marketplace to display your NFT. Create an account in your chosen platform and connect your digital wallet to it.
Once done, you can proceed to upload the works that you want to turn into NFT. But you should take note that there is a minimum fee for creating digital assets.
After uploading your NFT, set a fixed price or a bidding range for it.
Where to Buy and Sell NFTs
There are several platforms where you can buy and sell NFTs. However, the most popular ones are OpenSea, Rarible, and SuperRare.
This Non-Fungible Token marketplace allows people to use Ethereum. Buyers and sellers can also use cryptocurrencies during transactions. Sellers can create an account here and offer their collectibles for buyers to choose from.
To use OpenSea, you initially need to have a blockchain wallet. This platform supports many blockchain wallets, including Coindesk, Trust, and Argent.
Rarible is somehow similar to OpenSea as it allows NFT collectors to buy, sell, and bid on artworks. If you are a seller, you only need to choose digital content and convert it into NFT using Rarible. Once you set a price, buyers who take an interest in your NFT can place a bid on them.
Additionally, Rarible lets you create more than one NFT for a single image and sell it multiple times.
All of the NFT within SuperRare is unique, making it an excellent platform for buying and selling digital assets. However, it performs using Ethereum, so you first need to purchase Ether before buying or selling any NFT from this platform.
Top Three Most Famous NFTs
Everydays: the First 5000 Days – $69.3 million
This artwork is a compilation of the first 5000 digital arts made by artist Beeple. The bid started at $100 but got higher and higher until it reached the $69.3 million selling price. This price makes Beeple’s artwork one of the most valuable NFTs in 2021.
CryptoPunk #3100 – $7.58 Million
This digital art is the second most expensive NFT ever sold. CryptoPunk only created 10,000 punks, and only nine of them are Aliens. Punk #3100 belongs to these nine, making it one of the rarest NFTs.
CryptoPunk #7804 – $7.57 Million
Punk #37804 also belongs to the nine Aliens. Sold for $7.57 million, this artwork features an alien with a Cap Forward, a Pipe, and Small Shades. Such is the only Punk that has these three accessories, making it extremely rare.