What Are NFTs and How Do They Work?

What Are NFTs and How Do They Work?

Non-fungible tokens (NFT) are digital assets that represent a wide range of unique tangible and intangible items, from collectible sports cards to virtual real estate and even digital sneakers. One of the main benefits of owning a digital collectible versus a physical collectible like a Pokemon card or rare minted coin is that each NFT contains distinguishing information that makes it both distinct from any other NFT and easily verifiable. This makes the creation and circulation of fake collectibles pointless because each item can be traced back to the original issuer. Unlike regular cryptocurrencies, NFTs cannot be directly exchanged with one another. This is because no two NFTs are identical – even those that exist on the same platform, game or in the same collection. Think of them as festival tickets. Each ticket contains specific information including the purchaser’s name, the date of the event and the venue. This data makes it impossible for festival tickets to be traded with one another. The vast majority of NFT tokens were built using one of two Ethereum token standards (ERC-721 and ERC-1155) – blueprints created by Ethereum that enable software developers to easily deploy NFTs and ensure they’re compatible with the broader ecosystem, including exchanges and wallet services like MetaMask and MyEtherWallet. Eos, Neo and Tron have also released their own NFT token standards to encourage developers to build and host NFTs on their blockchain networks.

Other key characteristics of NFTs include:

Non-interoperable: A CryptoPunk cannot be used as a character on the CryptoKitties game or vice versa. This goes for collectibles such as trading cards, too; a Blockchain Heroes card cannot be played in the Gods Unchained trading-card game.

A CryptoPunk cannot be used as a character on the CryptoKitties game or vice versa. This goes for collectibles such as trading cards, too; a Blockchain Heroes card cannot be played in the Gods Unchained trading-card game. Indivisible: NFTs cannot be divided into smaller denominations like bitcoin satoshis. They exist exclusively as a whole item.

NFTs cannot be divided into smaller denominations like bitcoin satoshis. They exist exclusively as a whole item. Indestructible: Because all NFT data is stored on the blockchain via smart contracts, each token cannot be destroyed, removed or replicated. Ownership of these tokens is also immutable, which means gamers and collectors actually possess their NFTs, not the companies that create them. This contrasts with buying things like music from the iTunes store where users don’t actually own what they’re buying, they just purchase the license to listen to the music.

Because all NFT data is stored on the blockchain via smart contracts, each token cannot be destroyed, removed or replicated. Ownership of these tokens is also immutable, which means gamers and collectors actually possess their NFTs, not the companies that create them. This contrasts with buying things like music from the iTunes store where users don’t actually own what they’re buying, they just purchase the license to listen to the music. Verifiable: Another benefit of storing historical ownership data on the blockchain is that items such as digital artwork can be traced back to the original creator, which allows pieces to be authenticated without the need for third-party verification.

Why they’re important

NFTs have become hugely popular with crypto users and companies alike because of the way they revolutionized the gaming and collectibles space. From 2019 to 2020, the market capitalization of the NFT space rose 50% from $210 million to $315 million, with over $167.7 million worth of NFTs purchased up until January 2021.

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Thanks to the advent of blockchain technology, gamers and collectors can become the immutable owners of in-game items and other unique assets as well as make money from them. In some cases, players have the ability to create and monetize structures like casinos and theme parks in virtual worlds, such as The Sandbox and Decentraland. They can also sell individual digitals items they accrue during gameplay such as costumes, avatars and in-game currency on a secondary market.

For artists, being able to sell artwork in digital form directly to a global audience of buyers without using an auction house or gallery allows them to keep a significantly greater portion of the profits they make from sales. Royalties can also be programmed into digital artwork so that the creator receives a percentage of sale profits each time their artwork is sold to a new owner.

William Shatner, best known as Captain Kirk from “Star Trek,” ventured into digital collectibles in 2020 and issued 90,000 digital cards on the WAX blockchain showcasing various images of himself. Each card was initially sold for approximately $1 and now provides Shatner with passive royalty income every time one is resold.

Why do they have value?

Like all assets, supply and demand are the key market drivers for price. Due to the scarce nature of NFTs and the high demand for them from gamers, collectors and investors, people are often prepared to pay a lot of money for them.

Some NFTs also have the potential to make their owners a lot of money. For instance, one gamer on the Decentraland virtual land platform decided to purchase 64 lots and combine them into a single estate. Dubbed “The Secrets of Satoshis Tea Garden,” it sold for $80,000 purely because of its desirable location and road access. Another investor parted with $222,000 to purchase a segment of a digital Monaco racing track in the F1 Delta Time game. The NFT representing the piece of digital track allows the owner to receive 5% dividends from all races that take place on it, including entry ticket fees.

What are the most expensive NFTs?

Dragon the CryptoKitty continues to be one of the most expensive NFTs in the space, valued at 600 ETH.

The one-of-a-kind “1-1-1” race car from F1 Delta Time sold for 415.9 ETH in May 2019.

Alien #2089 sold for 605 ETH in January 2021. This NFT is part of the CryptoPunk collection, the first NFTs ever created. Overall, there are 10,000 different CryptoPunks and only nine Alien CryptoPunks.

An NBA Topshot digital collectible card of basketball star LeBron James sold for $100,000.

Crypto Art and NFT Scene Primed to Surge in 2021

Non-fungible tokens (NFTs) are growing in popularity and the trend is not looking like it will be slowing down in 2021. New sales records are continuously being made and broken.

Essentially, non-fungible tokens, or NFTs, are uniquely distinguishable digital assets — which means no two are the same. They are usually issued on the Ethereum ERC-721 standard which creates verifiable digital scarcity.

Unlike digital media files that can be copied, NFTs allow content creators to produce unique works that are now becoming rare collectibles. The prices being paid for some are certainly reflecting the skyrocketing demand.

The tokens themselves are not the artwork; they just include the item. This can be in the form of a jpeg or mp4 file in the metadata representing its authenticity. The token and the media together represent the crypto art and value.

Current NTF Landscape

DeFi researcher Cooper Turley has taken a deep dive into the NFT issuance landscape in a Jan. 30 blog post. Turley noted that there are now almost 50 different platforms to create them on.

SuperRare is one of the most popular, allowing one-off tokens to be created. However, very few actually make it onto the marketplace. There are several others including Nifty Gateway which currently leads in sales volume, largely thanks to the ability to purchase crypto art with fiat.

Nifty leverages packs or editions of NFT’s that are airdropped and are very popular with collectors. Turley noted that one of them made $175,000 selling out in just five minutes last month.

$175k in sales in 5 minutes.

Imagine artists not using web3 to bootstrap every facet of their career https://t.co/qsLKIjJNPw — Coopahtroopa _ (@Cooopahtroopa) January 23, 2021

Rarible is another platform that isn’t so exclusive and allows anyone to issue an NFT. Even billionaire Mark Cuban made one a few days ago. The platform has its own RARI token which is used for decentralized governance purposes.

OpenSea is another popular platform that serves as a secondary market for all kinds of digital art, gaming collectibles, virtual world items, and sports trading cards. It has a ranking page that shows the top statistics for NFTs, currently reporting that ‘CryptoPunks’ is the most popular with almost 1,500 in ETH sold in the past week.

Big Money Into NFTs

CryptoKitties was the first major hype driven NFT frenzy that launched in 2017 and subsequently broke the Ethereum network temporarily. It has now been surpassed by NBA’s Super Shot.

Today, crypto art can sell for hundreds of thousands of dollars and works from artists such as ‘Beeple’ are in high demand. The artist auctioned off his entire NFT collection for $3.2 million, including a single piece that went for $777,777 in December 2020.

A crypto art collective called FlamingoDAO recently purchased the ‘alien’ CryptoPunk for $750,000. Famous collector ‘Metakovan’ spent over $100,000 on a Formula One branded piece in 2019 making it the most expensive sale of that year.

Epic Games founder Tim Sweeney called cryptocurrency investments a “wild, speculative mess” but added that NFTs are the “most plausible path” towards a fully emergent gaming metaverse.

A great Piers Kicks article on blockchain based underpinnings for an open Metaverse. This is the most plausible path towards an ultimate long term open framework where everyone’s in control of their own presence, free of gatekeeping.https://t.co/Fi6kweNDjj — Tim Sweeney (@TimSweeneyEpic) January 30, 2021

Tokenizing assets is clearly only just beginning to gain traction and digital art is the perfect example of how Ethereum can be used to produce verifiable scarcity.

Check These 4 Make-Your-Own-NFT Platforms

Who’s The Controller Now? by Hidden Forces. Last sold for USD 3,059.05. Source: async.art.

In the last two years, the non-fungible token (NFT) space has grown significantly, creating an entirely new asset class called crypto collectibles. Today, the NFT market is attracting established and would-be artists who want to cash in on the new digital collectibles hype.

Below, you will find a list of four make-your-own-NFT platforms that you can use to create (and potentially sell) your own crypto collectibles.

Mintable

Mintable is one of the most popular names on this list. The web-based platform allows users of all knowledge levels to interact with the NFT market due to its focus on simplicity. Through the platform, users can mint ERC-721 tokens in a matter of minutes.

The process is seemingly simple and intuitive, akin to uploading content on social media sites:

Create a digital content item beforehand (such as an image)

Upload it to the platform via a link

Create the smart contract with the push of a button and without any prior coding knowledge.

Mintable provides step-by-step instructions on how to deploy the NFT of your choice. Additionally, the platform allows the creator to put the digital item up for sale through its inbuilt marketplace.

Lastly, Mintable allows users to manage the NFTs they have in their wallets. Users can transfer their assets between the wallets they own, introduce access controls, as well as check the tokens they have in their wallets.

Async

Async Art is somewhat of a new player in the NFT minting marketplace, launched in February 2020. Similar to Mintable, users can create, collect, and trade crypto collectibles through its platform. However, there are notable differences that set Async apart from its counterparts.

First, the platform is designed specifically for the creation and sale of blockchain-based digital art, more commonly known as crypto art. To stay true to its mission, the platform is not open to everyone. Artists looking to start creating on Async must first apply and be accepted into the platform by its creators.

Secondly, Async takes a novel approach to crypto art, taking it from the realm of memes and gifs into “true” art. The platform allows artists to create digital art pieces that change over time, due to their underlying structure. The art pieces are created in layers, with each layer tokenized. The final image, called the Master is also tokenized. Artists are able to write code that programs the layers to change according to their directions, giving the asset the ability to evolve over time.

Third, Async has a royalty structure that allows artists to get remunerated for their work. Artists receive 90% while Async takes 10% on the initial sale of programmable art, both on the master and the layer. Moreover, artists take a 10% royalty and Async takes 1% on secondary sales, a feature which is advantageous for artists, given that they typically do not receive proceeds from secondary sales in the traditional art sector.

SuperRare

SuperRare defines itself as a peer-to-peer marketplace for non-fungible tokens built on Ethereum (ETH). It is another NFT minting platform that requires artists to apply to be accepted into their Artists Network prior to creating on the platform.

Similar to Async, SuperRare supports the creation of authentically created one-of-a-kind pieces of crypto art, which can then be sold to buyers on the platform.

SuperRare displays the art in a style reminiscent of picture sharing sites, such as Instagram, allowing potential buyers to assess value and other relevant contextual details. Regular users can sign up at will and all transactions are handled in ETH. There is a 3% transaction fee levied on all trades, which is paid for by the buyer.

Artists are provided with guidelines during the process though it requires more technical know-how than say Mintable. For the first sale, creators receive 85% with the rest going to SuperRare. In secondary sales, creators receive a 10% aka royalty.

SuperRare explains this feature saying: “We think the ability to secure a percentage of secondary-market revenue for artists is one of the most revolutionary and exciting capabilities provided by Ethereum smart contracts. It’s analogous to a musician receiving a percentage of sales for a vinyl record issued, say, in the 1960s and still being bought and sold in used record stores today.”

Cargo

Cargo allows businesses and individuals to tokenize tangible and digital assets on the Ethereum blockchain. The platform’s users can buy, sell, auction, trade, transfer, and store the ERC-721 token standard-based digital assets they create.

Using Cargo is not too complex for the average user as it does not require prior coding knowledge. Users can interface with the underlying blockchain through the Cargo dashboard, via the client-side library, or directly through the Cargo smart contracts. The dashboard is probably the easiest for the non-tech savvy to access.

Through the Cargo Dashboard, users can create contracts, mint tokens, and create a crate page. A crate page is the landing page a user creates on Cargo that shows off their minted tokens. Through the crate, users can interact with the contracts, buy, sell, and view what they own.

As the NFT market continues to grow, there is arguably a market for well-thought-out collectible collections that anyone with a good idea can create on one of the above-listed platforms.

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Learn more:

An NFT Was Sold For Nearly USD 129,900 Profit

Non-Fungible 2021: Prepare Your NFTs For DeFi, Staking, and Sharing

‘Traditional’ Art vs. Crypto Art: How to Value It

Mark Cuban Says Crypto Is a Store of Value & Redditors Right to ‘Kick Wall St. Ass’