Bitcoin was hailed as the digital answer to currency, NFTs are now being touted as the digital answer to collectables, but plenty of sceptics fear they’re a bubble waiting to burst.
Sales of NFTs, or non-fungible tokens, soared to around $25 billion in 2021, leaving many people confused as to why so much money is being spent on items that do not physically exist and which anyone can view online for free.
We have written a short introduction to NFTs that tries to explain what they are and where you can trade them or create them.
What does NFT Stand For?
NFT stands for ‘Non-Fungible Token , they are sometimes called a nifty or nifties
Non-Fungible? What does that mean?
Fungibility simply refers to assets that are completely interchangeable. If I lend you a €10 Euro note and you pay me back later with a different €10 note , it doesn’t matter. Both have the same value.
A non-fungible asset refers to an item that is not interchangeable. For example, a plane ticket. All plane tickets have different names, destinations, etc. which means that each one is completely unique.
A Non Fungible Token (NFT) is a limited edition, virtual item that can be bought and sold like any other asset – but has no physical form of its own.
NFTs are bought using cryptocurrency and run on a blockchain, a decentralised digital ledger that documents transactions, and ownership.
An NFT can take the form of a digital image, video file or other virtual asset and is unique, meaning if you buy one, you’re the only person with it. It cannot be divided and must be bought or sold whole.
While anyone can view the NFTs, the buyer has the status of being the official owner.
NFTs have a unique digital signature, so whilst other people can still view it or download a copy, they are not the registered owner of the work.
In theory, it is possible to turn almost any kind of data into an NFT. People are selling digital art, songs and even tweets in NFT form. Other NFT sales have included virtual trainers and even digital homes.
In the United States, the NBA sells collectable NFTs as video highlights of games.
Twitter CEO Jack Dorsey sold an NFT of his first ever Tweet for $2.9m
Digital Art NFTs
Art NFTs are typically released in limited-edition sets, with a standard of 10,000 pieces per collection. One of the first NFT collections that launched was Crypto Punks. This collection also launched in 2017 with 10,000 uniquely minted tokens as a set. At the time , these digital artworks were being given away for free. All a user needed to do was connect their digital wallet via the website and cover the Ether (ETH) gas fees to own one. Today, a Crypto Punk with rare or unique characteristics might sell for hundreds of thousands of dollars.
In February 2021, a 10-second video by an artist named Beeple sold online for $6.6 million.
Christie’s auction house sold a collage of 5,000 “all-digital” works by Beeple (real name is Mike Winkelmann.) It was sold for a staggering $69 million in March 2021.
NFT Gas Fees
The primary currencies used on the NFT trading platforms include ETH, WAX, and Flow. On most NFT trading platforms, users are responsible for paying “Gas Fees” to cover the computing energy required to process and validate transactions on the blockchain. The gas fees fluctuate depending on the time of day.
The process of buying or selling NFTs can include large fees that first-time sellers might not be aware of, which can significantly cut into profit margins or even result in a loss.
NFTs still have a long way to go before they can be more accessible to the general public. In particular, platforms need to work on developing a better user experience, in order to avoid confusion on gas fees and make NFTs more accessible to users outside of the crypto community.
Coinbase – a large and popular crypto exchange, is launching Coinbase NFT, a peer-to-peer marketplace that they hope will make minting, purchasing, showcasing, and discovering NFTs easier.
You can join a waitlist on Coinbase).
NFTs on Nifty Gateway are stored in a secured wallet, powered by Gemini’s state-of-the-art custody technology. They say that this enables collectors to buy, sell or , gift NFTs without the cost and hassle of gas fees.
Creating NFTs is also known as Minting .
Sites that let you “mint” an NFT for your digital art only deal in cryptocurrency, so you’ll need to use a site or app such as Coinbase to create a ‘wallet’ and add some funds to it. The wallet will contain your cryptocurrency but is also where you’ll store any NFTs you make until you sell them.
The underlying technology is the same as used for Bitcoin / Ethereum . Blockchain works as a public ledger, allowing anyone to verify the NFT’s authenticity and ownership.
OpenSea is probably the best known NFT marketplace . It supports more than 150 different payment tokens and was valued at $13.3 billion after its latest round of venture funding. For an introduction to the NFT world, OpenSea is a great place to start.
There is also nothing to stop an NFT creator from selling identical NFTs to the one you have just invested in, so choose your artists wisely. It’s all a bit of a gamble.