In recent years, the world has witnessed the rise of Non-Fungible Tokens (NFTs) as a groundbreaking technology that has revolutionized the concept of digital ownership. NFTs, or Non-Fungible Tokens, are like digital certificates of ownership for unique things, whether they’re digital creations or real-world items. They work using blockchain technology, a secure and transparent system. Unlike regular money, like Bitcoin or Ethereum, which you can exchange equally, NFTs are special and can’t be swapped like that. Regular cryptos can be exchanged equally, but each NFT represents a special item or artwork, proving ownership and authenticity. Each one is unique and has a record on the blockchain proving who owns it.
NFTs use blockchain and smart contracts. Blockchain ensures things are transparent and secure, and smart contracts help create and execute agreements about NFTs. This whole process ensures that digital or physical assets can be uniquely identified, verified, and owned in a decentralized way. A majority of NFTs exist on the Ethereum blockchain where there are “permanent digital records of all transactions using that cryptocurrency.”
There isn’t a fixed or exhaustive list of “types” of NFTs, as the concept is broad and continually evolving. NFTs can represent various digital and physical assets, each falling into different categories based on their characteristics and use cases. Here are the types of NFTs:
- Digital Art NFTs: Includes digital paintings, illustrations, and other digital artworks.
- Collectibles NFTs: Digital collectibles, often in the form of characters, cards, or items in virtual games.
- Virtual Real Estate NFTs: Represents ownership of virtual land or spaces in decentralized virtual worlds.
- Domain NFTs: Ownership of digital domain names as NFTs on blockchain.
- Music NFTs: NFTs representing ownership or access to digital music and audio content.
- Video NFTs: NFTs related to video content, including short clips, virtual reality experiences, or serialized content.
- Sports NFTs: Involves NFTs related to sports memorabilia, highlights, or collectibles.
- Utility NFTs: NFTs providing access to specific services, benefits, or features within a platform or ecosystem.
- Metaverse NFTs: NFTs associated with assets or elements within decentralized virtual worlds or metaverses.
- Real-world Asset NFTs: Tokenization of physical assets like real estate, commodities, or luxury items.
- Game Items NFTs: NFTs representing in-game assets, characters, or items with ownership and value.
- Event Tickets NFTs: NFTs serving as digital tickets for events, concerts, or experiences.
History of NFT
Now, let’s talk about where NFTs came from. The idea started when blockchain, especially Ethereum, introduced smart contracts. Think of smart contracts like self-executing agreements in code.
Kevin McCoy’s Quantum.
The first-ever NFT, called Quantum, was made by Kevin McCoy and Anil Dash in May 2014. It’s a video clip created by McCoy’s wife, Jennifer, and got recorded on the Namecoin blockchain. But it wasn’t until 2017 that NFTs became popular with CryptoPunks, a bunch of 10,000 unique 8-bit characters with proof of ownership saved on the Ethereum blockchain. After that, NFTs started representing all sorts of digital things like art, music, and even tweets.
NFTs have made a big impact on digital art and games. They’ve opened up new ways for artists and game creators to make money, created new ways to own digital things, and even changed how game economies work. Now, let’s look at some NFTs that did really well and why they were so successful:
- Beeple’s “Everydays: The First 5000 Days”: A digital artwork consisting of 5,000 images created over 13 years. The artwork was sold at Christie’s auction house for $69 million, making it the most expensive NFT ever sold.
- Grimes’ “WarNymph Collection”: A collection of digital artworks created by musician Grimes. The collection was sold for nearly $6 million and included a one-of-a-kind video clip.
- The Bored Ape Yacht Club: A collection of 10,000 unique hand-drawn apes with proof of ownership stored on the Ethereum blockchain. The Bored Ape Yacht Club has a strong community and has been successful in creating a sense of belonging among its members.
- NBA Top Shot: A platform where users can buy, sell, and trade officially licensed NBA collectibles. NBA Top Shot has been successful in creating a new type of digital collectible market.
- The CryptoKitties: A collection of digital cats with proof of ownership stored on the Ethereum blockchain. The CryptoKitties were one of the first NFTs and were successful in creating a new type of digital collectible market.
You can notice that all these NFT projects have something in common: a captivating backstory or theme. A well-told story can make you feel something and create a bond between the people who collect these NFTs. People in NFT communities really like being involved, and they appreciate having a story that adds meaning to the NFTs they own. People might get really into it, talking more, joining events, and working together on projects related to the NFTs.
A good story can also make the NFTs more special and rare by introducing limited editions or unique characters that are part of the story. This makes people want them more, and it makes the NFTs seem more valuable. The story can also make people want to keep their NFTs for a long time, thinking they’re more special because of the story.
Stories are also great for telling other people about the NFTs. A cool and interesting story can make more people interested, talk about it, and want to be a part of it. This makes more people want to buy the NFTs, and it becomes a big deal.
How to Create an NFT
In order to get digital artwork onto the blockchain to create an NFT, it needs to be minted. Minting is “how your digital art becomes a part of Ethereum blockchain—a public ledger that is unchangeable and tamper proof.” In order to mint an NFT, one needs a crypto wallet. Using a site like OpenSea makes the process pretty easy. When your wallet is connected, users are able to drag media files into the site in a variety of formats like JPGs, PNGs, MP4s, etc. The site also allows users to specify how many copies of the NFT they want generated. Once that information is set, users can click “create” and, from there, it takes a few days to be verified. After that, users are able to sell their NFT. There are other sites, such as Rarible, on which users can create NFTs, but this is just one example of how to do so. Once this whole process is completed, the minted NFT sits in the wallet from which users can sell their NFTs on sites like OpenSea and Rarible. (edit)
- Choose a Blockchain Platform: Pick a platform that matches what you want to do. Most people go with Ethereum for NFTs, but there are others like Binance Smart Chain and Flow with lower fees.
- Create a Digital Wallet: To buy, sell, or make NFTs, you’ll need a digital wallet. Popular ones are MetaMask, Trust Wallet, and Coinbase Wallet. Make sure your wallet works with the platform you picked.
- Get Cryptocurrency: You’ll need cryptocurrency for most NFT transactions, usually Ethereum. Buy it from a good exchange and send it to your digital wallet.
- Choose Your NFT Marketplace: Pick a place to create and sell your NFTs. OpenSea, Rarible, and Mintable are common choices. Each has its own features, so pick one that fits what you want.
- Create Your Digital Art or Content: Make the digital thing you want to turn into an NFT. It could be art, music, videos, anything digital. Make sure it’s unique and follows the rules for copyright.
- Mint Your NFT: Minting means turning your digital thing into an NFT. On your chosen marketplace, follow the steps to mint your NFT. This usually means giving info about your work, uploading files, and deciding things like royalties.
- Set Royalties and Licensing: Decide how much money you want when someone resells your NFT. This is a big part of making money from NFTs over time.
- List Your NFT for Sale: After minting, put your NFT up for sale on the marketplace. Write a catchy title, description, and set a fair price for what you made.
- Promote Your NFT: Use social media, online groups, and other ways to tell people about your NFT. Talk with your audience, share the story behind what you made, and build a brand around your digital stuff.
Downsides to NFT
While NFTs have some good things for artists, they also bring some problems. When NFTs get split into smaller parts (fractionalization), more people can get a piece of an expensive artwork. But, having lots of people own bits of the art can make things messy. Questions pop up about who really owns the art or who gets to make decisions. This becomes a big deal, especially for artworks with many owners. There’s also a worry that NFTs might be seen as investments, causing problems with financial rule makers. This is a particular concern for split-up NFTs.
Another problem is about who owns the rights to the art. If you buy an NFT, does that mean you now own the art’s copyright, or did you just get a token to use or sell it? The big question is, “Who gets to say they own the rights to the art mentioned in the NFT, and who can use it?” Copyright law is already tricky, and NFTs make it even more complicated.
Making NFTs uses a process called mining, which is a big energy eater involving complex puzzles and lots of computing power. Ethereum, a popular blockchain for NFTs, uses something called proof of work in this process. But here’s the kicker: this process is really bad for the environment. According to the Seattle Times, a single NFT can have a carbon footprint equal to driving 500 miles in a typical American car. This is a huge worry for the environment. People are saying we need to shift to greener energy like solar power for this kind of stuff.