NFTs have exploded in popularity recently, but you may still be wondering “what is an NFT?” Especially if you’re not very tech savvy. Don’t worry – this guide will explain NFTs in simple terms even a technophobe can understand.
What does NFT stand for?
NFT stands for “non-fungible token.” That’s a bit of a mouthful, so let’s break it down:
- Non-fungible – Something that is unique and can’t be replaced with something else.
- Token – A digital certificate of ownership
So an NFT is basically a unique digital asset with verified ownership. Simple enough so far, right?
What makes an NFT unique?
Most digital items are fungible – you can trade one for another identical item and have the same thing. For example, you could trade a $10 bill for two $5 bills and it’s still worth $10. Or you could swap one MP3 file or JPEG image for another identical one, and still have the same item.
NFTs are different. Each one represents something unique and can’t be replaced with something else. It could be a trading card, piece of art, song, video, or any other digital file. But what really matters is who owns it. An NFT allows the ownership to be verified and tracked on a blockchain (more on that later).
What can be turned into an NFT?
Pretty much any digital asset can become an NFT. Some common types include:
- Art – Digital paintings, drawings, and photographs.
- Collectibles – Anything unique such as trading cards or avatars.
- Music – Audio files like MP3s.
- Videos – Video clips, GIFs, etc.
- Virtual Assets – Items used in video games or online worlds.
Essentially anything digital with a limited supply can be “tokenized” into an NFT. The more unique it is, the more valuable it tends to be.
How are NFTs created?
NFTs are created (or “minted” in crypto speak) from digital objects that represent both tangible and intangible items, including:
- Artwork
- GIFs
- Videos and sports highlights
- Collectibles
- Virtual avatars and video game skins
- Designer sneakers
- Music
- Tickets to real-world events
- Deeds to real estate
- Invention patents
- Virtual real estate and parcels of land in online worlds
- Original tweets
- Memes
Essentially any digital asset can become an NFT. The NFT creation process involves:
- Creating the digital asset.
- Registering the NFT on a blockchain platform and defining its metadata (title, description, image, etc.).
- Minting the NFT by paying a minting fee, which validates its digital signature and marks it as unique on the blockchain.
Once minted, the NFT is added to the blockchain where it can be bought, sold or traded like any other cryptocurrency. The NFT’s creator may earn a royalty each time it is sold to a new owner.
What is blockchain?
Blockchain is the technology that underpins NFTs and other cryptocurrencies like Bitcoin. In very simple terms, a blockchain is a decentralized digital ledger that records transactions across a network of computers. This allows digital assets and information to be distributed, but not copied or forged.
Some key facts about blockchain:
- Decentralized – Records are stored across many computers, not one central server.
- Immutable – Once data is recorded, it cannot be altered retroactively.
- Transparent – Each participant can view transaction histories.
When applied to NFTs, blockchain allows the ownership and transaction history for each token to be verifiably tracked. This gives NFT art and other collectibles their uniqueness and value.
Why do people want NFTs?
There are several reasons why NFTs have exploded in popularity:
- Scarcity – Most NFTs are part of a limited set, giving them inherent value. They’re also provably scarce on the blockchain.
- Ownership – NFTs allow people to truly own and control their digital assets.
- Creators – Gives artists/creators a new way to monetize work and connect with patrons.
- Speculation – Some buy NFTs hoping to resell them at a profit later.
- Fun – It’s exciting being part of a new technology / cultural shift.
For collectors, NFTs offer the appeal of provable scarcity and authenticity for digital goods. They also represent a way to support artists and secure limited edition collectibles. For creators, it opens up new revenue streams and ways to connect with fans. For speculators, the volatility creates opportunities to profit.
How much do NFTs sell for?
NFT prices can vary wildly, from a few dollars to millions:
| NFT | Price |
|---|---|
| Jack Dorsey’s First Tweet | $2.9 million |
| Beeple Everydays Art NFT | $69 million |
| CryptoPunks | $200,000 – $10 million |
| Bored Ape Yacht Club | $200,000 – $1 million |
| Axie Infinity Virtual Land Plot | $2.3 million |
| Decentraland Virtual Estate | $913,000 |
| Pak NFT Collection | $91 – $35,000 |
| Hashmask NFT | $14,000 |
| Mythical Games Blankos | $2 – $10,000 |
As you can see, there is huge variation in NFT prices. Top projects like CryptoPunks and Bored Apes trade for millions. But the average NFT sells for under $500. Prices are driven by factors like:
- Scarcity – How many exist and how limited the supply is.
- Demand – How many people want to buy the NFT.
- Utility – Can you use the NFT for something, like in a game.
- Community – Is there an active fanbase building hype.
How to buy NFTs
To buy NFTs you’ll need:
- A digital wallet – To store NFTs and cryptocurrencies. Popular options are Metamask, MathWallet, TrustWallet.
- Cryptocurrency – To pay for NFTs, usually Ethereum (ETH). You can buy crypto on exchanges like Coinbase.
- Access to an NFT marketplace – Like OpenSea, Rarible, SuperRare, Foundation etc.
Once set up, you can browse NFT collections on a marketplace, pick your favorite, and purchase it instantly. Your NFT will then show up in your crypto wallet. Be sure to research properly before buying as some NFTs are overhyped or fake.
Where to buy/sell NFTs
There are many NFT marketplaces but some of the most popular include:
- OpenSea – The largest NFT marketplace. Over 80% of NFT trading volume occurs here.
- Rarible – A community-owned marketplace with its own native coins.
- SuperRare – Focused on artwork and more selective offerings.
- Foundation – Handpicked NFT drops from ‘influential’ creators.
- AtomicMarket – The WAX blockchain NFT marketplace.
- Coinbase NFT – Upcoming easy-to-use NFT marketplace.
These platforms allow people to buy, sell, auction, and mint new NFTs. Look for marketplaces that are reputable, have good security, and high trading volumes. Do research before purchasing from any platform.
Top NFT projects
Here are some noteworthy NFT collections and projects:
- CryptoPunks – 10,000 pixel art characters, one of the first NFT projects.
- Bored Ape Yacht Club – 10,000 unique illustrated apes with various traits.
- Axie Infinity – Monster battle video game with playable NFT characters.
- Decentraland – Virtual world platform where users can buy virtual land NFTs.
- Sorare – Fantasy football (soccer) game with officially licensed playable cards.
- VeeFriends – Cartoon animal friends created by Gary Vaynerchuk.
- CryptoKitties – Collectible cartoon cats that can be bred into new Kitties NFTs.
This covers just a small sample, as new projects are launching constantly. When assessing NFT projects, look for authenticity, an active community, and long-term vision.
NFT Red Flags
While NFTs offer exciting potential, there are also many risks involved. Watch out for these red flags when buying NFTs:
- Anonymous founders – No one to hold accountable if things go wrong.
- Overhyped roadmap – Unrealistic launch promises which get delayed or changed.
- Artificial scarcity – Lower supply doesn’t always equal more demand.
- Trading volume – Beware NFTs with fake volume from wash trading.
- Carbon impact – Environmentally wasteful NFTs can face backlash.
- Plagiarized content – Ensure the creators actually own what they are selling.
Proceed with caution, especially when buying from lesser-known creators or marketplaces. Fake and scam NFTs are common, so verify authenticity.
Are NFTs worth investing in?
Whether NFTs are worth investing in depends on your personal goals and risk tolerance. Here are some pros and cons of buying NFTs as an investment:
Potential pros:
- Can gain value rapidly as market matures
- Authenticity is verifiable on blockchain
- Scarcity appeals to collectors
- Creators receive ongoing royalty revenue
Potential cons:
- Very speculative – hard to predict value
- High price volatility
- NFTs could fall out of fashion
- Charges like gas fees eat into profits
There is certainly money to be made in NFTs for savvy investors. But there are also significant risks like with any new asset class. Do your research and only invest what you can afford to lose.
The future of NFTs
NFTs have exploded from a niche concept to a major new asset class seemingly overnight. Where is this technology headed next?
Some potential future directions for NFT adoption include:
- Gaming – In-game assets, skins, characters, etc.
- Metaverse – Virtual goods, apparel, real estate, avatars.
- Ticketing – Sporting events, concerts, festivals.
- Verified Credentials – Degrees, certifications, ID documents.
- Luxury Brands – Designer clothing and accessories.
- Financial Markets – Stock tokens, bonds, derivatives.
NFTs open up tremendous new possibilities for both the digital and physical worlds. However, there are also challenges to overcome around environmental impact, scalability, and fraud. The technology is still in its very early stages. But NFTs appear to be laying the foundation for new creator economies and ownership models in the decades ahead.
Conclusion
Hopefully this guide has demystified the world of NFTs for non-techies! To summarize the key points:
- NFTs are unique digital assets that can represent ownership of real or virtual objects.
- Proof of ownership is validated on blockchains like Ethereum.
- Scarcity and authenticity are why NFT art and collectibles can gain value.
- Creators can monetize work in new ways, and owners can flip for profit.
- Be cautious of scams, fakes and pumping/dumping when buying NFTs.
- NFT technology has huge potential for gaming, metaverses, ticketing, investments and more.
NFTs introduce countless new opportunities, but still carry risks. As with any emerging tech, educate yourself and invest wisely. The NFT revolution is just getting started!