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ARTS & CULTURE
E g
INSIGHT
— JULIA SPILLMAN
NFTs 101
EVERYTHING YOU NEED TO KNOW ABOUT THE LATEST CRYPTO CRAZE
“Everydays: The First 5000 Days” NFT Photography Compilation by Beeple
NFTs, THE NEW “IT” THING, HAVE TAKEN
many communities in art, gaming, music, collecting and speculative investing by storm. NFT art is all the rage and buzz among the hip, tech and artsy crowds. But what exactly are NFTs? What are they used for? And how do they work?
WHAT EXACTLY IS AN NFT?
An NFT is a non fungible token. In economics, a fungible asset is something with units that can be readily interchanged — like money. With money, you can swap a $10 note for two $5 notes and it has the same value. However, when something is non fungible, this is not possible. The unique properties of an NFT cannot be interchanged with something else. These digital tokens or NFTs represent a unique, irreplaceable asset that lives on the blockchain.
For those not in the know, the blockchain is a digitally distributed, decentralized, public ledger of transactions that is duplicated and distributed across a virtual network. Interchangeable digital assets, such as cryptocurrency, tokens or NFTs, are traded over the internet or several computers that are linked in a peer-to-peer network.
There are currently many popular blockchain platforms that support NFTs. These include Ethereum (ETH), Solana (SOL), Cardano (ADA), Polygon (MATIC), Avalanche (AVAX) and Tezos (XTZ) among others.
WHAT CAN BE MADE INTO AN NFT?
NFTs can be made from any kind of digital content, such as art, music, photography, memes, video clips and GIFs amongst other elements (even Tweets and metaverse/virtual real estate).
ART
NFTs can act as the digital form of an asset. This could be a digital piece of art or “CryptoArt.” There has been an explosion of NFT art in the digital art space, with both popular and unknown artists selling (or re-selling) their digital NFT art pieces for large sums of cryptocurrency.
At the initial height of the NFT craze in early 2021, acclaimed digital artist Mike Winklemann, better known as Beeple, sold a single piece of artwork titled “Everydays: The First 5000 Days” for a staggering 38,474.82 Ethereum (or $69.3 million) at a Christie’s auction.
Another well-known NFT art sale was a 20-second video clip of LeBron James’ “Dunk #23” that was sold for $230,023. This was part of the NBA 2020 Finals set of collector cards featuring “LeBron’s Moments.” In another instance in 2021 where an NFT sale occurred that wouldn’t be considered specifically as “art,” then-Twitter CEO Jack Dorsey auctioned an NFT of his first tweet, which sold for $2.9 million.
There has also been a flurry of NFT art collections that have set new records. The popularity of these began with early collections that were released as far back as 2018, such as the 10,000 unique pieces making up CryptoPunks by Larva Labs. In a February 2022 resale, one CryptoPunk NFT, “CryptoPunk #5822” (one of only nine rare “alien” punk variants in the entire collection), sold for 8000 ETH or close to $23.7 million at the time of sale.
These collectibles are created in a series, usually in a large quantity, for example 10,000 pieces, that make up a collection. The level of artwork can be quite minimalistic and simple, and they usually have variations of a profile such as accessories, facial features or clothing which determine their level of rarity. A good example of this would be the popular Bored Ape Yacht Club (BAYC) by Yuga Labs, that has seen membership adoption and ownership by celebrities such as Jimmy Fallon and Madonna. This has led to a flurry of simian and animal-themed collections, such as Moonbirds, to meet demand for these limited collections.
Anonymous and obscure artists have also achieved success through NFT art sales. In one instance in late 2021, a 12-year-old boy from London earned over $400,000 with his collection of “Weird Whale” NFTs.
MUSIC
Like art, music and digital elements of sound can be made into an NFT asset. Music artists can release and sell entire songs or music pieces as NFTs, or alternatively sound snippets or samples that can later be blended into other works.
“Bored Ape #8585” by Yuga Labs, one of the most expensive Bored Ape Yacht Club NFTs sold to date (696 ETH / $2,702,462) The popular Axie Infinity NFT game allows players to collect, battle, raise, breed, trade and build a digital kingdom for their pets, called Axies.
AXIE INFINITY WHITEPAPER
DIGITAL TRADING CARDS/GAMING
Another area of NFTs that has recently exploded is the advent of NFT-based gaming and digital trading cards. In this instance, it is game players of popular NFT-based games who buy (or rent) NFT assets to advance their gameplay and potentially earn cryptocurrency (usually in the form of a game’s token). This can allow them to upgrade their asset or purchase more. These in-game assets can be in the form of items such as virtual avatars, weapons, armor or other upgrades. This idea lends itself well to communities built around Trading Card Games (TCGs), where valuable and rare trading cards are bought, sold and traded to be used in-game in a playing deck. Communities built around these TCGs can also take part in tournaments and other eSports competitions.
CERTIFICATION
As mentioned earlier with the BAYC collection, NFTs can also be a membership to a club or some kind of certificate of proof or license that verifies the existence of something in physical form.
Celebrity entrepreneur personality on the hit investment reality TV show “Shark Tank,” Kevin O’Leary, states that NFTs offer great potential in their application of uses. In the examples Kevin uses, he explains that he can turn a collection of expensive limited-edition watches into separate NFTs. He can then let his insurance agent know which selection of ten watches are out of the vault for a week
NFT PRICING
There are many factors that determine the value of an NFT. Obviously, market perception is a key element. Has the NFT been created by a known artist? Many aren’t. Is it a one-off piece or part of an exclusive limited-edition collection? If the NFT is part of a collection, how large is the collection and how many more releases in that series are expected? Is there a lot of hype around a particular NFT or collection? And if so, why?
In the world of NFTs, price is determined by how the community perceives the item. Sellers try to create FOMO, or fear of missing out, to generate demand. Speculative investors are always on the hunt for rare items to add to their collection. and pay a reduced insurance premium as he would only need to cover the group of ten that are out.
Another example is authentication. In every transaction of an expensive collectors watch NFT, the details of the watch – the scan of its style down to the micron level, would be attached to the NFT.
This would authenticate the watch as a legitimate piece and offer a purchase assurance of authenticity to the buyer. This idea could be applied to many other real world, tangible items such as pen collections, coin collections, jewelry, cars or even real estate.
Swiss based cyber security, IoT and AI platform company, WISeKey, launched the first ever secure luxury NFT watch in early 2021.
Consequently, NFTs can serve a function representing a number of real world items. An NFT could be deeds to a car, tickets to a real-world event, tokenized invoices or even legal documents or signatures.
ROYALTIES
Some NFTs will pay out royalties to their creators every time one of their NFTs is resold. In some other instances, royalties can be paid to an NFT owner for simply holding it. They can be tied to the rights of a real world asset which pays a dividend of proceeds created.
NFT MARKETPLACES
So where exactly can you buy NFTs? There are many locations both online and in the real world where you can purchase an NFT.
The most common are online NFT marketplaces such as: • OpenSea – the current leader in NFT sales • Rarible – profiles top current NFT collections and allows collectors to form a community • SuperRare – a marketplace to collect and trade unique, single-edition digital artworks • Nifty Gateway – collaborates with top artists and companies to produce limited edition, high-quality Nifties that are only available on their site for a short period • Foundation – a community-curated marketplace that requires creators to be invited by other creators who are already part of the platform
A calendar of upcoming NFT sales and releases can be viewed on sites such as Rarity Tools.
NFTs can also be bought in traditional auction houses such as Sotheby’s or Christie’s, although you’d probably be paying at the top end of the market there.
Another real world destination where you can purchase NFTs are NFT art galleries located in real bricks-and-mortar locations. Many of these are starting to pop up in large cities across the US such as Los Angeles, New York and Miami. Some of these will even sell you the custom-made screen built to display the crypto art piece.
NFT WALLETS
Before you purchase your NFT, you will need to set up an NFT wallet to store it. This may depend on the blockchain protocol that the NFT is built on, so you should make sure to check that you have a compatible wallet for your NFT.
can be installed as a browser extension as well as an app for your mobile device. Metamask supports Ethereum-based tokens as well as other blockchains.
Other wallet options include Math Wallet (which supports over 70 blockchains) and can be synced across devices with web, desktop and mobile versions.
AlphaWallet is an open-source cryptocurrency wallet that has a native support for blockchain games and NFTs but is limited to mobile and Ethereum only.
Exchange-based wallets like Trust Wallet (run by Binance) and Coinbase’s NonCustodial Wallet offer further NFT storage options. The app-based Trust Wallet supports multiple blockchains and is heavily biased towards smart chain tokens. Coinbase’s wallet allows its users to access decentralized applications (or dApps) and offers easy transfers based on usernames rather than complicated public wallet addresses.
HARDWARE WALLETS
Popular hardware or cold wallets (physical, tangible devices) for storing NFTs include the popular Ledger and Trezor wallets.
TAKE CAUTION
It should be noted that within this highpriced and headline-making NFT craze, scammers and fraudsters are also prevalent, so investors should beware and do your own research (DYOR).
Some of these shady types may try to
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sell you something by passing it off as an NFT when, in actual fact, it’s not. Others have claimed they have the right to sell an NFT of a piece of work they don’t own and didn’t create. These are just some of the common pitfalls to watch out for when new tech gains in value and popularity.
Another recent trend to watch out for is known as “rug pulls.” This is a scenario where the creator of an NFT, collection or gaming project solicits investments and then abruptly abandons the project and fraudulently retains the project investors’ funds.
WHAT’S NEXT FOR NFTs?
In the future, NFTs have the potential to be utilized in many different applications. Currently, that demand is being met in the digital art landscape.
According to coder and avid NFT collector “Begin” (@beginbotbot on Twitter), NFT communities are highly valuable for supporting NFT projects. Begin is a fulltime Degen — in the crypto world, that refers to someone who jumps at opportunities without conducting sufficient research or is often a term crypto-traders (who actually do their research) use to jokingly refer to themselves. He states, “While there are many NFT projects that are more focused on the art, the majority of major NFT projects are known for their communities.” Begin himself is deeply immersed in the local Venice Beach NFT community in Southern California. He attends weekly meetups and even presents a weekly roundup of NFT talking points, called “IRL Alpha,” to a live audience and broadcasts it live on Twitch to an extended community.
Regarding where the next NFT meta trend is heading, Begin believes that more and more subcultures and groups are going to form around NFTs. “Collectors will be a part of many overlapping communities around different niche interests, like music genres or other physical collectible items,” according to Begin.
As for the future, Begin goes on to say that, “We won’t be hearing about NFTs as often, but NFTs will be the tech used for a lot of applications like video game skins, tickets and clothing authentication.”
If you are considering purchasing an NFT as an investment, be aware that there is no guarantee it will increase in value. While some NFTs can sell for thousands or millions of dollars, others may remain or become worthless.
And if you are new to the world of NFTs, take this advice from Begin, “Spend two months learning as much as possible. Join Twitter and read conflicting ideas. Join the Discord servers of many projects new and old and see how the community interacts and what they talk about. Meet people who are into NFTs in real life and pick their brain. Buy the things you like, never spend more than you can lose, and most importantly, have fun!”
