Everything You Should Know About NFTs — Meaning, Pros, and Cons Explained

Published on 27 June 2022 10 min read

What Does NFT Stand For?

The term "NFT" stands for "non-fungible token." Non-fungible, meaning the token is not interchangeable with a similar or identical item. Unlike bitcoin, which is a peer-to-peer type of electronic cash, NFTs are like a snowflake in the cryptocurrency world, where every item is unique. This is the fundamental idea that you should understand when it comes to NFTs.

What Is an NFT?

An NFT is a non-fungible token that holds data on the blockchain and can be sold and traded. NFTs can be associated with any type of media, such as photos, videos, artwork, music, audio files, or gaming code.

One of the unique features of an NFT is that you can't break it down into smaller units. However, an NFT can represent the fractional ownership of an asset.

In the world of digital artwork, NFTs have emerged as a game-changer. They provide artists with an innovative way to establish ownership and authenticity of their creations in the digital realm. With NFTs, artists can tokenize their digital artwork, creating a unique and verifiable certificate of ownership on the blockchain. This revolutionary concept addresses the challenges of provenance and copyright protection, allowing artists to monetize their work and protect their intellectual property rights.

NFTs have revolutionized the art market, enabling artists to tokenize their digital creations and establish ownership. This has led to the emergence of high-value sales, with some NFTs fetching millions of dollars at auction houses. These unique tokens have transformed digital items into valuable assets, creating a new marketing incentive for artists. The sales of NFTs have opened up exciting opportunities in the art world, blending technology, creativity, and lucrative transactions.

Who Creates NFTs?

There is a diverse range of creators who are currently creating NFTs. Because they can be associated with almost any form of media, you will find NFT projects by people from all walks of life.

Artists: Today, artists are selling NFTs of their paintings, drawings, photographs, or other visual media on NFT marketplaces such as OpenSea or SuperRare.
Musicians: Many musicians are taking advantage of NFTs to sell their music directly to fans.
Celebrities: Numerous celebrities, from Paris Hilton to Snoop Dogg, have created NFT projects in the last two years.
Game creators: We are seeing a number of games and platforms selling game assets and characters in the form of NFTs.
Entrepreneurs: A number of business owners and entrepreneurs are selling fractionalized ownership of an asset via NFTs.

NFTs are created by a diverse range of individuals and entities, contributing to the vibrant and expanding market for NFTs. One notable player in the NFT space is Dapper Labs, the creator of CryptoKitties and the blockchain platform Flow. Dapper Labs has been at the forefront of NFT innovation, developing unique digital collectibles and launching platforms like NBA Top Shot, where fans can buy, sell, and trade officially licensed NBA highlight NFTs.

Platforms like Nifty Gateway have also emerged as pioneers in NFT creation and distribution. Nifty Gateway provides a user-friendly marketplace that allows artists, musicians, and celebrities alike to tokenize and sell their digital creations as NFTs. Through collaborations with renowned names like Rolling Stone and Quentin Tarantino, Nifty Gateway has helped bridge the gap between traditional entertainment industries and the NFT market.

However, it's important to note that the creation of NFTs extends beyond established platforms and celebrities. Anyone with access to blockchain technology can mint and sell their own NFTs. This has opened up a world of opportunities for digital artists, musicians, photographers, and even content creators in the gaming industry. NFT marketplaces provide an avenue for these creators to showcase and monetize their work, reaching a global audience without the need for traditional intermediaries.

While some NFT creators are well-known figures, others are emerging talents who have found success in the NFT market. The sale of NFTs has become a lucrative venture for many, with artists selling their digital artwork, musicians releasing limited edition albums, and even virtual real estate being tokenized and traded. This democratization of the creative market has empowered individuals to independently showcase and profit from their artistic endeavors.

Advantages of NFTs

Fully understanding what an NFT is includes knowing its biggest benefits. Here's a list of advantages that NFTs have to offer.

1. They can fractionalize ownership of tangible assets.

One of the reasons so many entrepreneurs love NFTs is that they can easily sell fractionalized ownership of almost any asset. As an example, there are companies that now sell fractionalized ownership of real estate via NFTs. Platforms such as Futurent, Labs Group, Aqar Chain, and RealT sell fractionalized real estate as NFTs. Another excellent example is the band Kings of Leon, who are selling a part of their album as an NFT.

2. They can provide ongoing royalties to the creator.

One of the big reasons artists love NFTs is the fact that they set a royalty rate for every sale of the NFT. For example, a digital artist can set a royalty rate of 10% for each sale of his NFT. Therefore, if the NFT changes hands four times in a 12-month period, the artist will automatically receive a 10% royalty from each sale.

3. The technology is safe.

NFTs provide a digital ledger of every sale, which is secured on the blockchain through a smart contract. A person can create an NFT knowing that they will be able to track the chain of ownership anywhere with access to the public ledger.

4. They make the markets more efficient.

NFT creators can now sell a large collection of digital assets easily. From minting (which is the process by which digital files are converted to NFTs through smart contracts) to the secondary sales, all transactions are seamless, and the artist can easily collect proceeds or royalties from each sale.

Disadvantages of NFTs

While NFTs are an incredible innovation, there are some downsides to this new type of technology. Here are some disadvantages of NFTs.

1. Minting can be expensive.

All NFTs need to be minted in order to come into existence. Creators or collectors who wish to mint NFTs on the popular Ethereum blockchain will need to pay what is known as a gas fee. In some cases, gas fees can be extremely expensive.

2. The market can be volatile.

Because the NFT market is relatively new, it can be extremely volatile. It is not uncommon for some NFTs to double in value in a matter of hours due to pure speculation. Also, some NFTs can lose almost all of their value in a matter of minutes.

3. Creators and collectors need to be wary of fraud.

For every popular Cryptopunk NFT, there are dozens of cheap imitators. Additionally, some unscrupulous actors have created NFT projects with the sole intention to "take the money and run" without fulfilling any promises set out in the roadmap or whitepaper. Because of these situations, some people perceive NFTs as a sort of "Wild West" of the digital world.

4. They can be harmful to the environment.

Because NFTs are created on the blockchain, there are some environmental concerns. That is because some blockchains use what is known as "proof of work" in order to validate a smart contract transaction. Proof of work involves a high level of energy expenditure, which can be harmful to the environment.

Significant NFT Projects and Creators

You may be wondering what types of NFT projects are leading this new digital revolution. For the most part, the NFT world is driven by community-focused collections that have become worth tens of millions to billions of dollars. Here's a look at some of the most significant NFT projects and creators in 2022.

1. Bored Ape Yacht Club

You may have already heard of Bored Ape Yacht Club, or BAYC. This NFT project consists of 10,000 cartoon illustrations of, well, Bored Apes. This collection has become so popular that the cheapest Bored Ape is worth hundreds of thousands of dollars. Celebrity owners of Bored Apes include Mark Cuban, Steph Curry, Jimmy Fallon, and Justin Beiber. The creator of the BAYC project, Yuga Labs, recently raised $450 million to bring their company's valuation to over $4 billion.

2. VeeFriends

VeeFriends is a collection of cartoon illustration NFTs created by entrepreneur Gary Vaynerchuk. What makes VeeFriends unique is that each NFT comes with a number of benefits, including the opportunity to participate in Facetime conversations with Vaynerchuk. As of 2022, VeeFriends is in the top 10 in terms of transaction volume.

3. Beeple

Beeple is the alias of South Carolina digital artist Michael Joseph Winkelmann. For almost a decade, Beeple has been creating digital art before entering the world of NFTs. Beeple is significant because he once held the record for the most expensive NFT ever sold. The NFT in question, "Everydays: The First 5,000 Days," was a collage of the first 5,000 digital works from the artist. The piece sold for $69 million in an auction at Christie's.

The Growth of NFTs

Non-fungible tokens (NFTs) have been gaining significant traction in recent years due to their unique characteristics enabled by blockchain technology. These digital assets, represented by tokens, are capable of holding ownership rights over a wide range of digital and physical items, from artwork and music to virtual real estate and collectibles. The financial potential of NFTs is evident through the millions of dollars being exchanged within the market. For example, the Ape Yacht Club, a collection of unique digital apes, sold one of its NFTs for a staggering $24 million, highlighting the tremendous value NFTs can command.

One of the key features that make NFTs valuable is their proof of ownership. Each NFT contains a unique certificate of ownership stored on the blockchain, verifying the authenticity and ownership of the associated digital asset. This certificate serves as a digital record of ownership that can be accessed and verified by anyone, eliminating the need for intermediaries and simplifying the process of transferring ownership.

Secondary markets play a crucial role in the NFT ecosystem as they allow collectors to trade and sell their NFTs. These marketplaces facilitate peer-to-peer transactions, connecting buyers and sellers in a transparent and secure manner. As a result, NFT owners can benefit from the appreciation of their digital assets by leveraging the growing demand for unique and scarce digital content. Notable examples include the sale of the iconic Nyan Cat GIF for nearly $600,000 and the rise of digital art auctions fetching millions of dollars.

The concept of NFTs also presents exciting opportunities for creators and artists by allowing them to monetize their intellectual property directly. With NFTs, artists can retain ownership of their creations and earn royalties on secondary sales, granting them ongoing revenue streams and control over their work. This has revolutionized the digital art market, providing artists with a new avenue to showcase and capitalize on their talent, while also providing authentication and provenance for buyers.

Blockchain transactions serve as the backbone of the NFT market, ensuring security, immutability, and transparency. These transactions recorded on a public ledger provide a clear history of ownership transfers, making it difficult for fraud or forgeries to go undetected. Furthermore, the decentralized nature of blockchain technology removes the reliance on centralized authorities, democratizing access and significantly reducing transaction costs.

The explosion of the NFT market has led to a market incentive for platforms and marketplaces to facilitate the sale of NFTs. These platforms typically charge fees on transactions, generating significant revenue streams. Investment in NFT infrastructure continues to grow as companies recognize the potential and value of this emerging market, leading to further innovations and advancements in technology and market accessibility.

In conclusion, NFTs have transformed the way we perceive and interact with digital assets. With their proof of ownership, value in the millions of dollars, and implications for intellectual property rights, NFTs have positioned themselves as a driving force in the future of the digital economy. As the market for NFTs evolves, their impact will continue to expand across various industries, creating new avenues for creators, collectors, and investors alike.

Summing Things Up

Here's a summary of what you need to know about NFTs:

NFT stands for non-fungible token.
NFTs are created on the blockchain and provide a digital record of every transaction that can be viewed by the public.
NFTs can be associated with any type of digital media.
NFTs are currently being created by artists, celebrities, and entrepreneurs.
Advantages of NFTs include fractional ownership of assets, royalty payments to the NFT creator, safe technology, and efficient sales.
Disadvantages of NFTs include high minting costs, volatile pricing, and a high prevalence of imitation projects and fraud.
From 2020 to 2021, NFTs have grown 206x in terms of annual sales.

Understanding NFTs as a Creator

If you are interested in learning how to create your own NFTs, it's a good idea to join the right community. Make sure to also check out Tom Glendinning detailed workshop recording on NFTs on Daisie. Daisie brings together artists in a series of classes and forums focused on the creation, marketing, and growth of NFTs. It's a great place to start, whether you are an experienced artist or you just want to learn more about the space.