Understanding NFTs: A Practical Guide to Non-Fungible Tokens

Written by Daisie Team

Published on 10 July 2023 7 min read

Delving into the world of digital assets can feel like stepping into a sci-fi movie. The term "NFT" or "Non-Fungible Token" is a buzzword you've probably seen splashed across headlines recently. It might sound complex, but understanding NFTs is simpler than you think. This guide aims to demystify NFTs, making them understandable even to a sixth-grader. So, get ready to take a deep dive into the fascinating world of NFTs.

1. Define NFT (Non-Fungible Token)

We're starting our journey by defining what exactly an NFT is. It may sound like a jumble of tech-jargon, but it's a concept that's reshaping the digital landscape.

NFT vs Cryptocurrency

First off, let's clarify the difference between NFTs and cryptocurrencies, as these terms are often used interchangeably. Both are forms of digital assets, but here's the key difference: cryptocurrencies like Bitcoin or Ethereum are fungible. This means, just like you can swap a dollar for another dollar, you can exchange one Bitcoin for another. On the other hand, NFTs are non-fungible—each NFT is unique and can't be replaced with something else. Think of it like a collectible card game: you can't simply swap a rare, limited-edition card for another common card.

Examples of NFTs

Now, let's consider some examples to better understand NFTs. They can represent a wide variety of unique tangible and intangible items, from digital art and music to virtual real estate and virtual goods in video games. For instance, remember the Nyan Cat meme? The original GIF was sold as an NFT for nearly $600,000. Or take Beeple, a digital artist, who sold an NFT artwork for a mind-boggling $69 million at Christie's auction house.

Blockchain and NFT

Finally, we need to talk about blockchain, as it's the technology that powers NFTs. A blockchain is like a digital ledger keeping track of every transaction. When you buy an NFT, the transaction gets recorded on the blockchain. This provides proof of ownership and ensures the authenticity and rarity of the NFT. Ethereum, one of the leading blockchains, is currently the most popular for creating and trading NFTs.

By understanding NFTs, you're not just keeping up with the latest tech trend. You're gaining insight into a digital revolution that's transforming the way we think about ownership and value in the digital world.

2. Unlock the Value of NFTs

Alright, so now you know what an NFT is. But how does one give value to a digital file that can be easily duplicated? This is where understanding NFTs becomes more interesting.

Pricing NFTs

The value of an NFT is subjective, much like any piece of art or collectible. The price is essentially determined by what someone is willing to pay for it. The uniqueness, rarity, and the demand for a particular NFT all contribute to its price. For instance, if there's a digital artwork by a popular artist with only five copies available, the scarcity could drive up the price.

Factors Affecting NFT Value

Several factors come into play when determining the value of an NFT. This includes the creator's reputation, the uniqueness of the token, its utility, and the demand in the market. For instance, an NFT created by a renowned digital artist like Beeple might fetch a higher price compared to an unknown artist. Similarly, if an NFT allows the owner exclusive access to certain experiences or content, it might increase its desirability and, hence, its value.

Calculating NFT Worth

While there's no definitive formula to calculate the worth of an NFT, you can get a ballpark figure by looking at similar NFTs in the market. Websites like CryptoArt.io and Rarity.tools can provide information on recent sales and trends. Remember, though, that the value of an NFT can fluctuate based on supply and demand, so the price today might not be the same tomorrow.

Understanding NFTs and their value can feel like navigating a labyrinth. But once you get the hang of it, you'll realize that it's not much different from traditional collectibles or art. The only difference? It's all happening in the digital world.

3. Buy NFTs

Ready to dip your toes into the world of NFTs? Great! Here's your step-by-step guide to buying your first NFT.

Platforms for Buying NFTs

Start by choosing the right platform. Some of the popular choices include OpenSea, Rarible, and NBA Top Shot. Each platform has its own unique features and offerings, so choose one that suits your interest. Remember, some platforms deal with specific types of NFTs like digital art or sports collectibles.

Purchase Process of NFTs

Once you've chosen a platform, you'll need to set up a digital wallet and fund it with cryptocurrency—usually Ethereum. From there, it's like any online shopping experience. Browse the NFTs, select the one you want, and click 'buy'. The NFT will then be transferred to your digital wallet. Quite straightforward, right?

Safety Tips When Buying NFTs

As with any investment, buying NFTs comes with a certain level of risk. Here are a few safety tips: Do your homework before investing. Verify the authenticity of the NFT and the credibility of the seller. And, never invest more than you're willing to lose. Remember, the value of NFTs can be quite volatile.

Understanding NFTs and how to buy them can be a fun and rewarding journey. Just make sure you're prepared and informed!

4. Sell NFTs

Perhaps you've created a piece of digital art, or you're looking to sell an NFT you already own. Either way, this section is all about understanding NFTs from a seller's perspective.

Platforms for Selling NFTs

Similar to buying, selling NFTs also takes place on various platforms. OpenSea, Rarible, and NBA Top Shot are again some of the key players here. Depending on the nature of your NFT, you might also consider specialized platforms like Decentraland for virtual reality assets, or Sorare for football cards.

Listing and Selling NFTs

To sell an NFT, you'll need to list it on your chosen platform. This typically involves setting a price, adding a description, and categorizing the NFT for easy discovery. Once listed, other users can view and purchase your NFT. Some platforms allow for auctions, which can be a thrilling way to sell if you have a highly desired NFT.

Understanding NFT Royalties

One of the perks of selling NFTs is the potential for royalties. Some platforms allow original creators to earn a percentage every time their NFT is resold. This means you could continue to profit off your work long after the initial sale. However, royalty rates and rules vary greatly between platforms, so be sure to read the fine print.

So, whether you're an artist looking to monetize your work or an investor trading NFTs, understanding NFTs and the selling process can be a game-changer.

5. Create Your Own NFTs

Now, let's pivot to something a bit more creative and exciting: creating your own NFTs. Once you understand NFTs and their potential, you might find yourself itching to join the craze and create your own digital masterpiece.

Creation Tools for NFTs

Creating an NFT requires a few specific tools. First and foremost, you need a digital asset. This could be anything from a digital art piece you've created in Procreate or Photoshop, to a song you've produced, or even a tweet. Then, you'll need a digital wallet to connect with the NFT marketplace, like MetaMask or Trust Wallet. Lastly, you'll need some Ethereum (ETH) to pay for the gas fees associated with minting your NFT.

Minting Process of NFTs

Minting is how your digital asset becomes a unique, blockchain-backed NFT. Once you've prepared your digital asset and set up your wallet, you upload your work to a platform like Mintable or OpenSea, fill out all the necessary information, and then mint your NFT. Remember, minting requires gas fees, so make sure you've got some ETH in your wallet. It's a bit like paying for postage when you send a parcel.

Legal Considerations for NFT Creators

Now, let's talk legality. It's important to note that when you create an NFT, you're not selling the copyright or ownership of your work, unless you explicitly say so. That means, even if someone else owns the NFT of your work, you still hold the copyright and can produce more works like it. However, this is a complex area of law that is still being figured out, so you might want to seek legal advice if you're unsure.

From the creative freedom to the potential for royalty income, understanding NFTs opens up a world of opportunities for creators like you.

6. Anticipate the Future of NFTs

Having ventured into the world of understanding NFTs, it's time to look towards the horizon and anticipate what's next. The world of NFTs is still in its infancy, but there are already some fascinating trends and challenges emerging.

Potential Uses of NFTs

While digital art is the most common use of NFTs right now, we're only scratching the surface of their potential. Imagine owning an NFT of your favorite song, giving you backstage access at every concert. Or an NFT of a digital real estate in a virtual world like Decentraland. Even sports leagues like the NBA are getting in on the action with NFT trading cards.

Challenges and Opportunities for NFTs

Like any new technology, NFTs face challenges. The environmental impact of NFTs is a hot topic, and there's a lot of confusion about copyrights and ownership. But with challenges come opportunities: improved sustainability, clearer legal frameworks, and new marketplaces could all enhance the NFT landscape.

NFTs and the Environment

A significant challenge for the future of NFTs is their environmental impact. Since NFTs use blockchain technology, they require a lot of computing power, which can lead to high energy consumption. But don't despair, eco-friendly solutions are emerging. For example, Ethereum, the main blockchain for NFTs, is transitioning to a more energy-efficient system.

Understanding NFTs isn't just about knowing what they are; it's about keeping an eye on where they're going. So, as you dive into the world of NFTs, remember to stay curious and adaptable — just like the technology itself.

If you're eager to dive deeper into the world of Non-Fungible Tokens, don't miss the workshop 'Sell Your Creations As NFTs' by Tom Glendinning. This workshop will provide you with a practical understanding of NFTs and guide you through the process of selling your digital creations in the exciting world of NFTs.