This year, non-fungible tokens (NFTs) appear to have exploded from the ether.
These digital assets, which range from art and music to tacos and toilet paper, are selling like 17th-century exotic Dutch tulips, with some fetching millions of dollars.
Are NFTs, on the other hand, worth the money—or the hype? Some analysts believe they, like the dotcom mania and Beanie Babies, are about to burst.
Others feel that NFTs are here to stay and will forever revolutionize investment.
What Is an NFT?
A digital asset that depicts real-world elements like art, music, in-game items, and films is known as an NFT.
They're bought and traded online, often using cryptocurrency, and they're usually encoded with the same software as many other cryptos.
Despite the fact that they've been there since 2014, NFTs are gaining popularity currently as a popular means to buy and sell digital artwork. Since November 2017, a whopping $174 million has been spent on NFTs.
NFTs are also one-of-a-kind, or at the very least one of a very small run, and contain unique identifying codes.
"Essentially, NFTs generate digital scarcity," explains Arry Yu, managing director of Yellow Umbrella Ventures and chair of the Washington Technology Industry Association's Cascadia Blockchain Council.
This is in sharp contrast to the vast majority of digital products, which are nearly always available in endless quantities. If a certain asset is in demand, cutting down the supply should theoretically increase its value.
However, many NFTs have been digital works that already exist in some form elsewhere, such as legendary video clips from NBA games or securitized versions of digital art that are already floating around on Instagram, at least in these early days.
For example, acclaimed digital artist Mike Winklemann, better known as "Beeple," created "EVERYDAYS: The First 5000 Days," possibly the most famous NFT of the moment, which sold at Christie's for a record-breaking $69.3 million.
Individual images—or perhaps the full collage of images—can be viewed for free on the internet. So, why are people prepared to spend millions of dollars on something that might be easily screenshotted or downloaded?
Because a non-financial transaction permits the buyer to keep the original object. It also comes with built-in authentication, which acts as proof of ownership.
The "digital bragging rights" are almost as valuable as the item itself to collectors.
How Is an NFT Different from Cryptocurrency?
The term "non-fungible token" refers to a token that is not fungible. It's usually programmed in the same way as cryptocurrencies like Bitcoin or Ethereum, but that's where the similarities end.
Cryptocurrencies and physical money are both "fungible," meaning they may be traded or exchanged for one another.
They're also worth the same amount of money—one dollar is always worth another dollar and one Bitcoin is always worth another Bitcoin.
Learn how to purchase bitcoin in Australia.
The fungibility of cryptocurrency makes it a secure way to execute blockchain transactions.
NFTs aren't like other materials. Each contains a digital signature that prevents NFTs from being substituted for or compared to one another (hence, non-fungible).
Simply because they're both NFTs, one NBA Top Shot clip isn't the same as EVERYDAYS. (For that matter, one NBA Top Shot footage isn't necessarily equal to another NBA Top Shot clip.)
How Does an NFT Work?
NFTs are stored on a blockchain, which is a decentralized public ledger that keeps track of transactions. Most people are familiar with blockchain as the underlying technology that allows cryptocurrencies to exist.
NFTs are most commonly kept on the Ethereum blockchain, although they can also be held on other blockchains.
An NFT is made up of digital objects that represent both tangible and intangible objects, such as:
- Art
- Videos and sports highlights
- Virtual avatars and video game skins
- Music
- GIFs
- Collectibles
- Designer sneakers
Even tweets are taken into account. Jack Dorsey, a co-founder of Twitter, sold his first tweet as an NFT for more than $2.9 million.
NFTs are essentially digital versions of tangible collector's artifacts. As a result, rather than receiving an actual oil painting to put on the wall, the customer receives a digital file.
- They also obtain exclusive rights to the property. It's true: NFTs can only have one owner at a time.
Because NFTs include unique data, it's simple to verify ownership and transfer tokens between owners. They can also be used to hold specific information by the owner or author.
Artists, for example, can sign their work by putting their signature in the metadata of an NFT.
What Are NFTs Used For?
Artists and content creators have a one-of-a-kind opportunity to monetize their work thanks to blockchain technology and NFTs.
Artists, for example, no longer have to sell their work through galleries or auction houses. Instead, the artist can sell it as an NFT straight to the consumer, allowing them to keep a larger portion of the profit.
Additionally, artists can integrate royalties into their software so that they receive a share of sales when their work is sold to a new owner. This is a desirable feature because most artists do not receive subsequent proceeds after their first sale.
Making money using NFTs isn't limited to art. To raise money for charity, companies like Charmin and Taco Bell have auctioned off themed NFT art.
Taco Bell's NFT art sold out in minutes, with the highest bids coming in at 1.5 wrapped ether (WETH)—equal to $3,723.83 at the time of writing.
Charmin's offering was dubbed "NFTP" (non-fungible toilet paper), and Taco Bell's NFT art sold out in minutes, with the highest bids coming in at 1.5 wrapped ether (WETH)—equal to $3,723.83 at the time of writing.
In February, Nyan Cat, a 2011 GIF depicting a cat with a pop-tart body, sold for nearly $600,000.
As of late March, NBA Top Shot had grossed more than $500 million in sales. NFT sold for more than $200,000 for a single LeBron James highlight.
Snoop Dogg and Lindsay Lohan are among the celebrities who have jumped on the NFT bandwagon, sharing unique memories, artwork, and moments as securitized NFTs.
How to Buy NFTs
If you're interested in starting your own NFT collection, you'll need the following items:
- To begin, you'll need a digital wallet that can hold both NFTs and cryptocurrencies. Depending on what currencies your NFT provider takes, you'll probably need to buy some cryptocurrency, such as Ether.
- Coinbase, Kraken, eToro, and even PayPal and Robinhood now allow you to buy cryptocurrency with a credit card. After that, you'll be able to transfer it from the exchange to your preferred wallet.
- When researching your alternatives, keep fees in mind. When you acquire crypto, most exchanges charge at least a portion of your transaction.
Popular NFT Marketplaces
There are many NFT sites to choose from once you've set up and funded your wallet. The following are the largest NFT marketplaces at the moment:
Opensea coinmarketcapo: This peer-to-peer marketplace claims to sell "rare digital objects and treasures." To get started, simply create an account and browse the NFT collections. You may also sort pieces by how much they sold to find new artists.
Rarible: Rarible is a democratic, open marketplace that lets artists and producers issue and sell NFTs, similar to OpenSea. The platform's RARI tokens allow users to vote on features such as fees and community regulations.
Foundation: To upload their work here, artists must get "upvotes" or an invitation from other creators. Because of the community's exclusivity and high admission cost—artists must also acquire "gas" to mint NFTs—it is likely to attract higher-quality work.
- Chris Torres, the developer of Nyan Cat, for example, sold the NFT on the Foundation platform.
It might also imply higher prices, which isn't necessarily a negative thing for artists and collectors looking to profit if demand for NFTs stays the same or even rises over time.
Although these and other platforms are home to hundreds of NFT artists and collectors, do your homework before purchasing. Some artists have been defrauded by impersonators who have listed and sold their work without their knowledge.
Furthermore, the verification methods for creators and NFT listings vary by platform, with some being more strict than others.
For NFT listings, OpenSea and Rarible, for example, do not require owner verification. Buyer safeguards appear to be limited at best, therefore it's wise to remember the old adage "caveat emptor" (let the buyer beware) when buying for NFTs.
Should You Buy NFTs?
Is it true that just because you can buy NFTs, you should? Yu says that depends.
"NFTs are dangerous since their future is unknown, and we don't yet have enough data to gauge their performance," she says. "Because NFTs are so new, it would be worth spending a little amount to test them out for the time being."
Investing in NFTs, in other words, is essentially a personal decision. If you have some extra cash, it's something to think about, especially if the artwork has sentimental value for you.
However, keep in mind that the value of an NFT is solely determined by what someone else is prepared to pay for it.
As a result, rather than fundamental, technical, or economic indicators, which traditionally impact stock prices and, at the very least, constitute the basis for investor demand, demand will drive the price.
All of this means that you may be able to resell an NFT for less than you bought for it. If no one wants it, you might not be able to resell it at all.
Capital gains taxes apply to NFTs, just like they do when you sell stocks at a profit.
Because they're considered collectibles, they may not qualify for the lower long-term capital gains rates that stocks do, and they may even be taxed at a higher collectibles rate, though the IRS hasn't decided what NFTs are for tax purposes.
Keep in mind that the cryptocurrencies you used to buy the NFT may be taxed if their value has increased since you bought them, so consult with a tax specialist before adding NFTs to your portfolio.
That said, use NFTs like you would any other investment: do your homework, understand the risks (including the possibility of losing all of your money), and proceed with caution if you decide to invest.
How to Make an NFT
1. Pick your item
Let's begin with the fundamentals. You'll need to figure out what unique digital asset you want to make into an NFT if you haven't already. It might be a bespoke painting, photograph, song, collectible video game, meme, GIF, or even a tweet. An NFT is a one-of-a-kind digital artifact with only one owner. The NFT value is determined by rarity.
Make sure you own the intellectual property rights to the object you wish to make into an NFT before proceeding. You could get into legal difficulties if you make an NFT for a digital asset you don't own.
2. Choose your blockchain
After you've chosen your one-of-a-kind digital asset, you can begin the process of minting it into an NFT.
The first step is to decide the blockchain technology you'll utilize for your NFT. Ethereum is the most popular among NFT artists and creators (CRYPTO:ETH). Tezos, Polkadot, Cosmos, and Binance Smart Chain are also prominent alternatives.
3. Set up your digital wallet
You'll need a digital wallet to create your NFT if you don't already have one, as you'll require cryptocurrency to fund your initial investment.
Your digital possessions will be accessible through the wallet. Metamask, Math Wallet, AlphaWallet, Trust Wallet, and Coinbase Wallet are among the most popular NFT wallets.
You'll want to buy some cryptocurrencies once you've set up your digital wallet. Most NFT sites accept Ether, the Ethereum blockchain platform's coin. If you already have cryptocurrency, you'll want to link it to your digital wallet so that you may create and trade NFTs with it.
4. Select your NFT marketplace
It's time to start making (and, ideally, selling) your NFT after you have a digital wallet and enough cryptocurrency. You'll need to choose an NFT marketplace for this. OpenSea, Axie Marketplace, Larva Labs/CryptoPunks, NBA Top Shot Marketplace, Rarible, SuperRare, Foundation, Nifty Gateway, Mintable, and ThetaDrop are some of the most popular NFT markets.
To pick a platform that's a good fit for your NFT, you'll need to examine each NFT marketplace. Axie Marketplace, for example, is the online store for the popular NFT game Axie Infinity. NBA Top Shot, on the other hand, is a basketball-specific marketplace.
It's also worth noting that certain exchanges demand their own coin. Rarible, for instance, necessitates Rarible (CRYPTO:RARI).
It's usually a good idea to start with OpenSea. It is a leader in NFT sales and allows you to mint your own NFT. In August 2021, the NFT marketplace alone sold $3.4 billion in NFTs.
You'll need to link your NFT marketplace to your digital wallet after you've chosen it. This will allow you to pay the fees associated with minting your NFT as well as keep any sales revenues.
5. Upload your file
You've finally arrived at the point where you can mint your NFT. A step-by-step guide for uploading your digital file to your preferred NFT marketplace should be available. You'll be able to convert your digital file (a PNG, GIF, MP3, or another file type) into a marketable NFT using this method.
6. Set up the sales process
The decision on how to monetize your NFT is the final step in the NFT minting process. You can do the following, depending on the platform:
Sell it for a set price: If you set a preset price, you'll be able to sell your NFT to the first individual who is willing to pay that price.
Set up a timed auction: A timed auction will allow individuals interested in your NFT to submit their final bid within a certain amount of time.
Start an unrestricted auction: An unrestricted auction has no time limit. Instead, you have complete control over when the auction ends.
You'll need to figure out the minimum price (if you're holding an auction), the royalties you'll need to keep cashing in on your NFT if it resells on the secondary market, and how long you'll conduct the auction for (if timed).
When determining the minimum price, keep in mind that if you set the price too low, you may lose money on your NFT transaction.
Unfortunately, the costs of minting and selling an NFT can be high and complicated. You may have to pay a listing charge, an NFT minting cost, a commission on the sale, and a transaction fee to transfer money from the buyer's wallet to yours, depending on the platform and price.
Because of the volatility in cryptocurrency prices, fees may also change. As a result, you should carefully consider the costs of producing and selling your NFT to ensure that they are worthwhile.
Making NFTs can be a profitable investment
As NFTs become more popular, their sale prices are growing. As a result, NFT inventors stand to profit handsomely. Given the fees associated with minting and selling NFTs, not all NFTs will even sell, let alone make their creator any money.
You should budget for the likelihood of losing money on your NFT invention due to the costs. The simplest method to avoid a loss is to sell an NFT that will be valuable to others and set a minimum price that will more than cover any associated expenses.
Getting involved with any new frontier is, of course, a major decision, especially if it costs money right away. If you'd prefer just dip your toes in the water and aren't trying to develop a specific NFT right now, you may begin by looking at some genuine NFT marketplaces and learning how they operate.
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