Basic beginners knowledge to understanding NFTs
NFTs, or non-fungible tokens, have been making headlines in recent years as a new way for artists and creators to monetize their digital creations. The mainstream media likes to think otherwise, but what exactly are NFTs, and how do they work? In this
post, I will cover the basic knowledge necessary for beginners to understand NFTs and give you a running start at having a better experience.What are NFTs?
NFTs are digital tokens that represent ownership of unique items, such as artwork, music, videos, events, and even tweets. Unlike cryptocurrencies, which are interchangeable with each other, NFTs are unique and cannot be exchanged for something else. NFTs are stored on a blockchain that provides a secure and transparent way to track ownership and transactions. The most popular crypto blockchain for NFTs is currently Ethereum, although there are many others like Solana, Cardano, Tezos, Tron, Binance, Flow and most recently Bitcoin are all gaining popularity.
How do NFTs work?
To create an NFT, an artist or creator first creates a digital asset, such as a piece of artwork. They then go through a process called "minting," which involves creating a unique token on the blockchain that represents ownership of the digital asset. The token contains information about the owner, the artwork, and the transaction history.
Once the NFT is created, it can be sold or traded on online marketplaces like OpenSea, Rarible, blur, magic eden, objkt or SuperRare. Buyers can bid on NFTs or purchase them outright using cryptocurrencies.
Why are NFTs so popular?
NFTs have gained popularity because they enable artists and creators to monetize their digital creations in a new way. By creating an NFT, an artist can prove ownership of their artwork and sell it as a unique asset. This has opened up new revenue streams for artists and musicians who were previously unable to monetize their digital creations.
NFTs have also attracted attention from collectors and investors who see them as a new type of collectible. NFTs can be traded on online marketplaces, and their value can increase over time as the demand for them grows.
What are the benefits of NFTs?
NFTs offer several benefits to artists, creators, and collectors. Here are a few of the most significant:
1. Provenance: NFTs provide a way to prove ownership and authenticity of digital assets. This is especially important in the art world, where forgeries and fraud are common.
2. Monetization: NFTs provide a new way for artists and creators to monetize their digital creations. By selling an NFT, an artist can earn income from their work in a way that was not possible before.
3. Increased visibility: NFTs can provide increased visibility for artists and creators, as they can be shared on social media and other online platforms. This can lead to new opportunities and a larger audience for their work.
4. Collectibility: NFTs have become popular among collectors and investors, as they provide a new type of collectible. Some NFTs have sold for millions of dollars, and their value can increase over time as the demand for them grows.
What should you look for when buying NFTs?
When buying NFTs, it's important to do your research and make sure you're buying from a reputable artist or creator. Look for NFTs with a proven track record of sales and positive feedback from buyers. You can also consider the rarity and uniqueness of the NFT, as this will affect its value over time.
It's also a good idea to consider your intentions are you purchasing for the long-term value of the NFT or project or are you interested in the NFT for the valuation and profitability. There's a big difference in short game and long game plays. While some NFTs may be popular and valuable now, their value may decrease over time if they become oversaturated or over promise what they can actually achieve also consider if the market moves on to new trends because that happens often in this space. Consider whether the NFT is likely to hold its value over time.
Here are some common NFT-related terms and their definitions:
1. NFT: Non-Fungible Token. A unique digital asset that is verified on a blockchain, often used to represent ownership of digital art, collectibles, and other unique items.
2. Blockchain: A decentralized digital ledger that records transactions in a secure and transparent way.
3. Ethereum: A blockchain platform that allows for the creation and deployment of smart contracts and decentralized applications (dApps).
4. Smart Contract: A self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code.
5. Gas: The fee required to execute a transaction on the blockchain. Different blockchains require different fees.
6. Wallet: A digital tool that allows users to store and manage their cryptocurrency and NFT holdings.
7. Minting: The process of creating or purchasing a new NFT and adding it to a blockchain.
8. Royalties: A percentage of the sale price that is paid to the original creator of an NFT each time it is sold on a secondary market.
9. IPFS: InterPlanetary File System. A peer-to-peer protocol for sharing and storing files on a distributed network.
10. Decentralized: A system or application that operates without a central authority or controlling entity, often relying on blockchain technology to facilitate trust and transparency.
11. Marketplace: A platform where NFTs can be bought, sold, and traded.
12. OpenSea: The largest NFT marketplace, where users can buy, sell, and discover rare and unique digital assets.
13. Rarity: The uniqueness or scarcity of an NFT, which can affect its value and desirability in the market.
14. Metadata: The additional information and attributes attached to an NFT, such as the artist's name, description, and edition number.
15. Tokenization: The process of converting a physical or digital asset into a unique digital token that can be owned and traded on a blockchain.
16. ERC-721: A standard for NFTs on the Ethereum blockchain, which defines a common set of rules for creating and managing non-fungible tokens.
17. Proof of Ownership: A blockchain-based system that verifies and proves ownership of an NFT, allowing buyers to trust that they are purchasing a unique and authentic asset.
18. Gas Limit: The maximum amount of gas that a user is willing to spend on a transaction, which can affect the speed and cost of executing the transaction on the blockchain.
19. Layer-2 Scaling: A technology that allows for faster and cheaper processing of transactions on the Ethereum blockchain, often achieved through off-chain solutions.
20. DAO: Decentralized Autonomous Organization. A community-driven organization that operates on a blockchain, often using smart contracts to govern decision-making and fund allocation.
21. Immutable: In the context of NFTs, this refers to the fact that once an NFT is minted and added to the blockchain, its ownership record and metadata cannot be altered or deleted.
22. Gas Price: The cost of each unit of gas used in a transaction, which can vary depending on network congestion and demand.
23. Burn: The process of destroying an NFT or cryptocurrency token, often used to create scarcity and increase the value of the remaining tokens.
24. Wrapped Tokens: A token that represents another cryptocurrency or asset, allowing it to be traded on different blockchains.
25. Cryptocurrency: A digital asset designed to function as a medium of exchange, using cryptography to secure and verify transactions on a decentralized network.
26. Crypto Wallet Address: A unique identifier used to send and receive cryptocurrency and NFTs on a blockchain.
27. Layer-1 Scaling: A technology that improves the performance and scalability of the underlying blockchain, often achieved through upgrades to the core protocol.
28. Cross-Chain: The ability to transfer and exchange tokens between different blockchains.
29. Proof of Stake: A consensus mechanism used in some blockchains that allows users to validate transactions and earn rewards based on the amount of cryptocurrency they hold.
30. Liquidity: The ease with which an asset can be bought or sold on a market, often measured by the volume and depth of the order book.
Conclusion
NFTs have opened up new opportunities for artists, creators, and collectors. They provide a way to prove ownership and authenticity of digital assets, as well as a new way to monetize digital creations. While the world of NFTs can be complex, it's worth exploring for those interested in art, collectibles, or blockchain technology. By doing your research and carefully considering your purchases, you can participate in this exciting new market and potentially benefit from its growth over time.