Non-fungible Tokens: The Startling Truth about NFTs
You may have seen the initials NFT a lot lately. Maybe you’ve heard that some artists have made millions of dollars selling their art as NFTs. Or you’ve heard that some people are selling their tweets. Or perhaps you’ve seen the polarized opinions about them in the art community. But what even are NFTs? This article will go over the basics of non-fungible tokens, also known as NFTs.
What are Non-fungible tokens (NFTs)?
NFT stands for non-fungible token. They are cryptocurrency tokens used to represent unique items.
Non-fungible is an economic term that means something is unique and can’t be interchanged with something else because it has unique properties. Some examples of non-fungible items are original artwork, one-of-a-kind trading cards, a couch, and your computer. This is in contrast to fungible items, which are items that can be exchanged for other items of the same value, such as currency. For example, a $100 bill can be exchanged for five $20 bills, and Bitcoin worth $100 can be exchanged for another Bitcoin worth $100.
NFTs are a unit of currency on a cryptocurrency blockchain, usually Ethereum. Each minted token has a unique code, and unlike a .jpg or some other digital file where a copy is the same as the original, NFTs are digitally unique. NFTs can represent a single, unique, non-fungible item, like a piece of artwork, or they can represent something like trading cards where there are a limited number of numbered copies. Even in the trading card scenario, each NFT is unique.
NFTs serve as certificates of authenticity and ownership and can’t be copied or replaced. Information about an NFT’s owner can be accessed and verified on the blockchain’s public record. All of this has made NFTs popular with digital artists and other creators.
How do NFTs work?
According to Ethereum.org, NFTs are powered by smart contracts on the Ethereum blockchain, which is decentralized and secure.
Many NFTs use the Ethereum blockchain but can be created on other cryptocurrency blockchains as well. Ethereum is a type of cryptocurrency, like Bitcoin. However, Ethereum’s blockchain can support the extra information required for NFTs. This information makes NFTs work differently than a standard Ethereum coin (ETH).
A blockchain is a decentralized list of records that are linked using cryptography. A record, known as a block, can’t have its data altered retroactively without altering all following blocks. Blockchains are decentralized because instead of relying on one institution to record transactions, they use a computer network that uses a shared public record. This makes the blockchain and the NFTs minted within it resistant to being modified, copied, or replaced. This also provides a publicly accessible way to track an NFT’s transaction history, origin, and ownership.
Smart contracts are built into the code of NFTs, and Ethereum in general. They are self-executing and contain the terms of the agreement between buyer and seller. NFT smart contracts can contain stipulations about royalties so that the original creator will receive a percentage of the sale every time the NFT is sold.
NFTs can be minted, bought, and sold on various marketplaces. These marketplaces are connected to a blockchain where the NFT lives. So, an NFT created on the Ethereum blockchain can be moved, bought, and sold on any marketplace that uses the same blockchain. NFTs are also compatible with anything else built on the same blockchain. So, an Ethereum NFT artwork could be traded for an Ethereum NFT trading card.
What are NFTs used for?
NFTs are used as a secure way to verify ownership of unique items, which makes them useful for collectors. Each NFT must have an owner and can only have one owner at a time. This information is recorded on the blockchain, which is of public record and can be easily verified.
What can be an NFT?
NFTs have caught attention in the digital art world. But more than just digital art can be represented with NFTs. Ownership of any unique item could be represented by an NFT, including both digital and physical items.
Here are some notable NFT examples you may have heard of in the news. NFT artwork by artists like Grimes and Beeple have sold for millions of dollars. Kings of Leon are the first band to release an album as an NFT. The CEO of Twitter sold his very first tweet as an NFT for millions of dollars. A rendition of the Nyan Cat meme from 2011 sold for over half a million as an NFT. An NFT of LeBron James making a historic dunk, which sold for more than $200,000. And sports stars, like Rob Gronkowski, are creating trading card NFTs featuring Super Bowl moments.
But there are so many more things that are being minted and sold as NFTs. Just a few examples include essays, video game items, domain names, and event tickets. Ethereum.org lets event participants claim POAP (Proof of Attendance Protocol) NFTs as a form of collectible ticket that proves you participated in an event. Game developers are interested in incorporating NFTs into their games. This would allow players to own the items they spent all that time grinding for, and to sell those items once they’re done with them, while potentially sending royalties back to the developers. A game called CryptoKitties is already using NFTs and lets players sell and trade virtual kittens.
People are even thinking about using NFTs for physical items like real-estate, cars, and one-of-a-kind fashion items. At some point in the future, you could use cryptocurrency to buy a house or a car and receive an NFT proving your ownership in return. Ethereum.org envisions a future where your crypto wallet could act as the key to your house or car.
What do you get when you buy an NFT?
When I first heard about NFTs I thought that the digital image file itself was the NFT and was somehow imbued with a unique code from the blockchain. Apparently, that isn’t actually the case.
There is a difference between the NFT item (the artwork or trading card, for example) and the NFT itself. The NFT is the unique code on the blockchain, which is what is recorded, secure, and verifiable. This code references the NFT item, which is hosted somewhere else on the internet.
The NFT is a certificate of authenticity and ownership over the NFT item. However, the artist typically still retains the copyright and reproduction rights. The owner of an NFT doesn’t have many rights over the item other than the right to sell it. This is similar to how physical art collecting works. Anyone can buy a print of a Picasso, but only one person can own the original.
NFTs and Content Creators
NFTs have become popular among many digital content creators because NFTs solve some of the problems inherent in the digital content realm in addition to providing another avenue for income.
Unlike traditional art, digital art and other digital content has suffered from the problem of not having an original like there would be with a physical painting. Digital content can easily be reproduced by copying the file or by simply taking a screenshot. This has left digital artists without the opportunity to make money from the original artwork.
Additionally, digital artists rely on various social platforms to get their work out there. However, it is the platform that makes money by selling ads to the artists’ followers. The artists get exposure in return, which doesn’t pay the bills, and rarely leads to sales. Or, in the case of music streaming sites or art printing sites, artists get some of the revenue, but the platforms keep most of the profits for themselves.
NFTs solve these problems in several ways. Artists retain ownership of their content instead of having to give it away to various platforms, because ownership is coded into the NFT. Content creators can sell their work anywhere across a global market instead of being tied to a specific platform. When content is sold, funds go directly to the creator. Additionally, stipulations for royalties can be coded into the content, allowing creators to get paid every time a piece of their work gets sold.
NFTs provide some unique benefits to creators that they didn’t have access to before. Creators can prove they’re the creator because that information is written into the NFT’s code on the blockchain. Creators can determine the scarcity of their work: there could be just one original, or the creator could choose to have a limited series of pieces, where each would still have a unique identifier. Creators can earn royalties every time an NFT is sold. And creators can sell their work on any NFT market or peer-to-peer because you’re not locked into a platform and don’t need an intermediary.
While there are a lot of benefits to using NFTs, the topic is actually very controversial and polarizing in the art community. There are many reasons for this, one of which is the high energy cost of the cryptocurrencies used for NFTs, and the subsequent increase in CO2 contributing to climate change. We’ll discuss this and other issues in future articles.
How do you create and sell an NFT?
To sell an NFT, you first need to have a cryptocurrency wallet and buy some Ethereum or other cryptocurrency that is supported by the marketplace you’re interested in using. Then connect your wallet to the marketplace where you want to sell your NFT.
Now you can make the digital file of your choice into an NFT. To do this, a new, unique digital coin has to be minted on the blockchain. Depending on the marketplace, minting can be free, or cost anywhere from $70 to $100.
Minting a new coin on the Ethereum blockchain is an energy intensive task involving complex computations across a whole network of computers. Minting with Ethereum comes with something called a “gas fee” to compensate for the energy and effort that goes into minting the NFT. The gas fee can fluctuate wildly on a daily basis and in some cases may cost more than the sale price of your NFT itself. The creator is charged the gas fee when their NFT sells.
Make sure that the NFT has exactly the content you want to sell. Once minted, NFTs cannot be changed or edited.
While minting an NFT, you can choose the starting price, whether your content is one-of-a-kind, or part of a collection, and how many there are in that collection. You can also build a royalty into your NFT.
Once the NFT has been minted, you can price your work and list it on your marketplace of choice. Then wait for bids since marketplaces work like an auction house.
How do you buy an NFT?
Buying an NFT is simpler than creating and selling one. You first need to buy some Ethereum or other cryptocurrency and have a digital wallet set up. Once that’s done, you can go to an NFT marketplace and find an item you’d like to buy. Marketplaces let you bid on the NFTs like an auction, where the highest bidder wins.
What are some NFT marketplaces?
Here is a list of some of the NFT marketplaces and what they specialize in. This is not an exhaustive list.
- Foundation (digital art)
- Nifty Gateway (digital art, GIF, etc)
- Super Rare (digital art)
- Zora (music, video, image, GIF, text, etc)
Open to All Users
- Mintable (image and text)
- Rarible (image and text)
- Axie Infinity (trading cards)
- Decentraland (virtual reality multiplayer role playing game)
- KnownOrigin (digital art)
- Looking Glass Factory (digital holograms)
- Myth.Market (trading cards and memorabilia)
- NBA Top Shot (sports)
- Sorare (sports)
- Treasureland (trading cards and memorabilia)
- Valuables (tweets)
- OpenSea (over 200 categories and 4 million items)
The Bottom Line
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About the author
Katie Van Munster is an artist and writer who loves fantasy, D&D (and other tabletop roleplaying games), space, dragons, mythological and imaginary creatures, animals, LGBTQIA+, environmental, and climate themes and topics.
Katie is a fantasy and science fiction artist, writer, and ttrpg content creator. She loves the standard fantasy creatures like dragons and also create strange creatures of her own. Many of her stories feature dragons and other fantasy creatures. She enjoys creating stats for creatures and characters from her stories and artwork so they can be integrated into D&D games.
Katie has been drawing and creating creatures and stories since she was a little girl. She took art and creative writing classes in high school and interned with fine artist Cal Massey in college.
She is also passionate about nature and earned a Bachelor’s degree in Biology and Master’s in Environmental Science. While perhaps not directly related to fantasy works, these degrees have given Katie a scientific perspective from which to create fantasy creatures and ecosystems, and write about environmental issues in fictional settings.
To get in touch with Katie Van Munster for any and all things, feel free to visit her personal website.