Beginners's Guide to Non-Fungible Tokens (NFTs)
What is an NFT and why is it blowing up my social feed?
Non-Fungible Tokens. NFTs. They’re the exciting new form of crypto that’s busted down the DeFi world’s doors - digital art selling for massive figures and attracting the attention of the creative world. But what are they, where did they come from and why should you get involved in this new digital gold rush?
As with most crypto projects, the concept of NFTs started small and humble with it’s spiritual roots being traceable to “coloured coins” on the Bitcoin network. The first modern iteration (sharing the underpinnings of what we know as NFTs today) to really stick was a 2017 project known as CryptoKitties. CryptoKitties proved the concept and laid the foundations for what we know now as NFTs.
Unlike the majority of crypto currently in the space, NFTs are not designed to be cryptocurrencies, instead offering an alternate use-case of blockchain. For example, one Bitcoin is one Bitcoin; being effectively interchangeable. An NFT, however, has a unique identifier (thus the Non-Fungible part). The contents of each NFT can be completely different and even those that are the “same” will have different identifiers (the 56/100 minted work in a release is verifiably not the same one as 1/100) - not all NFTs are equal.
The obvious question then is - what’s the value in all of this? Cameron Winklevoss (@cameron) offers that NFTs liberate art, breaking the confines of space and time while still respecting curation and the will of the artist. As an artist or collector you now have access to the new frontier of verifiable digital art; don’t like physical Picassos? Congratulations, you can get a digital piece that has proof of authenticity and ownership, or access to a verifiably rare item on your favourite online game. It’s difficult to really nail down one value proposition, because we’re still discovering more!
So what can I do with an NFT?
While NFTs are perceived as a mostly visual asset, they have a good number of applications beyond being a static display image. Visuals can be animated, music files embedded and a whole host of other intricacies built in on top of the ever-present text field. Companies like the NBA are using NFTs as a means to make old-school classics like trading cards digital as well, building entire ecosystems around the exchange of these assets. Binance Australia has also launched NFTs to celebrate Easter and the recent Dogecoin (DOGE) all-time high. This sort of augmented experience is just a glimpse into what you can do with NFTs, with projects like Decentraland building entire digital worlds and economies for owners to interact with.
How to set up a wallet and fund your NFT journey
The first step to dipping your toes into the world of NFTs is to select and set-up a digital wallet; in this case we’ll be using Trust Wallet as it offers a near all-in-one feature set. Simply download your chosen wallet and follow the install instructions and you’ll be ready for the next stage!
Next, you’ll have to add funds to pay for NFT purchases, sales fees and the like - this can be accomplished by depositing AUD via PayID / Osko to Binance Australia. With both desktop and app options, you’re able to do this over a number of platforms using a shared account.
Following this, you’ll want to purchase Ethereum (ETH) as this will be your main token of exchange during the next few processes. Go into your digital wallet, copy the address and then send your newly acquired ETH to it.
It’s time to buy
We’ve got our wallet loaded with tokens and are ready to spend - so where to now? The answer is an NFT marketplace. There are a whole host of options available depending on what you’re interested in - from animated pixel art punks to red-hot limited EP drops, there’s something for everyone.
Some marketplace examples include:
Before you make a purchase you’ll have to link the wallet containing ETH that you made in the last step to the marketplace. Not all wallets will work across all marketplaces, so you may need to have funds across multiple if you aren’t using a widely accepted option. As mentioned prior, Trust Wallet skirts around much of this, being widely accepted.
Once you’re linked up, you’re ready to buy! Find what you want, place a bid or purchase and wait to receive your newly minted NFT. You can usually store these on the marketplace you purchased through, however, as with all crypto your asset will be far more secure on a dedicated digital wallet.
If you ended up using Trust Wallet during the set-up guide you won’t need to worry about where to store your shiny new NFT - Trust’s integrated NFT collection provides a one-stop-shop for holding and managing them. As a result, you can transfer your NFT off the marketplace and into the safe, secure confines of your own private digital art vault.
How to create and sell your own NFTs
So, you’ve gotten this far down and you’re feeling pretty creative - how do you go about creating and selling an NFT? In reality the process isn’t that complex.
Firstly, you’ll need the contents of your NFT; anything that can be made into an eligible file format (Any image, TXT, JPG, PNG, MP3 or GIF) can be used as metadata to be stored within the private key / NFT you create.
Once you have your art file, you’ll need to find a marketplace to sell it. The ones mentioned prior are a great place to start, however, each marketplace you encounter will likely have it’s own dominant theme or format so it’s important to try and find one that works well with the digital art you’ve created.
Also worth looking for is what form of crypto a marketplace uses for gas fees and listing payouts - it’s not uncommon for there to be a preferred token (with others potentially having higher fees or the like). Ethereum is the most common base token. An example of this would be OpenSea having a noticeable bias towards Wrapped ETH (WETH).
NFT? Check. Marketplace? Check.
The next stage is to connect our wallet (if we haven’t done so above) and navigate to our chosen marketplace. Trust Wallet’s inbuilt DApp browser streamlines this process so it’s simple and seamless, effectively allowing you to access any Decentralised Application (DApp) on the Binance Smart Chain or Ethereum network.
While each marketplace has its own intricacies when it comes to creating listings, they follow a general format: defining how your NFT is priced (auction, static price, bundles), the duration of time the listing up for and privacy of a listing. It’s pretty much like setting up a standard online auction.
Once you’ve uploaded the metadata / files you want to include, plus set the terms and pricing you’ll be able to “mint” or create the actual NFT itself. Due to current limitations, many marketplaces will not allow multiple NFTs to be minted in the one transaction - therefore if you want to create a series of 15 NFTs, you’ll have to repeat the process 15 times.
Now comes the waiting game - your active NFT marketplace listing now is ready to receive bids for the duration you previously set. On conclusion of sale, a settlement and exchange will take place, with your NFT being sent to the linked wallet of the purchaser / their marketplace portfolio and purchase funds being sent towards you.
Where does the future hold for NFTs?
As NFTs cement themselves as a defining part of the crypto landscape they’re likely to grow and evolve, with the value proposition being tested in alternative uses beyond standard digital art. Being so new in relative terms, we’re only just beginning to see the potential use and value cases for NFTs - world renowned DJ Calvin Harris recently commented that he felt NFTs had the potential to “completely revolutionise the music industry”, while crypto artist Beeple sold a work for $69 million in a world-first Christie’s auction stating that NFTs were “the next chapter of art history, there is now a way to collect digital art.”. People often look towards Elon Musk as a driving force behind crypto market moves (Dogecoin tweets, BTC buys), so it’s no surprise to see his partner and acclaimed musician Grimes diving directly into NFTs.
NFTs open the door to massive changes in the broader art world as digital artists are no longer handcuffed to legacy distribution, sales and management channels in order to gain success - being able to now effectively reap royalties from future sales of their NFTs, rewriting the rules for some creative industries. Messari analyst Mason Nystrom has predicted an NFT market size in excess of $1.3 billion before the end of 2021, with an influx of new and established artists pushing the markets into exciting new waters.
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