If your interest has piqued at the idea of NFTs, but you’re not 100% sure what they are exactly, then you have come to the right place…
This article explains all about NFTs and doesn’t presume any prior knowledge on the subject. It’s basically a beginners guide.
We’ll start by telling you what NFT stands for before introducing Wikipedia’s definition. But don’t worry if the words seem foreign to you at first, we will explain everything.
Then we’ll look at some examples of NFTs, and we’ll answer several of your most frequently asked questions, explaining how they work, whether they’re a good investment, and how you can get involved in the buying and selling of NFTs.
So, what does NFT stand for?
NFT stands for Non-Fungible Token…
But we get that the words don’t mean too much just yet, so here’s the Wikipedia definition.
What is the Wikipedia definition of an NFT?
Here’s the Wikipedia definition: “A non-fungible token is a unit of data stored on a digital ledger, called a blockchain, that certifies a digital asset to be unique and therefore not interchangeable.”
Wikipedia then goes on to say: “NFTs can be used to represent items such as photos, videos, audio, and other types of digital files.”
It may be an accurate description of NFTs, but if you’re unfamiliar with these terms it may just sound like gobbledegook. But don’t worry, we’re going to break it down for you and spell it out in plainer English.
Breaking that down: So what exactly is an NFT (in plain English)?
So, an NFT is basically just a digital token. A digital token for digital property that is unique and can’t be replaced with something else. When you buy an NFT, you are effectively buying ownership of the digital property.
Think of it like buying an original Monet painting rather than a cheap print - only in the digital arena. So instead of receiving a canvas for your wall, you may get a JPEG file instead.
And technically, any digital file can be sold as an NFT, not just pictures and photo files, but also video files and audio files, such as music or podcasts.
You can make NFTs, you can buy them, you can collect them, and you can sell them.
Buying an NFT gives you usage rights, like the right to post the file online.
Here’s where it starts to get a little more complicated. While a digital file can easily be copied, NFTs are designed to give you something that cannot be copied - ownership of the work…
However, it does not give the copyright or the reproduction rights. The person who created the work retains the copyright. This means that even if you own an NFT you cannot legally make copies of the work.
But that doesn’t stop people from copying the files or downloading them for themselves.
And so I guess, when you buy an NFT, you’re saying it’s officially yours and you can back that up. But you don’t legally have the right to copy it, but anyone can copy and download it…
So even if the NFT is officially yours and you can sell it on and make money from it, whether it feels like it is officially yours is another matter.
An NFT is basically just a way of authenticating assets digitally, but it does not hold any meaning for what is done with the file.
Although NFTs are great for investors who want to make some money, NFTs perhaps hold greater promise for the artists themselves. Especially at a time where digital files are easily replicated and shared, and digitally created artist work is measly in its compensation.
And despite NFTs sounding so technical, you don’t need to have any prior coding knowledge in order to buy or sell them. Although it does help if you have some sort of prior knowledge about the value and worth of your chosen digital art forms.
Examples of NFTs
As we mentioned earlier, an NFT is a digital token that can represent any digital file, whether it’s an image, a video, some audio, or even a game. So it could for example be a JPEG, a GIF, or an MP3 and such.
And there are several NFTs that made the newspaper headlines because some are being sold and bidded on for quite a lot of money, which has attracted quite a lot of interest in the phenomenon. Let’s take a look at a few examples.
A digital artist commonly referred to as Beeple (real name Mike Winkelmann) likes to create digital art. And until recently the most they had ever received for a print of his artwork was a measly $100.
But NFTs changed all that in almost an instant. In March 221 one NFT of his work went up in auction at Christies where he was titled “among the top three most valuable living artists.”
And then the NFT of his work, Everydays: The First 5000 Days, was sold at the auction for a whopping 69 million dollars. The file was basically a compilation of all the digital artwork he had done so far in his career, which certainly goes some way to explain why it got sold for such a high value.
Beeple is also responsible for a very cool video depicting a fallen big Donald Trump facing away covered in graffiti and surrounded by trash as people walk by going about their business.
It’s undoubtedly an excellent piece of artwork, and very timely and popular. And it’s little wonder to me that the NFT of the video sold for a staggering 6.6 million dollars.
The music industry is known for making money for its middle men more than for the artists themselves, but now with NFTs, we can change all that. Now, musicians can monetize their work throughout their fan base.
American based band and global superstars, Kings of Leon, have broken new ground and have generated approximately 2 million dollars from NFTs of their new album, When You See Yourself. And touchingly they have decided to donate over $500,000 of this money to support live music crews during the coronavirus pandemic.
The billionaire co-founder and CEO of famous social media app Twitter, Jack Dorsey, is trying to sell his very first tweet as an NFT.
This is despite the fact that the tweet has been publicly available to look at for free at any time for the last 15 years or so!
The tweet itself looks pretty ordinary to be honest, and simply reads “just setting up my twitter”. But it stands out because it has been signed and verified by the creator.
There have been lots of bids, and very many of them quite high before the NFT for the tweet was eventually sold for just short of 3 million dollars.
More Examples of NFTs
If you want to learn more about examples of NFTs, you may be interested in our longer article entitled “What’s an example of an NFT?” which is available on this link.
You may also be interested in whether you can make your own NFT, and how you would go about doing so, in which case we can recommend that you check out one of our other articles entitled “Can I make an NFT?” which is available on this link.
Brief History of NFTs
2014 to 2020
While NFTs have only in more recent years become more well known to the mainstream, they have actually been around since 2014, when the very first one-off NFT was created in May of that year by Anil Dash and Kevin McCoy at the New Museum in New York City.
This was the first time that a tradable blockchain marker was linked to a unique work of art, a piece of collaborative digital art created by Kevin McCoy himself together with his wife Jennifer McCoy.
But it wasn’t until October of the following year that the first fully-fledged NFT project, Etheria, was launched. But at the time it didn’t really take off in the way the founders had hoped.
In 2017 however, the Ethereum blockchain started to gain prominence over other bitcoin based token platforms. And also that year a small number of projects were released on the platform, and money started being made.
The following year a new blockchain-based virtual world was formed, Decentraland, which raised a whopping 26 million dollars.
2021 to Present Day
Since then newer blockchain platforms have been released and made public. The year 2021 saw a particularly lucrative set of sales in the first few months of the year, including some we mentioned earlier in our section on examples of NFTs where the creators successfully managed to sell their work for substantial profit, going into the millions of dollars.
Of course this attracted much attention and interest, and investors turned to trading in NFTs at high numbers and at a high rate, in nothing short of an NFT buying frenzy.
This buying frenzy did slow down by mid April, and sadly this caused prices to drop significantly. However buyers who had managed to get in early are said to have done supremely well.
As to whether NFTs make for a good investment, we’ll come onto that a little later.
If you want some further reading on the history of NFTs, you may be interested in our longer article entitled “Who started NFTs?” which is available on this link.
How Do NFTs Work?
So to recap, an NFT is a digital token. Now, here’s where things start to get a little more technical. Please bear with us and we will explain as best we can.
Cryptocurrency and Blockchains
This digital token is a type of cryptocurrency. And for those of you who don’t know what a cryptocurrency is, it is a type of currency which uses digital files as money.
Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology spread across many computers that manages and records transactions.
A blockchain is a digital record of transactions. The name blockchain is derived from it’s structure. Since individual records called blocks are linked together in a single list, called a chain.
The most well known type of cryptocurrency is Bitcoin. Bitcoin was created as a way for people to send money over the internet. It’s an alternative payment system that can be used alongside regular money and used to buy goods and services.
Where NFTs are Different
But whereas crypto coins are identical and worth the same as each other, NFTs on the other hand are unique and are classed as collectible assets.
Now Bitcoin has somewhat of a bad reputation. This is because Bitcoin is a type of currency favored by many criminals. However, blockchains such as the Bitcoin one and the Ethereum one for NFTs are entirely safe and legal to use.
Moreover, because blockchains use encrypted code in their technology, this means that they are particularly secure. Perhaps more so than in regular banks.
An NFT is different from a bitcoin because each NFT file also stores the creative work in its memory, which elevates it above pure currency, and is something that can change in value over time.
So, although an NFT is a type of cryptocurrency and can be bought or sold, it tends to be treated more as a collectors market. NFTs are bought and sold just like tangible works of art, except that it is digital art.
This makes the value of an NFT somewhat more subjective. NFTs are not all worth the same. The value of an NFT is largely determined by the market conditions, such as the level of demand for that particular piece of digital art work.
And while anyone can copy or download an NFT regardless of whether they’re the owner or not, it is only buying the NFT for the file that you can legally own it and legally sell it on for profit.
For more information on how NFTs work, we also have a whole other article dedicated to answering this question, called “How do NFTs work?” which is available on this link. This will cover the topic in much more depth than we have gone for here today.
You may also be interested in another article of ours entitled “Are NFTs a Cryptocurrency?” which is available on this link.
And, for more information on the safety of buying and selling NFTs, please refer to our other article “Are NFTs safe?” which is available on this link.
Is Buying NFTs A Good Idea?
Value of an NFT
An NFT, as we have said earlier, is basically just a way of authenticating assets digitally. But simply being an NFT is not enough to make the NFT valuable.
What makes an NFT valuable can be any number of things, just like a book that has been signed by an author is more valuable than the same book that has not been signed. It’s basically about authenticity and rarity.
But, going into what makes an NFT valuable is beyond the scope of this article. Suffice to say that some NFTs are more valuable than others, and NFTs can change in their overall value over time.
The beauty of an NFT of course is that anyone can buy one, the market is open to everybody. This means that if you spot something in an NFT auction that’s going for a price you can afford, you can get a piece of that action, and maybe buy some artwork that will grow in value over time as the artist becomes more well known and famous.
Are NFTs Bad for the Environment?
You might have heard it said that NFTs are bad for the environment and the climate change movement. And you’d be right…
According to Digiconomist, a single transaction of NFT consumes enough wattage to power an entire house for a whopping 2 and a half days! Now that’s a lot of energy, that’s the energy for your central heating, running your freezer and refrigerator, heating your baths and showers and cooking all of your food for an entire weekend.
And to match the carbon footprint of this transaction by watching YouTube, means you would have to watch 5,700 hours worth.
Thus, the technology used to run NFT transactions eats up a heck of a lot of power, and that is why it has earned a reputation for being bad for the environment.
Are NFTs a Good Investment
So really the question of whether you’d be making a good investment by buying an NFT does not come down to the cryptocurrency itself or the blockchain technology, so much as the demand for the NFTs in the artworld. Some pieces of art are simply more highly sought after than others.
Generally, NFTs are considered to be a very high risk investment. Sure you could make a lot of money with a bit of finance behind you and plenty of daring and good luck. But on the flip side you could also lose a significant amount of money too if you’re not careful and don’t use due diligence.
Art is only worth what someone is willing to pay after all.
The potential is certainly there to make a lot of money via NFTs, as I believe we have shown in the examples section of the article. But you have to have your wits about you, and build up your knowledge of your chosen digital art form and trending artists in the field.
If you want some further reading on the subject, you may be interested in some of our other articles, as follows:
- “How do you know if NFTs are valuable?” which is available on this link
- “What is wrong with NFTs?” which is available on this link
- “Are NFTs a good investment?” which is available on this link
- “Are NFTs safe?” which is available on this link
Getting Started in Buying and Selling NFTs
If all this talk of millions of dollars being made has started to whet your appetite for NFTs, we’re not the slightest bit surprised. If you know what you are doing out there you could stand to make quite a profit.
And, you’ll be pleased to hear that getting started in buying and selling NFTs is easier than you might think.
Your first task would be to decide which website you want to go to buy (or sell) your NFTs. Here’s a short list of some of the online marketplaces out there:
- Nifty Gateway
- Axie Marketplace
- NFT Showroom
All you have to do is get yourself an NFT wallet (something we talk about in one of our other articles) and fill that wallet up with cryptocurrency and be registered with your chosen NFT marketplace.
You should also keep up to date with any news on the types of NFT you are interested in so you’re ready for action at the next auction.
Then you’re in a position to make any bids you like and get yourself a collectible item that could potentially rise in value that you can later sell for a decent profit.
Here are some other relevant articles of ours that you might like to check out:
- “What is the best NFT marketplace?” available on this link
- “What is the best NFT wallet?” available on this link
- “What is the best NFT coin?” available on this link
- “What are the best NFT tokens?” available on this link
- “How do you buy NFTs?” available on this link
- “Where can I promote my NFT?” available on this link
So, there’s a lot of good that can come out of the buying and selling of NFTs. Artists get more money for their work, and Kings of Leon even raised money for charity.
And by this point we should have adequately explained what NFTs are and how they work.
So if you want to go ahead and start buying please do so, but proceed with caution.