A Comprehensive Guide to NFTs-What are NFTs?

Jul 20, 2022 Written by LAT Staff

NFTs have been all the craze lately, and they are taking the world of collectibles and digital art by storm. What began as a jpeg art stored on the blockchain has massively evolved into music, films, animations, wearables, video games, and so much more.

Just to put you up to speed, today, we have NBA digital collectibles being sold for millions of dollars and bands like Kings of Leon who are releasing their albums as limited-edition golden tickets. Without a doubt, people are making millions of dollars from selling NFTs.

The whole concept of NFTs is not only attractive to the collectors but also to the cryptocurrency community. But precisely what are these NFTs and their position in the art world? Are they worth the hype, or is this another bubble set to burst? Well, there's only one way to find out.

What are NFTs?

NFTs are Non-Fungible Tokens. These are individual unique tokens stored on the blockchain and represent real-world assets like media, digital content, or a piece of art. Since NFTs retain their unique properties, it means that they can't be interchanged for another asset as we would do with fiat currencies or cryptocurrencies.

What do I mean? If I have one Bitcoin and exchange it for another Bitcoin, you'll still get Bitcoins at the end of the day. But with non-fungible tokens, things are a bit different. For instance, if you have an art form of the Mona Lisa, this is one-of-a-kind art that you can't exchange for something else. While you can take a photo of the painting or buy a print, there will only ever be one original Mona Lisa painting.

NFTs have been around since 2014, but they are only gaining popularity now as they have become the new way of buying and selling art. In 2021 alone, the NFTs market hit a staggering $41 billion, almost as much as the global market for fine art. So why are people spending millions of dollars on NFTs? NFTs allow an art form's original owner or creator to take ownership. Each NFT comes with unique identifying codes that serve as proof of ownership.

What is an NFT Marketplace?

An NFT marketplace is a platform where users can store, sell or mint (create) NFTs. They essentially work as a digital marketplace created on the blockchain network that allows users to trade their NFTs openly. In order to utilize these marketplaces, there are a few things you’ll need, including:

  • Crypto wallet: a crypto wallet will allow you to store and purchase the NFTs you wish. However, you need to ensure your crypto wallet is compatible with the blockchain network that supports the marketplace. For instance, if you want to trade NFTs on an Ethereum NFT marketplace, your wallet needs to be compatible with the Ethereum blockchain network.
  • Coins in your wallet: your crypto wallet will need to have some cryptos in it before minting or purchasing an NFT. More importantly, you’ll need cryptos that are supported by the specific NFT marketplace of your choice.
  • User account: lastly, you’ll need an account on the NFT marketplace. Most NFT marketplaces don’t have a complicated registration process. All it takes is a few steps, and you’ll have a running account.

Without a doubt, NFT transfers and minting come with a blockchain network fee. This fee varies from one blockchain to the next. That said, always consider this fee when you are planning to trade NFTs in a particular blockchain network.

How NFT Marketplaces Work

Ethereum is the most popular blockchain system with several NFT projects, including marketplaces. However, today, we have a growing list of competitors that are also trending in this market, including Tron, BSC (Binance Smart Chain), EOS, Polkadot, and Solana.

Typically, each marketplace tries to perfect some of the shortcomings of the Ethereum network. For instance, some of the blockchain systems are interoperable. All in all, how these marketplaces work is almost the same. That said, here are the steps you should follow.

Signing Up

To get started with an NFT marketplace, you’ll need to sign up on the platform. The signup process will differ from one NFT marketplace to the next. However, the overall goal is the same. The signup process will only take a few minutes to complete. Additionally, you will be required to connect your wallet, of which you’ll have to enter your password to complete the process.

Buying and selling an NFT

NFTs buying and selling happen within the NFT marketplace. When purchasing an NFT, there’s always a fixed or auctioned price. However, prospective buyers can negotiate with the seller to get a better price.

Selling NFTs, on the other hand, can be challenging, especially when you are trying to sell an item you’ve created. The first step is you will need to upload your NFT on the marketplace and set a price or opt to sell it via auction. Once the platform verifies your upload, it will be listed on sale. The next step is the seller will accept the bid, and the marketplace algorithm will transfer the item to the buyer and cryptos to the seller.

Minting of NFTs

Minting is the process of creating NFTs. The Ethereum blockchain is the most preferred blockchain network for NFT creators. To create an NFT, you’ll need a wallet that supports the Ethereum token, in other words, a wallet that supports ERC-721. An excellent example of such wallets includes MetaMask and Coinbase wallets.

Additionally, your wallet needs at least $50 to $100 to cover the transaction fees. In exchange for a small fee, NFT marketplaces will typically handle and record the transfer of the NFT once minted. After you’ve followed these steps, you can now access NFT marketplaces such as OpenSea, or Rarible.

Most of these platforms have a create button, making it relatively easy to create your NFT. There are diverse marketplaces, and each type caters to a specific audience. You can find certain markets list only specific NFTs, for instance, in-game items, digital artwork, virtual real-estates and more.

Most popular NFT marketplaces

OpenSea: OpenSea is an established NFT marketplace on the Ethereum network. You can find various NFTs on this platform, including sports collectibles, artwork, trading cards and even domain names.

Rarible: Rarible is an excellent NFT marketplace choice based on the ETH network, and it facilitates the sale, creation and purchase of ownership rights of NFTs. Rarible makes two standards of NFTs, which are ERC-721 and ERC-1155. The governance token in this network is RARI.

Nifty Gateway: Lastly is Nifty Gateway, a digital auction avenue for NFTs. The company was established in 2018 and has grown into a significant marketplace in the blockchain industry. The platform effortlessly combines collectible art with crypto technology to create a medium rich in tradable high-value assets.

The Future of NFTs in the Art World

NFTs are defining a new dimension for the art market. They have fueled a new approach to art perception, creation, and ownership. While digital art is gaining popularity, a significant drawback is that digital art can be easily copied and duplicated. This means there could easily be multiple copies of certain art forms on the internet.

NFTs have emerged as an indispensable option for authenticating the original art form. An NFT creator or artist can create an NFT for their digital art. This will create an immutable or indestructible record on the blockchain, certifying that the art is original and unique. On top of that, the artists can use the NFT to monetize their artwork. As discussed in the section above, there are many NFT marketplaces where NFT artist can sell their work.

Smart contracts on the blockchain network facilitate the trading of NFTs. Once the art is transferred from the buyer to the seller, the transaction is recorded on the blockchain. That way, the NFT will always function as proof of ownership. Therefore, no matter the number of identical art copies on the internet, you can prove ownership if you own the NFT for an artwork.

All in all, you must also understand that transferring ownership doesn't mean you have intellectual property rights over the art. The artist still retains the IP rights to the art but transfers ownership of the art to a new buyer.

In Summary

The NFT market is creating a new investment opportunity that is creating massive potential in the market. Projects like Crypto punks have made millionaires, but that's definitely not without risks. So, even as you dip your toes into the world of NFTs, you have to keep in mind that not every project will be able to achieve this kind of success.

With that said, we can only hope that the NFT market will continue expanding and that solutions will be found for some of the risks that exist in the marketplace. The bottom line is ensuring that your NFT investment matches your risk tolerance. Invest only what you can afford to lose. All in all, if the NFT marketplace can be made more secure, we will be able to fully utilize the untapped potential it brings to the world of modern artwork.

Want to Find Out More?

If you’re interested in the fine art markets, how NFTs are shaping the future of them, and how to invest in these markets, avoiding common pitfalls, then our new Investing in Fine Art course is for you! Get in touch with our team today to get started!