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Understanding NFTs: Everything you need to know before buying

Non-fungible tokens (NFTs) are considered to be one of the fastest-growing markets right now and it seems like they’re discussed everywhere. And by everywhere we stipulate Earth, space and beyond. You get the drift, right? Even despite the current downtrend in crypto, NFT market is still booming with more and more celebrities and companies flocking to the NFT art space. At the same time, lots of people struggle to understand what exactly is a non fungible token, and how to make money on NFTs.

In this article we will have a closer look at the phenomenon of NFT and tell more about what’s an NFT, what does it stand for, how and where you can buy NFT or sell NFT and how it all works. Consider this to be a one stop shop for all your non fungible token knowledge.

What is an NFT what does it stand for?

NFT stands for non-fungible tokens, but in simple terms, NFT is a unique asset, stored and registered on blockchain. The asset usually represents art, music, videos etc. One can buy NFT online by using cryptocurrency. 

Many NFTs that exist now are digital creations of things that exist in the real life. For instance, it is possible to buy the first Tweet, or the first-ever edit of Wikipedia as NFT art. Some videos of NBA players were also sold on NFT marketplaces, and now, you can even buy securitized artwork, plus just about anything else that comes to mind.

What are famous NFT examples?

For example, one famous digital artist Mike Winklemann, who is more popular under the name Beeple, sold his NFT artwork on Christie’s auction for 69,3 Million USD. The NFT art consists of 5000 daily drawings and it is called “EVERYDAYS: The First 5000 Days”. Other famous NFT examples are CryptoPunks, Bored Apes, Mutant Apes and Cool cats. Once again, we are yet to witness the full strength of the market, given how many large corporations rush to become NFT brands.

what is nft

NFTs, to some extent, can be compared with baseball cards. The popularity of baseball cards exploded in 1940’s and some of them are worth a fortune even now. Of course, it depends what player is on the card, the card’s condition, how old it is, and most importantly, how scarce the card is. Unlike these cards, non fungible tokens are all unique, and they are first and foremost digital tokens. However, lots of collections have scarce elements and the price of an NFT really depends on what is featured on it.

How do NFTs work?

As mentioned above, NFT tokens are stored on the blockchain, a distributed database that stores information about different transactions. Blockchain is an underpinning technology for cryptocurrency and it is widely known as a tool that keeps a record of all crypto transactions. 

Ethereum is one of the most used blockchains for NFTs, however lately there have been many NFT projects built on Solana, Polygon and Cardano. 

There are two important things about NFTs: Uniqueness and Ownership. Every non-fungible token is unique and it is impossible to copy or forge it. The information about it is stored on the blockchain, meaning that there is no possible way to alter or delete it. Along with uniqueness, blockchain makes it easier to prove the ownership for the holder of the digital asset, because when the NFT is purchased, it is stored on a particular wallet, which can be also checked on the blockchain. This allows the owner to make sure that they have the original piece of digital art. 

You may be wondering: “How is NFT different from cryptocurrency?”. 

The answer lies in the fungibility of NFT tokens. Crypto or physical money are fungible, which means that one currency can be traded to another, and one dollar can be substituted with another dollar, just like one bitcoin or one Ethereum. In the case of NFTs, there’s a slightly different situation: you cannot substitute one NFT with another. Each piece of NFT crypto art contains a unique signature, which makes it impossible to substitute 1 Bored Ape with 1 Crypto Punk just because both of them are NFTs.

How are NFTs created?

It is all quite simple: an NFT is minted or created from digital objects, which may be JPEGs, Videos, Music, a set of digital elements or collectibles, etc. Minting refers to adding an NFT on the blockchain, so after all possible elements are combined together, the NFT is added to circulation and is recorded on the blockchain. The distributed ledger technology also makes it possible to track all of the possible transactions related to a particular NFT token, i.e anyone can see when the NFT was purchased and resold to other owners and what was the price of each transaction.

how do nfts work

How can I buy NFT?

If you want to get started with NFTs you need to set up a crypto wallet first. When choosing a wallet it is important to check whether it supports NFTs. One of the most popular crypto wallets with NFT support is Metamask. 

When setting up a wallet make sure that you protect it well: remember the seed phrase, consisting of 12 or sometimes 24 words, set up a difficult password and add additional safety tools like fingerprint or face id check if possible. Also, try to never share these details with anyone, because as a wise saying goes…

Not your keys, not your NFTs

Once you’re done with the wallet setup, make sure you have enough crypto to purchase your future NFT. You can get crypto from large exchanges like Binance or Coinbase. When buying crypto, make sure you have enough funds to pay the transaction fees.

Where can I buy an NFT?

As soon as the wallet is ready and it has some crypto on it, you can start buying. NFTs are usually sold on special NFT marketplaces. Each marketplace has slightly different and each marketplace supports a different blockchain. When you start buying your NFT, make sure that the marketplace of your choice supports the blockchain when the NFT is minted. As of now, there are 2 largest NFT marketplaces:

  • Opensea. The NFT marketplace supports multiple blockchains and has nighest trading volumes in the niche. Create an Opensea account and browse the collection you need. You can also sort NFTs by trading volumes, prices, etc. 
  • Rarible. The platform supports Ethereum based NFTs and it is one of the top NFT crypto marketplaces. Connect your wallet and create an account to get started. You can also use Rarible to mint and create your own NFTs without additional programming knowledge.
  • Looksrare. Now, this is an NFT marketplace that surprised us all. It sprung out of nowhere and quickly overtook Opensea by daily traded volume. Some say it is trading volume manipulation that led to such high numbers, but all we know, it is now on the brink of putting Opensea to shame. 

What’s the real point of NFTs?

Non-fungible tokens have revolutionized the world of art by making it easier for content creators to monetize their art and at the same time by enabling the holders of digital assets to prove that they actually own the item. But let’s have a closer look at the value of NFTs for different stakeholders.

  • If you are an artist

NFTs allows artists to quickly and easily monetize their work. Simply put, NFTs create a whole new additional market for artists, where they can demonstrate their latest works. Moreover, NFT makes it difficult to forge an artwork, which can be considered as an alternative to copyright protection. 

But most importantly, the creator can decide how he wants to sell NFT. It can be a fixed price or it can be an auction. On top of that, the creator may opt for a royalty to be paid to him after each successful trade, so if the artwork becomes super popular, the artist will also get his share from that.

  • If you are an NFT buyer

When buying an NFT you can be sure that you support your favourite artist. On top of that, you also get the rights to use the picture wherever you want. Even though there are not that many use cases as of now, you can already use it as your verified Twitter profile pic, and all other users will be sure that the NFT belongs to you. Moreover, if you buy NFT you can always prove that the digital asset is yours.

  • If you are an NFT collector

Remember that all NFTs are unique, right? So if you collect non-fungible tokens, some of them may be worth a fortune one day, just because of their scarcity features. If you were lucky to buy a famous NFT at an early sale, you can make money with non fungible tokens by selling it some time later at a much higher price.

nft guide

To sum it up: Should I buy NFT?

In a race to follow the hype, lot’s of people are questioning themselves whether they should invest in NFT. But just because you can buy an NFT now, doesn’t necessarily mean you should do that. 

NFT market is a wild west, it is very risky because it is still too early to make predictions regarding the future of the market. Even if you think that you’re too late with NFT investments, we can assure you that it’s completely the opposite. So given that NFTs are quite new, it may be worth investing a small amount of money and trying it out.

Still, investing in NFT is rather a personal decision. Like with any investment, you should understand what you’re investing in and how it works. Taking into account that it is digital art, it is important to invest in NFT artworks that have personal value and importance for you. 

You should always bear in mind that the NFT price is solely determined by what other people are ready to pay for it, so the demand is the only factor that will be influencing the price of an NFT in the future.

Remember to approach NFTs just like any other investment, do your own research, evaluate all possible risks and if you decide to buy NFT try not to invest more than you can afford to lose.

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