NFTs Explained – The Complete Guide

NFT is a powerful blockchain technology that solves the problems of forgery, plagiarism and imitation, however, it is highly advisable
NFT Explaned - the complete guide
NFTs Explained – The Complete Guide

NFTs EXPLAINED – THE COMPLETE GUIDE

Last week we started exploring the popular concepts of Web3 and we were able to take a deeper look at what the Metaverse is all about. Today, we’re going to make practical sense of what NFTs are, why they’re valuable and why they won’t fade away in this age of Web3. 

Some of the core questions that will be answered in this guide includes:

  1. What is NFT?
  2. What is the difference between NFT and Cryptocurrency?
  3. What are the common standards of NFT?
  4. What are the top 7 types of NFT and their examples?
  5. What are the top NFT marketplaces?
  6. How do I buy NFT?
  7. What are my personal thoughts?

WHAT IS NFT?

NFT Explaned - the complete guide 1
No alt text provided for this image

Non Fungible Token (NFT) refers to a unique and immutable cryptographic asset. Meaning, a digital item or digital copy of a physical asset that cannot be imitated or plagiarized because they carry a distinct code that can identify if it’s fake or real. 

For instance, you’re in Australia and you just splashed $1million to buy a new luxury apartment in Dubai, but discovered afterwards that you’ve just been duped by a con artist. The documents to the luxury home that you hold were forged and though you did all the background check that you could, the con artist was steps ahead of you and was able to make away with your money. 

However, if the deed to this luxury apart was tokenized and verified on the blockchain & marketplace where it is listed, you won’t spend more than 5 minutes to verify if this is indeed the real owner or authorized entity to sell you that property and you’re guaranteed to receive only the authentic documents to the house on payment.

Even if someone tries to forge the NFT deeds, they can’t get it verified so long as the original copy has been verified first, hence, the immutability of NFTs. Your priority as an investor is just to keep it in a safe vault (as you would with physical deeds) so you don’t lose it to hackers.

HOW IS NFT DIFFERENT FROM CRYPTOCURRENCY?

No alt text provided for this image
NFT Explaned - the complete guide 2

Fungible Token: Fungible tokens are digital assets or digital copies of physical assets that are not unique or immutable, they can be forged, plagiarized and imitated without a clear means of identifying fake from real. Cryptocurrencies and fiat currencies fall into the category of fungible tokens. Although cryptocurrencies cannot be faked, they do not have unique identification codes. 1 BTC in your wallet is the same as 1 BTC in 1 million other wallets and can be traded for each other. 

The same thing applies to fiat currencies, 1 AED (Dirhams) or 1 USD (US Dollar) is the same copy and holds the same value across the universe and unlike cryptocurrencies, these fungible tokens can be faked or imitated.

Non Fungible Token: As explained earlier, NFTs are cryptographic assets that are immutable and unique. There may be thousand copies of a single NFT (in the case of ERC1155) but they are distinct from other NFTs and can’t be traded for each other. You’ll need a fungible token to trade or buy a non-fungible token. 

Assuming NFTs are physical buildings, you cannot trade 1 house for another, but you can trade a house for money or fungible token. Why? because each house or unit is unique and comes with different deeds and values.

The same thing applies to NFTs, if you want to buy a ‘Mutant BAYC’ you can’t do so with another NFT, you’ll need either ETH, BNB, USDT or other cryptocurrency to make the payment. 

COMMON NFT STANDARDS

NFT Explaned - the complete guide 3
No alt text provided for this image

ERC721: ERC721 is an Ethereum based NFT standard that is characterized by uniqueness. In simple terms, ERC721 NFTs are one of a kind type of assets and usually have either a single smart contract for each NFT or a unique value that identifies each NFT. 

Crypto Punks is a great example of the ERC721 NFT standard (CryptoPunk #7736). Though the collection is under one smart contract, each NFT has a unique ID number that is immutable and brandable. For example, if you hold an NFT that shows details like the below image, then you’re holding an NFT with a ERC721 standard.

NFT Explaned - the complete guide 4
No alt text provided for this image

ERC1155: This NFT standard was first developed by Enjin in order to reduce transaction cost for deploying multiple NFTs at once and is now widely adopted as an official NFT standard. ERC1155 helps to fractionalize or create multiple copies of the same asset (same properties or ID), thereby reducing the overall cost for minting and buying.

Due to this cost saving feature, most blockchain gaming NFTs or skins are deployed using this standard. For example, if you hold an NFT that shows details like the below image, then you’re holding an NFT with a ERC1155 standard.

NFT Explaned - the complete guide 5
No alt text provided for this image

These standards work across various Layer1 and Layer2 networks, including Binance Smart Chain, with the only difference being BEP rather than ERC, i.e BEP721, BEP1155.

TOP 7 TYPES OF NFT

No alt text provided for this image
NFT Explaned - the complete guide 6

NFT Artwork

This is a digital form of art (drawings) and it has become the most popular type of NFTs in the market. We’ve seen exceptional artists like ‘Beeple’ who sold the most expensive NFT artwork yet, ‘The First 5000 Days’ at a price of $69 million. Another well-known NFT artist is Victor Langois, (popularly known as Fewocious) who has sold over $22 million in NFT arts, as of the age of 18.

NFT Collectibles/Trading Cards

Traditionally, sports and entertainment industries print and sell limited edition trading cards or collectibles, the same is replicated with NFTs. Rather than printing, these trading cards are created as NFTs and auctioned off to a community of fans. Each buyer holds the right to resell the collectible for a profit at any given time, with the best benefit being the ease of verifying the authenticity of these cards. 

A popular example of a collectible is the digital kitten collection ‘CryptoKitties’. Another great example is NBA Top Shot that trades NBA short clips or moments as NFTs.

Gaming NFT

Popularly described as Gamefi, video games developers can deploy their games on a blockchain via smart contracts and auction out the gaming characters and skins as NFTs. This method enables developers to raise capital without selling off equity and earn royalties on each resale of their NFTs for lifetime. On the other hand, the users or players are given complete and authentic ownership of the gaming character and they can either resell, hold or play a game with the NFTs in order to earn extra rewards. For example, Axie Infinityilluvium and Gala Games etc.

This is contrary to how things work in the traditional gaming industry where developers hold all the rights to in-gaming skins, no matter how much a player might have paid for them.

Tokenized Physical Assets 

Almost every physical asset that is at risk of imitation and forgery can be tokenized as NFT. This type of NFT isn’t as proven as other types but there are companies actively building protocols that can tokenize physical real estate and luxury assets as NFTs. 

This is very promising as the possibility of forging someone’s car or house documents is completely eliminated, with the only concern being proper wallet security. 

Popular examples of physical asset tokenization are ‘Satoshi Island’ and ‘DWorld VR’ etc.

NFT Domain Names

The ownership of web properties like domain name (website address) has also been tokenized as NFT. Instead of buying a domain name from traditional or centralized companies like Godaddy or Namecheap, you can actually buy a decentralized domain name with extensions like .eth, .nft or .crypto, which is 100% under your control. 

For example, if you were a domain flipper, you’d need to buy a domain name from any third party platform like Godaddy, then list it on Flippa at a $25 (used to be $18) upfront fee and if you get lucky to sell, you’ll still be charged a minimum of 5% (used to be about 20%) of your total sale. But, with NFT domains, you can either buy from Unstoppable Domains for as low as $5 one-time fee (no renewal for life) or from Ethereum Name Service for a minimum of also $5 which must be renewed yearly, then list it on Opensea for FREE and you only pay 2.5% fees when and only when it is sold.

In addition to that, you can set royalties that are automatically paid to you whenever that NFT is sold again. Also, if you decide to build on the domain name, you can link it to your Web3 wallet address and automatically use it as a payment gateway, no need to integrate with PayPal or the likes.

Meme NFT

We all know what memes are, and yes, they have made it to the list of popular types of NFTs with the successful auctioning of viral memes like Disaster Girl, Doge Meme, Charlie Bit My Finger and Coffin Dance. The minimum sale in the above memes was Disaster Girl which sold for $500,000 and maximum sale was Doge Meme for $4 million.

Entertainment & Fashion NFTs

Thanks to NFTs, event organizers are now creating event tickets as NFTs, fashion designers are creating luxury wears for avatars, and music artists & entertainers can now deploy their songs or music videos as NFTs and sell them to die-hard fans. 

The appeal is in the power of DeFi where creators own their content and all the benefits that come with it. Hence, a musician can bypass agencies to create a limited edition NFT collection for his music (with a few other perks) and sell it to fans with lifetime royalties attached. Fans on the other hand can hold the NFT to support their favorite artist, enjoy the perks that are accrued to it or resell it whenever they want.

For example, Gala Games recently launched their music platform where Snoop Dogg debuted his new album as NFT. 

TOP 3 NFT MARKETPLACES

No alt text provided for this image
NFT Explaned - the complete guide 7

OpenSea NFT Marketplace 

Just as the name sounds, Opensea is an ocean of all types of NFTs and currently the biggest marketplace for NFTs. The platform was launched in 2017 and only had about 5 employees by 2020, but thanks to the NFT boom since 2020, it now processes billions of dollars on a yearly basis. 

Buying and selling on Opensea is very easy and smooth. Simply connect your wallet as you would with a DEX and make your trade. They charge a 2.5% fee for each sold item (seller pays).

Rarible NFT Marketplace

Rarible has become the second biggest NFT marketplace since its launch in mid 2020. Rarible hosts some of the most unique NFT artworks in the market and charges a fee of 2.5% on the seller side and 2.5% on the buyer side (5%). 

Trading on this platform is same as on Opensea.

SuperRare NFT Marketplace

If collecting ‘NFT Artwork’ is your interest, SuperRare might be your favorite go-to marketplace. SuperRare hosts some of the most talented artists and allows buyers to collect rare digital art pieces directly from these artists. 

SuperRare charges the seller a fee of 15% for the first sale and 3% on subsequent sales (buyer pays the 3%).

Unlike the first 2, the focus of SuperRare is on quality.

HOW TO BUY NFT

No alt text provided for this image
NFT Explaned - the complete guide 8

Buying an NFT is just like buying a cryptocurrency on a DEX, especially if you want to trade on the biggest platforms out there like Opensea. For this purpose, we had learnt the step by step process of creating a Web3 wallet, funding it and trading with it in past editions. Guide is available here.

Assuming that you’ve learnt how to use Web3 wallets and funded it with ETH or BNB, here are the few steps to buying your first NFT:

1. Plan: As we have discovered in this article, there are various types of NFTs. Just deciding to buy NFT won’t do, you have to determine what type interests you the most and why you want to go with that type, before thinking of the how. 

For example, I’m not an art collector, I buy NFTs for investment purposes and only go for those that have verifiable utility attached to them. In this case, gaming NFTs satisfy my WHY the most.

2. Research: There’s no limit to the amount of research you need to do in Web3 before making an investment. Yes, that is what NFTs come down to, either a passive or active investment. If you choose to buy artworks, make sure to buy from rising stars since their NFTs are moderately priced compared to famous artists, but they create similar or even better quality of art. Also, their rise in popularity is guaranteed to increase the floor price of their arts, both past and present.

While it’s smooth to read through, you’ll need to dedicate quality time to searching, identifying and vetting these hidden gems to know where or who to invest into.

Some popular NFT research resources include: TwitterNFT ScoringCrypto SlamIcy Tools and What’s Minting.

3. Buy Your NFT: Now that you know exactly what you want to buy, it’s easy to know where you have to buy it since each NFT artist or collection works with specific marketplaces and networks which are stated across their online profiles. 

Now verify that you have the needed amount for the NFT and gas fees on the specific network required to trade the NFT (setting and switching between custom networks shown in this guide).

Then you can go ahead to connect your wallet to the platform and complete your trade.

FINAL THOUGHTS

NFT is a powerful blockchain technology that can solve the problems of forgery, plagiarism and imitation, however, it is highly advisable to thread carefully. 

If you’re looking to tokenize an asset, make sure you’ve done your due diligence and if you’re looking to buy, always DYOR (Do Your Own Research) about the team, the artist or the roadmap to determine if it’s something you want to bet on. 

At the end of the day, NFTs are either passive or active investments and I hope you won’t be among the many people who lose money trading NFTs due to lack of proper research or knowledge.

I’m not a guru of any kind, but I hope that I can help you and others to make informed choices in Web3 and More.

If you find this guide helpful, kindly like and share with others. And feel free to ask any question or make suggestions.

Share on facebook
Share on linkedin
Share on twitter
Share on email