Crypto Basics

Everything You Need To Know About NFTs

June 20, 2022
7 mins
Everything You Need To Know About NFTs

What You Need To Know About NFTs

NFTs were the talk of the town for the majority of 2021, and for a good reason; every person and their grandma were trying to profit from seeing so much hype about 1000% gains. A lot of other people were pretty confused as to what NFTs are and how a "JPEG" with some code behind it could be worth so much.

We're here to help you understand exactly what NFTs are and why they're not just pixelated monkey pictures. Here's everything you need to know.

What Is an NFT?

So, according to the Collins dictionary, an NFT is "a unique digital certificate, registered in a blockchain, that is used to record the ownership of an asset such as an artwork or a collectible."

So, for example. If you owned an original video file such as your wedding video, this could be digitized and created in an NFT, meaning that whichever wallet address that holds this NFT is the sole owner, and there is no other file like it in existence. Non-fungible means unique and cannot be traded like you could with a cryptocurrency.

NFTs aren't exactly new either, they've been kicking around since 2014, and it's only recently that they've become a popular way to buy digital art.

According to CNBC, trading volume for NFTs hit a staggering $17 billion in 2021, increasing 21,000% from the previous year.

Typically, NFTs will come as a limited batch; collections of 10,000 or 5000 are pretty standard when launching an NFT project; this essentially creates greater demand. Many people will event mint NFTs of videos or artwork that currently exist, begging the question, why would you want to buy something when you can see or own it for free by saving it to your device?

The reason is that an NFT allows the investor to own the original piece of content or art; it cannot be altered and has a permanent and tamper-proof authentication built into its code which makes ownership of the NFT easier to verify.

How Is an NFT Different from Cryptocurrency?

An NFT stands for non-fungible, meaning that no two NFTs are the same as the code is unique and cannot be traded as you could with crypto as they're fungible, meaning that they can be traded for one another.

The reason is that cryptocurrencies are equal in value, meaning that one SOL would still be the same value as another SOL. The same goes for fiat currency; one dollar equals one dollar.

But, as NFTs are all unique, they aren't considered equal, even if they're from the same collection, meaning that one collection such as Beebles Crossroad, which sold for $6.6 million, isn't equal to CryptoPunk #7804, which sold for $7.6m, not because of the price but due to the unique code of each NFT.

How Does an NFT Work?

As we mentioned, NFTs are non-fungible and can be used as a way to verify ownership, and like cryptocurrencies, they exist on the blockchain. There are a number of blockchains that are used to host NFTs, but the two most popular are Ethereum and Solana.

Although, within the past year, Solana has quickly become the rising star of the NFT community, with many expecting it to overtake Ethereum as being the lead network for hosting NFTs.

The reason why is because the Solana transaction speed and gas fees are significantly cheaper and faster than their Ethereum counterparts.

At the time of writing, the Ethereum gas fees are roughly 0.3% of the transaction; gas fees are basically the fee you pay to make the transaction happen. In contrast, Solana gas fees are $0.0000000000001 for every transaction. You can see why Solana is becoming more popular.

The benefit of NFTs is that you don't need to just mint digital items; you can mint NFTs for physical items, too; this includes:

Art

GIFs

Videos and sports highlights

Collectibles

Virtual avatars and video game skins

Designer sneakers

Music

Homes

Legal documents

NFTs are just digital collector's items, and like physical collector's items, people get obsessed with owning them all or ones with rarity.

Many NFT collections also have something called utility, which means that if you buy the NFT, you'll be entitled to various perks such as in-person events, private members' clubs, or something as simple as free merch.

What Are NFTs Used For?

NFTs are a great way for artists and creators to make money from the blockchain hype and to ensure that their work isn't cloned and sold fraudulently.

NFTs are also great for verifying proof of ownership; for example, the real estate platform Propy has recently listed two homes that are backed by NFTs to prove the concept that you can store all of the housing data, transaction information, and legal documentation within an NFT which completely removes the risk of fraud, money laundering, and expensive fees in order to buy or sell a property.

If you're a creator selling your work in a traditional sense, it's pretty time-consuming and expensive to rely on galleries and auction houses to sell their art. Instead, With NFTs, you simply just mint the NFT on a marketplace, pay a small fee and then market their work to social media, and the NFT community is always looking for new pieces to invest in.

Selling directly to the investor means more money goes into their pockets than those of the galleries and auction houses. Not only that, but whenever an NFT is sold to another buyer, the original artist will receive royalty payments for each following transaction. Which in the physical world doesn't really happen.

Another way that NFTs can be used is to donate to charity. For example, proceeds from the Parcl Homeowners Association NFT collection will go to buying someone a home and will also be used to pay for housing costs for a group of other chosen individuals/families.

You can read more about that here.

How to Buy NFTs

If you want to buy an NFT, you'll first need a wallet. You can find our step-by-step Phantom wallet setup guide here.

You'll also need to fund your wallet with some cryptocurrency; if you're using a Solana NFT marketplace like MagicEden, get some SOL and if it's an Ethereum marketplace like OpenSea, have some ETH, which can be bought on an exchange such as Binance or Coinbase.

Popular NFT Marketplaces

There are literally dozens of Marketplaces to choose from; these are just a few of the popular options from various blockchains.

OpenSea

OpenSea holds the title of the world's first and largest NFT marketplace and has an impressive collection of listings from the world's most famous NFT projects. OpenSea operates on the Polygon network.

MagicEden

MagicEden is a Solana-based NFT marketplace that is reportedly the largest in the game for SOL NFTs. It rose to popularity as more people realized that Solana NFTs are significantly cheaper to mint than Ethereum NFTs. Our very own Homeowners Association NFT collection was minted via MagicEden.

Solanart

Another major Solana NFT marketplace, Solanart, actually has a neat new feature that allows you to message any holder/lister of an NFT, allowing you to barter and bargain. Solanart is the home of some high-ball projects, including SolPunks and Degenerate Ape Academy, with a combined volume of 1.5 million SOL.

CNFT

A lesser-known NFT marketplace as it operates on the Cardano blockchain. CNFT is fairly basic and doesn't offer the same cool features as Ethereum or Solana marketplaces. CNFT was at its most popular when Cardano prices were soaring. If you're a fan of Cardano, this marketplace is for you.

Rarible

The contender to OpenSea, rarible is another NFT marketplace that, at first glance, seems to be full of Pepe memes. After digging slightly deeper, you do notice that it has some quality NFT collections listed on the platform; these cool projects are often overlooked, as most Ethereum NFT enthusiasts stick to OpenSea, so there are some good buys.

It's important not to think too much about what to buy. To begin your journey of buying NFTs, just focus on projects that provide you with an initial reaction of "oh, that looks cool" chances are that if you think that, there will be thousands of others that think the same.

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