In this blog post, I’m going to explain exactly what an NFT is because, honestly, we were looking them up, and they are really confusing.
In this post, you’re going to learn exactly what they are, why they are valuable because that was our biggest question and what the buying process looks like.
What is NFT?
A non-fungible token, also known as an NFT, is a digital token or asset. A common analogy is to think of these as digital trading cards or digital paintings.
Whenever you buy an NFT, you are basically just buying the rights to that specific asset.
Now, non-fungible means that it can’t be changed whenever it is created. You can’t split it up, and it must be distinguishable from something else, unlike a bitcoin.
One bitcoin is the exact same as another bitcoin.
Well, with NFTs, they’re never the same. They’re always different, and also, a token it’s just a small piece of data that you own.
Together, an NFT is a token that you own that doesn’t change throughout time.
That’s the basics, but when it comes down to the technicals, what exactly is an NFT?
Well, NFTs are actually just a piece of data that is owned by an address, and whoever has the password to that address, they own that piece of data. This piece of data can be bought and sold to different addresses. That data is verified on a blockchain, and you can actually check.
The owner history is always trackable with an NFT.
For example, this Cryptokitty that sold for $600,000 is essentially just a tiny URL that is owned by an address. The only thing that that person owns is a tiny piece of data.
Now, that piece of data points to a server that usually hosts an image, and technically whoever owns that server could change the image unless it is stored on IPFS.
It’s important to know what you are actually buying. When you buy an NFT, you are purchasing a piece of data that points to a server that hosts either an image or a gif.
It’s actually the specific piece of data that you actually own on the blockchain, not the access to the server and not the image or the gif, but rather that tiny piece of data that points to the server.
In a sense, when you buy an NFT, you’re buying a small piece of data that represents something larger.
Kind of like buying a stock. You’re not buying the entire company, and unless it’s a dividend stock, you’re not actually getting anything from it.
This brings us to the question, why would you want to buy an NFT?
Why Buy an NFT?
There are many reasons, but right now, the main reason most people are buying is that they see NFTs as collectibles in the investment category.
Let’s go over four main things that make an NFT valuable.
Just like bitcoin is so popular because it was the first cryptocurrency. The first NFTs of specific creators or businesses will also have value.
For example, pokemon cards are quickly gaining popularity, and the most expensive cards are those that were produced in the first edition. Let’s say if you have the first united states NFT, it will likely have some perceived value.
The second thing that makes an NFT valuable is its utility which, in other words, is the real-world benefits.
Imagine if Elvis Presley was still alive and he sold 50 NFTs, now by owning one of them,m you could have lifetime access to any of the shows that he participated in.
These NFTs would quickly become popular and very expensive due to their real-world benefits. Personally, this is the only reason I would buy an NFT is if it had a real-world benefit.
I think in the future, almost all NFTs will evolve to have this sort of aspect creators will sell NFTs for income and in return, have a membership community or do a monthly lunch meeting or something in that fashion.
- Unique or Rare
The third thing that makes an NFT valuable is if it’s unique or rare.
For example, think of the Monalisa, anyone can have a copy of the Monalisa in the room, but only one person or a museum in this case can hang up the real painting by Leonardo da Vinci for everyone to view.
Now, the same goes for the original constitution of the united states or babe ruth signed baseball; they are rare.
Imagine if Stephen hawking only minted three NFTs. They would be very valuable because there are only three originals, even if they’re just pictures of the universe.
Other people could have that picture, but they wouldn’t have the original one minted by Stephen Hawking.
- Ownership History
The last thing that I found that makes an NFTvaluable is ownership history. For example, what’s your favorite celebrity?
Let’s say it is Robert Downey jr. So let’s say he decides to sell his leather jacket and buy a new one.
Well, when he first bought that leather jacket, maybe he paid two hundred dollars for it, but you might pay $800 just to have the same jacket that Robert Downey jr wore.
The same goes for NFTs someone might be willing to pay a million dollars of an image of a duck that Barack Obama owned at one point.
Keeping these in mind, you should think about what actually makes an NFT valuable:
- if an NFTis the first of its kind
- if it has a real-world benefit
- if it’s rare and
- if someone important owned it
These are questions to ask yourself during the valuation of an NFT.
For example, does buying jack Dorsey’s first tweet for two and a half million dollars fit any of these.
Let’s go down the list:
is it a first? Yes. It actually is the first NFT in that category.
Secondly, does it have utility? It does not. You don’t get to change the tweet, and you don’t get to advertise your business or something like that.
Third, is it unique? Yes, It is unique.
Lastly, what about its ownership history? Someone famous owned it.
This example only checks three of the boxes.
If you buy his first tweet, you’re basically betting that someone else in the future will want to buy it for a higher price because holding that NFT does absolutely nothing for you.
There is no utility; you’re buying it as a novelty or as an investment unless one-day jack Dorsey says whoever holds that NFT he’ll have lunch with once a month. Then the value would skyrocket.
Now that we have gone over what NFT are and how they work let’s go over how popular they quickly become.
Just look at this google trends data. In fact, that’s what inspired this article. I created this post to help people because all the stuff that I was looking up was very, very confusing.
Another important question to ask about NFTs is;
Can Someone Copy Your NFT?
Well, technically, no, because NFT is a piece of data on the blockchain. On the other hand, someone can copy an image just like any other piece of artwork, but the original NFT address can be traced back to the original creator since all NFTs have a log of their transaction history.
It’s also important to note someone could create a new NFT that points it to a different address that is of the same image or gif.
The value in an NFT is not the image; it’s the specific piece of data.
Just like I could make a free throw at my local YMCA, and Lebron James could toss one in while 30 000 people are watching. Even though these are basically the same thing, one has way more value based on what other people think of it.
I may be doing the exact same thing LeBron is doing, but people value his free throw way more than mine.
Another question you might have moving into the NFT space is;
How do you buy an NFT?
Purchasing an NFT is quite simple, and it’s probably the same difficulty as purchasing a stock of a company.
You should know most NFTs are sold on marketplaces. Kind of like eBay, Amazon, and Facebook marketplace, but that specialize in NFTs
One thing that might be a drawback of buying NFTs is that they are usually purchased with crypto. So you’ll likely need to own some actual crypto before you purchase a Cryptokitty or an NBA top shot.
Buying cryptocurrency and trading it to a wallet that you can buy in NFT usually takes some technical skill on transferring crypto.
Because if you do it incorrectly, you could lose all of your money in the transaction.
Here are the four most commonly used NFTs exchanges that allow you to buy and sell NFTs;
- opensea.io, and
Whenever you go to buy an NFT, the first step is to create an account on that specific website. Step number two is that you’ll either have to buy crypto on an exchange and then transfer it to your wallet.
You should know NFT wallets are very similar to any other cryptocurrency wallet and most crypto wallets also support NFT.
They usually have a public and a private key. And for those wanting the technicals, most are based on the erc721 protocols.
But I promised that I would not get too technical in this post, and then lastly, you can bid like an auction and pay for whatever NFT that you’re attempting to buy, and if you win, that NFT will get added to your account and then stored in your wallet.
This brings us to the next question.
Where do you store your NFT?
Now that you’ve purchased your NFT, you’re probably wondering where the heck do you store it?
Well, you store it in a wallet. You’ll want to make sure that it’s safe and accessible to show your friends and other people what you’ve recently purchased.
The best way to store your NFTs is on a hardware wallet, something along the lines of a ledger nano where it can be offline and protected, but if you want to keep it online, here are some online applications that host wallets for you.
- and engine.io
If we were to go any further on this process, it would probably take quite a bit of technical knowledge.
So I’m sorry to say that’s where this article ends. I hope you found it helpful, and I hope it clears up some confusion. Please don’t forget to share.
We promise to keep it simple for you. Thanks for reading, and I hope to see you at the next one.