NFT: A Complete Guide for Beginners

What is NFT? 

A non-fungible token (NFT) is a type of digital asset that represents ownership of a unique item or piece of content, such as a digital artwork, collectible, or in-game item. Unlike fungible tokens, such as cryptocurrencies, which are interchangeable and have a set value, NFTs are unique and cannot be replicated or replaced. They are typically built on blockchain technology, which allows for the creation of a tamper-proof digital record of ownership and provenance. NFTs can be bought, sold, and traded like physical assets, and their value can appreciate or depreciate based on demand. NFTs are increasingly being used in the digital art world, but have potential use cases in other industries such as gaming, virtual reality, and online collectibles.

Non-Fungible Token (NFT) Vs Fungible Token? 

Aspect	Fungible Tokens	Non-Fungible Tokens (NFTs)
Definition	Fungible tokens are interchangeable and identical units that can be exchanged on a one-to-one basis.	Non-fungible tokens are unique digital assets that cannot be exchanged on a one-to-one basis. Each token is distinct.
Examples	Cryptocurrencies like Bitcoin, Ethereum, USDT, etc.	Digital art, collectibles (CryptoPunks, Bored Apes), virtual real estate (Decentraland), in-game items, etc.
Interchangeability	Fungible tokens are identical to one another. 1 Bitcoin is exactly equal to another Bitcoin in value and properties.	NFTs are not interchangeable because each token has unique properties. No two NFTs are the same.
Divisibility	Fungible tokens are divisible, meaning you can break them down into smaller units. For example, 1 Bitcoin can be divided into 0.01 or 0.0001 Bitcoin.	NFTs are indivisible, meaning they cannot be broken down into smaller units. You either own the entire NFT or none of it.
Value	The value of each fungible token is uniform. The price of one token is the same as any other token of the same kind.	The value of NFTs varies widely based on uniqueness, rarity, demand, and creator reputation. Each NFT can have a different price.
Ownership Representation	Fungible tokens represent identical ownership stakes or values. For instance, 1 BTC in one wallet holds the same value as 1 BTC in another.	NFTs represent ownership of unique digital items or content, such as a specific artwork, video, or piece of music, making each ownership record distinct.
Use Cases	Mainly used as a medium of exchange or store of value (like money). They are used in trading, payments, and staking in decentralized finance (DeFi).	Used for owning unique digital assets, digital art, collectibles, virtual goods, domain names, and more. NFTs are also used in gaming, art, and virtual real estate.
Standards on Ethereum	Common standards for fungible tokens include ERC-20, which defines how tokens behave within the Ethereum network.	NFTs are generally created using standards like ERC-721 and ERC-1155, which define their unique properties.
Ownership Transfer	Fungible tokens are transferred seamlessly, with no need for detailed ownership verification, as all tokens are identical.	NFT transfers include a detailed record of ownership and provenance. Each transfer must verify the unique ownership of the asset on the blockchain.
Scarcity	Fungible tokens are typically issued in large quantities, meaning there is no inherent rarity associated with each token.	NFTs are often created with limited editions or are one-of-a-kind, which adds scarcity and value to the asset.
Market Dynamics	The value of fungible tokens is influenced by supply, demand, and market factors in the same way as traditional currencies or stocks.	NFT values are highly dependent on factors like the rarity of the token, the reputation of the creator, and the perceived demand or cultural significance.
Example Use Case	A user can trade 1 Ethereum for another Ethereum, and the value remains the same.	A user can own a specific piece of digital art or a unique in-game item that cannot be duplicated or replaced.
Scarcity	Fungible tokens are typically issued in large quantities, meaning there is no inherent rarity associated with each token.	NFTs are often created with limited editions or are one-of-a-kind, which adds scarcity and value to the asset.
Market Dynamics	The value of fungible tokens is influenced by supply, demand, and market factors in the same way as traditional currencies or stocks.	NFT values are highly dependent on factors like the rarity of the token, the reputation of the creator, and the perceived demand or cultural significance.
Example Use Case	A user can trade 1 Ethereum for another Ethereum, and the value remains the same.	A user can own a specific piece of digital art or a unique in-game item that cannot be duplicated or replaced.

NFTs (non-fungible tokens) are unique and cannot be replicated or replaced, whereas fungible tokens, such as cryptocurrencies like Bitcoin or Ethereum, are interchangeable and have a set value. 

For example, imagine you own a painting by a famous artist. This painting is a one-of-a-kind piece and its value is determined by its rarity and uniqueness. If you were to sell this painting, the buyer would be getting that specific painting and no other. This painting would be considered as NFT.

On the other hand, a fungible token like Bitcoin is a digital currency that can be divided into smaller units and each unit of bitcoin is interchangeable with another unit of the same value. If you were to sell 1 bitcoin, the buyer would receive 1 bitcoin and it would be worth the same as any other bitcoin. You can’t say this is this specific bitcoin, it’s just 1 bitcoin.

Another example, virtual land in a virtual world can be an NFT, as each land is unique and can’t be replicated, but the in-game currency used in the virtual world can be a fungible token, you can trade it for other similar values.

How do NFTs work?

NFTs (non-fungible tokens) work by using blockchain technology to create a tamper-proof digital record of ownership and provenance. A blockchain is a digital ledger that is distributed across a network of computers, allowing for the creation of a permanent and unchangeable record of transactions.

To create an NFT, an artist or creator first creates a digital asset, such as a piece of art, music, or a video. This asset is then tokenized, which means it is assigned a unique digital identifier, often called a “smart contract”, that represents ownership of that specific asset. This smart contract is then recorded on the blockchain, creating an unchangeable record of its ownership and provenance.

Once the NFT is created, it can be bought, sold, and traded like physical assets. When a transaction takes place, the NFT’s smart contract is updated to reflect the new ownership, and this information is recorded on the blockchain.

NFTs can be stored in digital wallets, just like cryptocurrencies, and can be traded on various marketplaces that specialize in NFTs. The value of an NFT can appreciate or depreciate based on demand, just like any other asset.

It’s important to note that the digital asset that the NFT represents, such as a digital artwork, is not stored on the blockchain itself but rather a reference to the location of the digital asset, such as a URL, is stored on the blockchain as part of the smart contract.

What are their use cases? 

Non-fungible tokens (NFTs) have a wide range of potential use cases, as they can be used to represent ownership and provenance of unique digital assets. The most popular examples for NFTs are:

• Digital Art: NFTs have become popular in the digital art world, allowing artists to sell their work as one-of-a-kind digital assets. This allows artists to monetize their creations in a new way, and also allows buyers to own a piece of digital art that is truly unique.
• Gaming: NFTs can be used to represent in-game items such as weapons, armor, and other digital collectibles. Players can own, trade, and sell these items as they would with physical collectibles.
• Virtual Reality: NFTs can be used to represent ownership of virtual real estate and other unique assets within virtual worlds.
• Collectibles: NFTs can be used to represent ownership of digital collectibles such as trading cards, sports highlights, and other items that have value to collectors.
• Music: Musicians can use NFTs to represent ownership of unique tracks, album art, and other digital assets.
• Video: Film makers and other video creators can use NFTs to represent ownership of their work and also allow others to own a unique piece of it.
• Identity: NFTs can be used to represent ownership of digital identities, allowing individuals to have more control over their personal data and online presence.
• Supply Chain Management: NFTs can be used to represent ownership of physical assets such as goods and products, and also used to track them throughout the supply chain, providing transparency and provenance.

These are just a few examples, and as the technology develops, new use cases for NFTs are likely to emerge.

What is the step-wise process of creating NFT?

Creating an NFT (non-fungible token) involves several steps, including creating the digital asset, tokenizing it, and then listing it on a marketplace or platform that specialises in NFTs. Here is a general overview of the process:

• Create the Digital Asset: The first step in developing an NFT is to develop the digital asset that will be represented by the NFT. This could be a piece of digital art, music, video, or any other type of unique digital content.
• Tokenize the Asset: Next, you need to tokenize the digital asset. This involves assigning a unique digital identifier, also known as a “smart contract,” to the asset. This smart contract is then recorded on the blockchain, creating an unchangeable record of its ownership and provenance.
• Create a Digital Wallet: Before listing the NFT, you will need a digital wallet to store it. A digital wallet is a software program that allows you to store and manage NFTs and other digital assets.
• List the NFT on a Marketplace: Once the NFT is created, you can list it on a marketplace or platform that specializes in NFTs. These marketplaces allow buyers and sellers to trade NFTs, similar to how stock marketplaces allow trading of stocks.
• Set the price: You can set the price for your NFT, it can be fixed price or auction based.
• Wait for Sale: Wait for a buyer to purchase your NFT, once it’s sold, you will receive the payment for your NFT and the ownership of the NFT will be transferred to the buyer.

It’s important to note that some platforms allow users to create, mint and sell their own NFTs without the need of any technical knowledge, it’s a user-friendly interface.

It’s also important to note that these are the general steps for creating an NFT, and the specific process may vary depending on the platform or marketplace you choose to use.

How much does it cost to create an NFT and list it on the marketplace?

The cost of creating and listing an NFT (non-fungible token) can vary depending on several factors, including the platform or marketplace you choose to use, the type of digital asset you want to create, and any additional services you may need.

Here are some of the costs to consider:

• Platform fees: Many platforms that specialize in NFTs will charge a fee to create and list an NFT. These fees can range from a small percentage of the sale price to a flat fee.
• Gas fees: Creating and listing an NFT also requires paying gas fees, which are the fees required to process the transactions on the blockchain. These fees can vary depending on the blockchain network being used, and can be substantial.
• Digital wallet fees: Some digital wallets charge a small fee to store and manage NFTs, so it’s important to check the fees of the wallet you choose.
• Creator’s fee: Creator’s fee is the percentage of the sale price that the creator wants to retain when an NFT is sold.
• Marketing and Promotion: If you want to promote your NFT, you may need to pay for marketing and promotion.

It’s also worth noting that, if you’re looking to create an NFT on a platform that is free to use, you can expect to pay only the gas fees and the creator’s fee if you choose to retain any. However, when using a platform that charges a percentage as a fee, it may add up to a considerable amount, especially if your NFT sells at a high price.

What are some popular NFT marketplaces?

There are several popular marketplaces for buying and selling NFTs (non-fungible tokens), with new platforms emerging regularly. Here are some of the most popular and well-established marketplaces that are currently active:

• OpenSea: OpenSea is one of the largest and most popular NFT marketplaces, it allows to buy, sell, and trade a wide range of NFTs including art, collectibles, and in-game items.
• Rarible: Rarible is a marketplace that specializes in digital art and collectibles, and it’s one of the most active platforms in the digital art world.
• SuperRare: SuperRare is another marketplace that specializes in digital art, and it’s known for its high-quality content and curated selection of artists.
• KnownOrigin: KnownOrigin is a marketplace for digital art, it has a wide range of artist and artworks on the platform.
• Nifty Gateway: Nifty Gateway is a marketplace that specializes in limited-edition drops from artists and celebrities, it’s a good option for those looking for unique and rare NFTs.
• Sorare: Sorare is a marketplace for digital collectibles and it’s focus on soccer related NFTs.
• Foundation: Foundation is a marketplace for digital art and collectibles, it has a wide range of artist and artworks on the platform.
• AsyncArt: AsyncArt is a platform that focuses on generative art and it allows the creation of unique NFTs through the use of code.

These are just a few examples and there are many other platforms and marketplaces available, each with their own unique features and offerings. It’s important to research and compare different platforms to find the one that best suits your needs.

What are some most popular NFTs of all time?

There have been many popular NFTs (non-fungible tokens) sold in recent years, and the value and popularity of NFTs can change rapidly. However, here are some of the most popular and valuable NFTs that have been sold to date:

• “Everydays: The First 5000 Days” by Beeple: This digital artwork, created by the artist Beeple, sold for $69,346,250 in March 2021, making it the most expensive NFT ever sold.
• “The Garden of Eden” by Mike Winkelmann: Sold in March 2021, this digital artwork by Mike Winkelmann (Beeple) sold for $69,346,250, it was the second most expensive NFT ever sold.
• “The CryptoPunk #7804” by Matt Hall and John Watkinson: This 10×10 pixel artwork is one of the first and most popular NFTs in the world, it sold for $69,346,250 in March 2021, it was the third most expensive NFT ever sold.
• “Last Supper” by Peng: This NFT is a digital artwork depicting the last supper, it sold for $69,346,250 in March 2021, it was the fourth most expensive NFT ever sold.
• “Shibuya Crossing” by Beeple: This digital artwork by Beeple sold for $6,6 million in January 2021, it’s a popular NFT artwork.
• “Everydays – The First 5000 Days” by Beeple: It’s a collection of 5,000 unique digital artworks by Beeple, it sold for $6,6 million in March 2021.
• “The Fungible” by Mad Dog Jones: It’s a digital artwork, it sold for $5,5 million in January 2021, it’s a popular NFT artwork.
• “The Last Will and Testament of Ross Ulbricht” by Mark Levandowski: It’s a digital artwork, it sold for $5,2 million in January 2021, it’s a popular NFT artwork.

These are just a few examples, and the value and popularity of NFTs can change rapidly, as new NFTs are being sold at very high prices. It’s important to note that these are some of the most popular and valuable NFTs ever sold, the market for NFTs is still a relatively new one and it’s hard to predict what the future holds.

Real-World Applications of NFT: 

1. Digital Art and Collectibles:

NFTs revolutionized digital art; artists can now create and sell their work, directly to the buyer, with proof of ownership and authenticity.

Example: Beeple’s digital artwork “Everydays: The First 5000 Days” was sold as an NFT for $69.3 million in 2021. Artists can also get a share of resale through smart contracts embedded in NFTs.

2. Gaming and Virtual Goods:

The NFTs are applied in the gaming industries for unique in-game items, characters, and skins. Indeed, gamers can buy, sell, and trade these NFTs, as they sometimes enable cross-game usage.

Example: The blockchain game Axie Infinity allows users to purchase, mate, and fight NFT creatures – called Axies. Axies can be sold on an open market; some of which have been sold for thousands of dollars.

3. Virtual Real Estate:

In virtual worlds and metaverses, NFTs represent ownership of virtual land and properties. Owners can buy, sell, or even develop these virtual spaces.

Example: Decentraland is a virtual world in which you can buy plots of land as NFTs, and build structures or businesses. In 2021 a virtual plot sold for over $900,000.

4. Music and Entertainment:

By using NFTs, musicians and other entertainers have begun selling music tracks and concert tickets. They stand directly to gain from their labor by cutting out middlemen.

Example: Kings of Leon released an NFT album, which unveiled exclusive content including limited-edition vinyl and front-row seats at concerts. NFTs can be used to promote more exclusive tracks or entrance passes for live events.

5. Sports and Collectible Memorabilia:

NFTs have become popular in the sports world for selling unique digital memorabilia, such as trading cards, video highlights, and tickets to events.

Example: NBA Top Shot allows fans to purchase and trade licensed collectible NBA highlights in the form of NFTs. Some video clips, like a LeBron James dunk, sold for over $200,000.

6. Fashion and Wearables:

NFTs are now entering the world of fashion where brands can sell digital wearables, and people can put them on themselves in virtual environments or just collect them inside the digital wallet.

Example: RTFKT Studios is a design studio for virtual sneakers and collectibles that customers can wear in the virtual worlds. In early 2021, they sold NFT sneakers worth over $3 million.

7. Domain Names:

Blockchain-based domain names are essentially NFTs. It allows users to possess domain names, eliminating regular registrars. The domain names are resistant to censorship and may be bought and sold.

Example: Unstoppable Domains offers a service in which a user can purchase names like .crypto, as an NFT; they will then fully own and control their digital identity along with the ownership of the domain.

8. Event Tickets:

NFTs are issued for concerts, sports, and festival tickets. The original issuer gets royalties on every resale, while the resale of such tickets is possible.

Example: YellowHeart is a marketplace for blockchain-based tickets, utilising NFTs to prevent ticketing fraud and giving artists a percentage of their sales on the secondary market.

9. Tokenized Real-World Assets:

Tokenized real-world assets, such as a small part of real property, car ownership, or luxury goods, offer even easier fractional ownership or transfers of ownership.

Example: Real Estate Companies like RealT tokenized real estate properties as NFTs where investors can buy fractional interests and earn rents.

10. Intellectual Property and Copyrights:

NFTs can become proof of ownership in the digital world for intellectual property and copyrights. Therefore, artists, writers, etc., can conserve their works by tokenizing them.

Example: Async Art allows artists to have separate owners for each layer of a digital art so that there can be a separate owner for every functional aspect of the creation. This gives the artist complete control over how his artwork is used.

11. Charity and Philanthropy:

NFTs have even been used as charity, in which some artist or organisation conducts an auction of some NFTs with the proceeds going to charity.

Example: NFT for Good is a platform where artists and stars can make NFTs. The sales from such NFTs are donated directly to the cause.

12. Education and Certification:

They can be used for tamper-proofing educational certificates and professional credentials. Universities and training institutions can issue diplomas or certificates as NFTs. In this case, the authenticity of their content will be confirmed.

Example: MIT has experimented with issuing blockchain-based diplomas in the form of NFTs, allowing graduates to have permanent, verifiable proof of their degrees.

While there are several advantages of NFT, there are some concerns as well. Let’s get to know about that. 

Concerns about NFT:

Environmental Impact: 

NFTs, particularly on Ethereum, consume significant energy due to the blockchain’s proof-of-work consensus mechanism, raising concerns about their environmental footprint.

Copyright and Ownership Issues: 

While NFTs represent ownership of a digital asset, they don’t always transfer copyright or usage rights, leading to confusion over what buyers own.

Market Speculation: 

The NFT market can be highly speculative, with prices driven more by hype than actual value, leading to potential bubbles and financial risk for buyers.

Security Risks: 

NFTs, like other digital assets, can be vulnerable to hacking, phishing scams, and theft, where users can lose their investments or ownership rights.

Lack of Regulation: 

The NFT space is largely unregulated, which can lead to fraud, counterfeit items, and a lack of consumer protection for buyers.

NFTs have opened up exciting possibilities in the digital world, from art and gaming to virtual real estate and beyond. They allow creators to connect with audiences in new ways while offering buyers the chance to own unique digital assets. 

What do you think about NFTs? Are they the future of digital ownership, or just another passing trend? I’d love to hear your thoughts!

For more updates on NFTs, blockchain, and the future of Web3, make sure to subscribe to our newsletter and stay informed on the latest trends.