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What is NFT? A Comprehensive Guide to NFT

What is NFT? A Comprehensive Guide to NFT There are slim chances that you are in the cryptocurrency market and didn’t stumble upon NFT. It’s fresh, it’s hot, all the big players such as Visa are into it, but what is NFT? In this comprehensive guide, we will go through everything you need to know

By Kresimir | January 24, 2022

What is NFT? A Comprehensive Guide to NFT

There are slim chances that you are in the cryptocurrency market and didn't stumble upon NFT. It's fresh, it's hot, all the big players such as Visa are into it, but what is NFT?

In this comprehensive guide, we will go through everything you need to know about NFT and how to purchase it. What if we told you that it's possible to actually make money with NFT by creating one by yourself? Keep reading because you don't want to miss out on this one.

 

What does NFT stand for?

Non-fungible tokens better known by NFT are digital assets that come in different types and shapes. They all have one thing in common and that is that they are all on the blockchain.

You might have read that Grimes sold 10 NFT art pieces for a total of 6 million USD, but how does it happen? Do people get physical products when they buy NFT art, do they get ownership rights? It depends.

For the most part, NFT is strictly digital, so is the proof of its ownership, but the owning terms are programmable. As we have previously mentioned, it comes in different types and shapes. What does that mean?

These are some of the different types of NFT:

  • Music
  • Animations
  • Videos
  • Pictures
  • GIF
  • In-game items
  • Physical NFT
  • Different types of tickets
  • ... Bunch of other stuff

You can turn most digital items into an NFT. Why would anyone spend their money on something available only in digital format? Because it's non-fungible, unique, but there are also other things so let's see how NFT works.

How does NFT work?

First, let's explain what the whole "non-fungible" thing means. It might not be a word that you would use when you speak to your friends, but fungible basically means "replaceable" with an identical item.

For example, if you have a 10$ bill and your friend also has a 10$ bill, you could swap it. Once you swap the bill, you won't notice the difference as it would still hold the exact same value. Another example would be 1 Bitcoin, you can exchange it for 1 Bitcoin and you would still have the exact same value.

NFT's however, are a NON-fungible asset. There is only one exact same copy of it, and it can even act as a certificate of authenticity. That's why so many different artists today are creating their own digital art and selling it.

If you compare the Mona Lisa drawing to an NFT, you'll see the advantage of an NFT because it can't be physically stolen since it's saved on the blockchain. Most of them are on the Ethereum blockchain, but big players such as IBM have invested in using NFT's on their blockchain as well.

Nyan Cat sold as an NFT

When someone owns NFT, it basically means he has it stored in his digital wallet. These are special types of digital wallets that have to be NFT-compatible, but how does someone actually purchase NFT? We'll go into details later on in the article, but for now, let's just say that there are marketplaces where you can obtain your own NFT.

If you are wondering why anyone would spend their money on it, you could ask yourself the same question for someone buying art in a gallery. The value of art depends on how much money the artist wants to sell it for and if someone is ready to pay that amount, it's a done deal.

If we take a painting, for example, other than looking at it, there is no real use-case for it. So why does it matter if it's digital or physical? With digital items, you can be 100% sure that it's authentic since each NFT asset has a unique identifier that can be used to determine who is the owner.

As for the copyright license, it actually depends on how the artist has decided it to be. NFT licenses can be personal, non-commercial, full-ownership, or even a special kind that you'll program.

The thing is, NFT is more than art. There are so many different use cases that it would take us a long time to cover every single one. For now, let's think of it as a way to own something unique, and we'll go into details through the rest of this guide.

NFT vs. Cryptocurrency

There are a lot of people who think NFT is some kind of a brand new cryptocurrency but is that true? No, not at all.

NFT and Cryptocurrencies are saved on the blockchain, and that's their only similarity. Other than that, they serve a whole different purpose.

For example, right from the bat, you can see the main difference which we've mentioned at the beginning of this article. NFT is a non-fungible token, while cryptocurrency is fungible.

You can exchange Cryptocurrencies with other users, or within your multiple wallets. There is nothing unique about holding one in your wallet other than maybe being the first one out of your friends to do such a thing.

Another key difference is how cryptocurrencies are sold and how NFTs are sold. You can purchase cryptocurrency through an exchange where you can deposit your FIAT money (USD, EUR, CAD, ...etc) and get crypto in return. You can then transfer that crypto to your digital wallet if you want to.

Most common NFT art is 8bit

There is only one marketplace where you can buy NFT's with fiat money, most accept cryptocurrencies only. They are bought on special marketplaces where they are either put on auction or sold instantly.

The only similarity is that both cryptocurrency and NFT can have many different purposes. NFT has many different purposes. It can be an art picture, cosmetic in-game item, or something else, cryptocurrency however has its purpose in technology that's behind it.

For example, Cardano (ADA) cryptocurrency aims to be a decentralized application development platform (DApp), while Ripple (XRP) is used for payment settlement and asset exchange. As you can see, they are both cryptocurrencies, but not with the same purpose.

Who can use NFT?

Now it's time to explain who can actually use NFT and what they look like. Anybody can purchase NFT, as long as you have enough crypto in your digital wallet.

As previously mentioned, there are different use cases for NFT and now we'll go through the most common ones. It doesn't matter if you are an artist who wants to sell his digital art online, or you are a consumer who wants to own something unique.

1. Art

Currently, it's the most common use case for NFT and it comes in different shapes and forms.

One category of NFT art is unique pictures. For example, the internet went crazy when the owner of Twitter, Jack Dorsey, sold his first tweet as NFT art for 2.9 million USD. You can think of it as an autograph, but it's just one autograph that will ever exist and you own it.

It doesn't have a real use other than the fact that it's an NFT collectible, however, paintings in real life don't have a real use either.

Animations are one form of an NFT and you can attach music to them, just like the "Death of the Old" piece which was sold for approximately 389 thousand USD.

You can also sell your music as an NFT. You might wonder, why would I purchase such a thing when I can simply download a .mp3 file? Well yeah, you could also get a copy of the Mona Lisa, but is it the same thing? Artists can also attach royalties from their real-world music to an NFT so the fan who owns it can also profit.

2. Staking

There is also a way of earning money with NFT even when you are not an artist. That's possible thanks to the NFT staking concept. There are already several different staking concepts, but in this example, we will take the BAND Royalty model.

How does it work?

  1. You have to buy a BAND Vinyl NFT and connect it to your digital wallet
  2. Stake your NFT in one of the three available BAND Royalty Music Pools
  3. Earn money every time a song plays from the BAND'S music collection

So how is this possible? BAND owns certain artists' performance royalties and each time their songs are being played through streaming platforms, they make money. Since you would own their NFT and have a stake in the pool, you'd get a percentage of that reward as well.

Please notice this is not a sponsored AD or financial advice, always do your own research and know there are certain risks involved when investing in such a thing.

That being said, staking is an awesome new way of investing which is taking both NFT and cryptocurrency by storm.

3. Gaming

One of the easiest places where NFT's could be super useful is in the gaming industry. Imagine having a unique item that you could showcase to other players. There are several games using the power of blockchain already such as Axie Infinity or CryptoKitties.

Players can even make money in CryptoKitties. Each cat is unique (NFT) and it cannot be stolen or destroyed by anybody. Since each CryptoKitty is one of a kind, breeding them in-game will also make a one-of-a-kind kitten which you can later sell to other players.

Based on the attributes and how rare they are, some kittens cost more than others.

Even though triple-A games still don't have NFT or crypto implemented, smaller games have already started using the technology advantage. But this is not the only use case for the gaming industry, there are plenty of other ways to use NFT and blockchain in the gaming industry.

Blockchain could be the future of gaming because players won't be able to "hack" stuff. Each item would have a blockchain address and owner, so the game couldn't be modified.

4. Authentication

Nobody wants to spend their hard-earned money on something that turns out to be a fake. This is where an NFT can help.

For example, let's say you are buying a unique diamond chain and you want to know if it's authentic. The original owner could include a certificate of authenticity which can't be faked since it's stored on the blockchain.

Nike recently got a patent and called it "CryptoKicks". Basically, when a customer buys a pair of shoes, he will also receive a cryptographic token and a digital shoe. That token is stored on the blockchain, and if you decide to sell the shoes, you can also sell the digital shoes as well.

The whole NFT authentication process actually starts in the factory. Once the shoes are made, a digital ID is saved on the blockchain and it is given to the buyer together with the shoes. This will most likely be used with limited pair of sneakers as they go up in value over time and this authentification would help recognize fake pairs.

5. Real-world assets

Even though this one is still in development, it's definitely worth a mention. It's possible to turn real-world items into a token. Whether that's a document such as a birth certificate or your medical history, it doesn't matter.

What's interesting is that perhaps once in the future it will be possible to tokenize property ownership documents and sell them through the blockchain. Right now there are already virtual lands and houses you can purchase.

You may not be able to walk through these virtual houses and lands right now, but once the NFT market starts to grow, who knows? Perhaps one day we'll be able to use VR headsets and navigate through our virtual real estate.

Right now the law has not yet made it possible to purchase or sell your house exclusively through the blockchain, so you might need to wait a bit before you buy that house in Los Angeles for a couple of BTC.

How to buy NFT?

If you like the idea of owning a unique digital asset or perhaps you want to invest, NFT's are a great choice for you. Perhaps you've seen people investing in it or trading their CryptoKittens and want to give it a try. Let's go through the process of how to buy NFT.

First of all, you are going to need an Ethereum wallet. Why Ethereum and not some other crypto? Because most NFT's are made on the ETH blockchain.

Ethereum allows users to create their own smart contracts. Such contracts are pretty much a program that runs on the Ethereum blockchain, following the instructions that the programmer has given it.

NFT also works with a smart contract on the blockchain. When some artist puts their art on the blockchain as an NFT, this process is known as a "minting" process. It will include all the data about ownership.

Now that we cleared out the theory, here are the steps on how to buy an NFT:

1. Create a wallet that can store an NFT.

There are already several different wallets that you can use. Most of them can store your cryptocurrency as well. The most popular digital wallets for NFT are:

- Metamask: Available as an iOS/Android application and as a web extension (Chrome, Firefox, Brave, Edge). It's primarily made for the Ethereum blockchain.

- Enjin: Available only on mobile phones. It has partnered with Samsung to provide a safe blockchain solution to all mobile users.

- Math Wallet: Successfully integrated with a hardware wallet called Ledger. It comes as a mobile application, browser extension, and web wallet. It supports more than 70 popular public chains, from Bitcoin to KAVA.

- Trust Wallet: Over 10 million users and growing every day. You can easily access NFT marketplaces through their application. You can store and manage your NFT on it, however, you cannot transfer it. Several public chains are accepted such as Binance Smart Chain, Ethereum Classic, Calisto, etc. It's available on mobile devices only.

- AlphaWallet: Only available for mobile users (iOS/Android), however, plenty of open-source tools are available for the developers on their website. The user interface is very easy to use for those who are new to the NFT world.

2. Purchase Cryptocurrency.

Since most of the NFT's sold are on the ETH blockchain, that's the cryptocurrency you want to get. You can decide on your own where to purchase it, whether it's Binance, Coindesk, Crypto.com, or any other place.

Some wallets such as Metamask have fiat to crypto exchange integrated into it.

Once you purchase it, transfer the ETH to your previously made wallet. Now you have funds available for the purchase of NFT.

3. Choose which marketplace you want to buy your desired NFT on.

There are a bunch of different marketplaces where users sell their own NFT. Based on the NFT art that you are looking to buy, you'll decide between one of these marketplaces. Some of the most popular ones are:

  • OpenSea
  • Mintable
  • SuperRare
  • Rarible

We'll go more into details about each marketplace in a little bit. For now, remember that you'll have to find a marketplace where you'll buy your NFT from. All of these marketplaces have NFT's listed by category and you can filter them out.

Once you find the one you like the most, select it. Most marketplaces will have the price listed both in ETH and USD. TIP: Always put a little bit more ETH on your account than the cost of the NFT you want to buy, because there is a small transaction fee as well.

Fill in your details, press "Checkout", check if you agree with the Ethereum gas fee and that's it.

3. Enjoy the NFT you have just bought.

Once you complete the payment process, you'll be taken to a page where you can see your transaction. You can also view it on Etherscan which will show the progress on your payment.

It might take a while for the NFT payment to go through, especially when the ETH network is very busy. Sometimes it will even take a couple of days for the payment to confirm, even though that's a rare occasion.

Once the payment settles, congrats, you now own your first NFT. Depending on the marketplace where you have bought the NFT, you might be able to display it on your marketplace profile. For example, OpenSea will let you see all your NFT belongings through the "My Collections" part of your profile.

What is the best NFT marketplace?

Right now, there are over 50 different marketplaces where you can buy and sell NFT. To decide which marketplace you should use, whether it’s to sell or buy, there are certain things you should look out for.

  1. How old is the marketplace? If this marketplace is a brand new one, make sure to do your own research about the reliability of the company behind it. You don’t want to put your ETH on their wallet only to find out it’s gone.
  2. How many different artists are on it? What’s the point of joining a marketplace both as a seller or a buyer if there is nobody else? The bigger the exposure, the better.
  3. What type of NFT is there? Depending on your needs, you should check out how many different categories the marketplace has. For example, it could be a digital image, animation, music, in-game items, domain name, etc.
  4. What are the fees? Do you have to pay a fee when you sell or purchase something? If you have to, how big is the fee? This is very important to know before joining the marketplace.
  5. What blockchain is the marketplace on? Most NFT marketplaces are on the ETH blockchain, however, sometimes high fees can occur due to gas transaction fees. In that case, it would be better if you join a marketplace that’s on a different blockchain.

If you are unsure which marketplace to choose, we can help you out. Our team specializes in reviewing and rating NFT products & services. Check out our list of the best NFT marketplaces.

Conclusion

NFT might be a new thing in the crypto community, but there are already millions of users using it and it's getting bigger every day. There are a lot of different artists and collectors on several different marketplaces.

Whether you are an artist or a collector, you should definitely give it a try and check what's the fuss about. To purchase an NFT, you'll need a digital wallet that supports NFT, enough funds which will most likely be in Ethereum, and you'll need to decide which marketplace to purchase on.

There are many different use cases for NFT, and this is just the beginning.

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