NFTs EXPLAINED
The digital world abounds with acronyms, especially when dealing with Cryptocurrency, Gaming, and Virtual Reality. A commonly used acronym in the virtual world is NFT (Non-Fungible Token).
Anybody who has experience in the digital world has most likely heard of NFTs. A much lesser number of people understand what they are and how they work. If you’re looking for NFTs explained you’re in the right place. New Tech Focus is dedicated to explaining NFTs, the Metaverse, Augmented Reality, Virtual Reality, Cryptos, Blockchain, Play-to-Earn and more.
What are NFTs?
Wikipedia defines an NFT as a unit of digital data stored on a digital ledger. The digital ledger is called a blockchain. The blockchain enables digital units to be sold or traded.
New Tech Focus defines an NFT as a digital asset that is kept on specified blockchain ledgers and provides a secure record of ownership. Also note that NFTs cannot be replicated, which means NFTs are particularly useful in tracking ownership.
An NFT acts as a unit of value and is normally linked with a specified digital asset like a digital file, or a physical object. All NFTs are linked with a digital license that allows the asset to be used for a specific purpose.
When defining NFTs, The Verge (an American tech news website) emphasizes non-fungibility. NFTs are unique and cannot be substituted with something else. For example, one unit of cryptocurrency can be traded for another, but since NFTs are unique one NFT cannot be traded for another.
Rumie, a nonprofit Canadian tech organization defines NFTs as data that is connected to a file thereby creating a unique signature.
The global media organization Fortune defines an NFT as a unique one-of-a-kind digital asset, belonging to a single owner only.
Lastly, earthweb.com a recognized Silicon Alley internet company defines NFTs as digital collectibles that are composed of unique data, held on the blockchain, and cannot be copied or reproduced.
Distinguishing features of NFTs
NFTs denote authenticated single-person ownership. NFT ownership records are transferable, and each time the NFT is sold or traded, the exchange is marked by a timestamp embedded within the NFT token.
With NFTs, it is possible to authenticate originality. All NFTs are unique, and this means NFTs can be used to authenticate the digital work/item it is linked with.
Because of NFTs artists can receive a royalty in the form of a sale price percentage every time one of their works is sold. This means as the artists can benefit directly when their work grows in popularity and value.
Purchasers can receive usage rights. For example, they can post the purchased image online, repost a particular tweet or use a purchased image as a profile picture.
Using NFTs on the Ethereum Blockchain, ownership of a digital item can be determined and tracked.
A short history of NFTs
The concept of NFTs evolved from the “colored coin” that first appeared in 2012-2013. Colored Coin tokens constitute real-world assets and are stored on the blockchain. The coins can be used as proof of asset ownership in the real world.
The first NFT was called “Quantum” and it was minted by Kevin McCoy in 2014. Quantum is now valued at seven million dollars.
Counterparty formed in 2014, was the first peer-to-peer financial platform composed of open-source internet protocol and built on the Bitcoin blockchain.
2016 was a big year for the development of NFTs and the blockchain. The first game that issued in-game assets on a blockchain (The Spells of Genesis) was released and Counterplay teamed up with a popular card trading game named Force of Will. This was the first entry of a video card game into the blockchain ecosystem. In 2016 memes started to appear on the Counterplay platform as players added assets to a meme named Rare Pepes.
Inspired by the success of Rare Pepes, in 2017 Larva Labs created unique characters called Cryptopunks that were held on the blockchain.
2017 saw the development and release of CryptoKitties a blockchain-based virtual game that utilized Ethereum.
From 2018 to 2020 NFTs slowly developed a higher awareness and acceptance in the general public’s agenda, then in 2021 NFTs exploded into mainstream awareness.
Throughout 2021 huge amounts of real-world money and cryptocurrencies were paid for NFTs. Numerous new blockchain platforms developed, and new marketplaces and cryptocurrencies appeared.
2021 was a year of rapid progression for NFTs and the crypto universe in general. NFT trading volume in 2021 was $85.7 million and in 2021 this figure jumped to $19.6 billion.
That’s it for our short history of NFTs. Following are some statistics about NFTs.
NFT Statistics:
NFT transactions are divided into two separate categories, Collector and Institutional. Collector transactions are those that are worth between $10,000 and $100,000 while Institutional transactions are those that are worth more than $100,000.
There are also less expensive NFTs on the market, such as game pieces and land decorations, from as cheap as pennies to hundreds or thousands of dollars.
In 2021, Collector sized transactions made up 63% of total transaction volume and Institutional transactions made up 26%.
A recent Chainalysis report noted that within the first ten months of 2021 people spent $26.9 billion in the acquisition of digital ownership tokens. By year’s end, the marketplace for NFTs was valued at $41 billion.
NFT sales ranged between $10-$20 million in the blockchain, every week of 2021.
The top five selling NFTs in 2021 were Beeples “The First 500 days” for 69.3 million. This was the most expensive virtual item ever sold on any platform.
The second highest was also Beeples digital art titled “The first 500 days” which sold for $69.3 million.
Third, fourth and fifth places were filled by Cryptopunk artworks numbers 7523, 3100, and 7804, which sold for $11.75 million, $7.67 million, for $7.57 million respectively.
In August of 2021, Bored Ape Yacht Club released its latest NFT collection generating sales of $96 billion.
The most popular marketplace for trading NFTs in 2021 was OpenSea. Throughout 2021 OpenSea averaged a 30day trade volume of just under $19 million and a total trade volume of $16 billion. OpenSea accounted for nearly 60% of all NFT transactions made in 2021.
The second most popular marketplace was CryptoPunk which recorded a transaction volume of $3 billion.
As of this writing the highest sale ever of an NFT occurred in 2021 when Beeple sold his work titled “The first 50000 Days” for 69.3 million dollars.
In March 2020, slightly less than 10,000 unique NFT sales were recorded and this figure for the same month in 2021, jumped to 39,000.
The Different Forms of NFTs
An NFT is a digital file and can take multiple forms. Some of the most common forms of NFTs include digital art, videos, songs, music, digital sports cards, tweets, ownership rights, and screenshots.
Crypto Art and Graphics
There is no single definition for a Crypto Artist or Crypto Artwork however, it is possible to examine some common elements that have influenced the Crypto Artists and their artwork.
By being in NFT form digital artwork can now be created, labeled, purchased, sold, and tracked digitally. Because it is on the internet digital artwork defies geographical boundaries it is the equivalent to the first completely global art movement.
Anyone can participate in the digital art scene regardless of ethnicity, skill level, training, gender, age, race, etc. Artists in the digital world can create and sell their work in anonymity through the use of pseudonyms.
Crypto art can take the form of memes and they are valued for their ability to rapidly disseminate rather than any artistic skill. The work of Crypto Artists is often self-referencing. For example, their artwork will often refer to key events, personalities, or crypto characters within the crypto environment.
Using blockchain platforms to hold and sell their artwork, artists ensure they get almost 100% of the sale money when their artwork is sold. Using the blockchain also means that artists can receive a percentage of every future sale made in the future.
The Crypto art market is predicted to experience significant future growth and some analysts have predicted it will exceed 3 trillion dollars by 2025.
Digital Art/Video Art NFTs
The most common form of NFT is Digital Art and the sales of digital art are steadily catching up to the sales of traditional art. Indeed, real-world auction houses such as Christie’s and Sotheby’s, are now selling NFT Digital Art.
NFT Video-Art is also a burgeoning market and in 2021 Beeples Video-Art named “Crossroads” was auctioned for a record $6.6 million. This was the highest sale ever recorded on any platform.
Music NFTs
NFTs are still a comparatively new format but many artists from numerous different art fields are using this format to market and sell their works. This includes art, music, literature, and more.
In the past music, sales have generated billions of dollars but the music artists would receive only a small percentage. The earning capacity for artists changed dramatically with the emergence of NFTs.
Artists can now access their fans directly, sell their songs, albums, and associated artwork as NFTs, and keep a much bigger percentage of the sales money.
Some of the bigger NFT music sales were as follows:
Justin Blau AKA, 3LAU sold a collection of 33 different NFTs called “Ultraviolet” for approximately $11.7 million.
In March 2021 Kings of Leon released their album “When you see yourself” as an NFT and it generated 820 ETH or 2,651,060
Music NFTs are often combined with other forms of NFTs to generate substantial sales. For example, Claire Elise Boucher AKA Grimes recently sold a suite of ten NFTs composed of digital artworks and original songs for 5.8 million in 20 minutes.
2021 witnessed the creation and release of the very first full-length concert film as an NFT. The NFT titled Destination Hexagonia featured music by Don Diablo and concert video footage rendered on 3D sets. The Destination Hexagonia NFT sold for $1.26 million.
Video Games NFTs
Another rapidly developing form of NFT is in-game content/merchandise and nearly all video games have a type of store attached where players can purchase in-game NFTs. The in-game NFTs can take the form of skins, digital art depicting game characters, digital land, digital weaponry, and other digital items unique to each specific game.
One popular NFT video game is called Sorare. Playing Sorare players can buy and sell NFTs, and the in-game Ronaldo NFT sold for $250 and the Neymar NFT/Card sold for $30,000.
Axie Infinity, another popular online game, features digital land NFTs and recently a record was set when a player purchased nine plots of land for $1.5 million in cryptocurrency.
Axie Infinity also has digital characters that have been sold for a high price. For example, Angel a digital character in the game has been listed for a sale price of 1,000,000 ETH.
Crypto Kitties is another popular video game where players breed Crypto Kitties. Recently one of the Crypto Kitties named Dragon was purchased for 600 Ethereum (ETH) which equals $1,939,800
Decentraland is a virtual real estate platform 12,600 Meters Squared Plot was sold for 500 ETH or $1.6 million and Sunset Strip on Sunset Boulevard was sold for 1.4 Million Mana, which equals approximately $3.6 million.
Digital video games based around F1 racing also proved an active area for the sale of NFTs. For example, the game F1 Delta Time (Australian version) sold for more than $400,000, and in the game Formula 1 Grand Prix de Monaco 2020 1A, 1 track sold for more than $3 million in cryptocurrency.
NFT Trading Cards
NFTs can be thought of as digital trading cards. We all know about limited edition baseball cards selling for thousands of dollars, and the NFT market isn’t much different. People can buy and trade virtual versions of trading cards on the market and keep them just like keeping the real thing. And, just like the real thing, some sell for over a million dollars.
One of the most popular NFTs is NBA Top Shots. NBA Top Shots are virtual video cards that feature video highlights of NBA players and are stored on the blockchain.
Recently the LeBron James Kobe Tribute Dunk, NBA Top Shot sold for $210,000. LeBron James also has another NBA Top Shot NFT card which is valued at a minimum of $1 million.
Other forms of NFT include clips of memorable sporting moments, memes, domain names, tweets, and virtual fashion.
NFT Marketplaces
The top market places for selling NFTs in 2021 was Open Sea. Open Sea recorded a total sales volume of $13.3 billion post-money valuations, over 1.26 million active users, 2 million collections, and over 80 million NFTs.
In 2021 Rarible reached a Total Lifetime Volume of $282,786,270 a Total of 259,878 Protocol Users and 407,271 total mints
Axie Infinity had a total supply of 270 million tokens and averaged 106,000 active daily users and 302,000 weekly users.
How to Sell NFTs
Step 1: Choose a platform on which to sell your NFTs.
The first step when trying to sell an NFT is to decide which platform/marketplace you want to use to sell your NFT. There are dozens of platforms available and many have features that they share in common.
There are also features incorporated in some platforms but not in others. For example, both Open Sea and Rarible have “Lazy Minting” systems that allow the creation of NFTs on Ethereum without paying.
Step 2: Set up a virtual wallet.
The second step in selling NFTs is to set up a virtual wallet. This is a wallet where you can store cryptocurrency and NFTs.
One important factor that comes into play when choosing a virtual wallet is whether or not it is compatible with whichever blockchain you are using.
One of the most popular wallets widely supported by Ethereum-based applications is the “MetaMask” wallet. There are also wallets such as the “Coinbase wallet” that have broader compatibility and can support blockchains like Bitcoin which are not based on Ethereum.
Step 3: Connect your virtual wallet with a marketplace.
After creating a virtual wallet, the next step is to connect it with a chosen marketplace.
To connect a wallet to a particular marketplace it is necessary to first install the extension for the chosen marketplace.
For some marketplaces such as OpenSea and Rarible, you simply click on the Create button in the upper left corner which brings up a list of compatible wallets. To complete the connection simply choose the wallet you want then follow the prompts which appear automatically.
For MetaMask and Coinbase simply install the extension and then click on the popup prompts that automatically appear.
How to Create an NFT
After your wallet is connected you will automatically be taken to the NFT creation page. Click the “Create” button which will take you to the create new item page. Click the box with an image icon inside and this enables you to upload your NFT file.
The next step is to list your NFT which involves giving your NFT file a name or title. Using the external link file, connect your NFT file with your other accounts such as a website, or Twitter.
Lastly, describe your NFT in the “Description” field to give potential purchasers a better grasp of what your NFT is.
If you want to create more than one NFT you will have to use what is called a “Collection.”
How Much Does it Cost to Create an NFT?
The costs for creating/minting an NFT can range between $70 and $700. For example, on Ethereum you can mint an NFT for a minimum of $70 and on Rarible it can cost up to $700.
How to sell an NFT
To sell an NFT is a comparatively easy three-step process
Step 1: Go to your profile, then your virtual wallet, then click on the NFT you wish to sell.
Step 2: Once you have selected the NFT to be sold you will automatically be taken to the NFT page. Select the “Sell” button which can be found in the upper right-hand corner.
Step 3: In the sell section you will be given options such as specifying the price, choosing the auction type, and more.
When selling an NFT you will be given the option of choosing between selling for a fixed price or putting the NFT up for auction.
In 2021 the NFT market experienced burgeoning growth. Records were set in the purchasing of crypto art and the trading of NFTs was more voluminous than ever before. Many analysts have predicted that NFTs are will become a prominent form of investment within the next five years and the record growth seen in 2021 is expected to continue until at least 2025.
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