Updated: Nov 13, 2021
Photo: NFT NYC Conference, Getty Images
What Are NFTs?
If you’re reading this, the acronym NFT has probably crossed your path. Maybe you’ve seen them spoken about on Reddit, Twitter, Tiktok but you still have questions lingering in the back of your mind. What are NFTs all about? We're going to unpack the basics of NFTs and how they work.
NFTs are in their infancy and anyone can be at the forefront of a new expedition to explore this shift in art, commerce and the blockchain world. Unfortunately, because people don’t know the first thing about NFTs, there’s a tendency to lean more towards disregard and skepticism. It's very early, and we are still at a point where we as a society are developing our opinion on the value of NFTs, how to best apply the technology. NFTs art in particular is a new form of self-expression and people are buying these virtual objects because they bring them joy and satisfaction, just like purchasing something in the physical world.
As we travel further into the tech and virtual spaces, humanity is looking for unique ways to express themselves in the digital world. Take video games, for example. In recent years they have become a major part of everyday life for many people. Skins for your avatar in popular video games, like CSGO or Fortnite, are sought after for their rarity and created a market for people wanting to spend real-world money on these virtual add-ons. Popular designer labels are bought for their symbolism, and in the virtual world, people want the same thing. Virtual reality is quickly becoming a space of customization, and with people going out in the real world less and less, the need for self-expression in the virtual realm is being met with the emerging NFT market.
Virtual spaces and the real world have merged under the influences of social media and bitcoin. NFTs are the culmination of modern technology and humanity at large and have a greater foothold than some may think. I grew up playing games like Yugioh with my friends which involves collecting cards that often increase in value. I’m sure you’ve heard of people collecting unique art from galleries, different varieties of whiskey or wines, or even sports cars. I feel that NFTs are currently creating a community that brings people who love collecting together in a completely new way with the help of virtual space.
How Would You Describe an NFT?
NFT is short for “non-fungible token.” NFTs can be best described as exclusive digital assets, but they come in many forms through whatever industry they derive from and often have a limited quantity. One may think of digital art as digital real estate in an online game. It can be any online media, but it has to go through some form of minting or tokenization which will transform them into something non-fungible, or an NFT. An NFT can be anything that you create digitally and once it has been cut up and specialized, these resources can be bought, sold, and traded using any form of currency whether it’s crypto or fiat.
What is the Difference Between Fungible and Non-Fungible Values?
To understand the difference between fungible and non-fungible values you first need to understand what a fungible value is. Fungibility is being able to exchange one good for another/others of equal value. Take two quarters for example, no matter when they were made or what they are made of there is no change in their value and they can be exchanged. It’s the same with a dollar bill for four quarters, they both have the same value and can be equally exchanged without issue, this is what fungibility is. On the other hand, we can look at two houses, the same amount of bedrooms, bathrooms and square footage. Depending on the location or the condition of these two homes they might have drastically different values, making this a non-fungible trade.
NFT stands for Non-Fungible Token, meaning that, depending on the perceived value of the asset, it can increase and decrease in price depending on the rarity of certain attributes of the product. Having an NFT is like having a digital deed to a unique asset that can be traded for something of fungible value. The underlying data of an NFT is like an emblem of validity telling it apart from everything else. It’s like what I was saying earlier, it could be a special skin in an online game or an entire space fleet in another. The desire of holding onto an NFT or obtaining one can stem from the demand of an item or the rarity of an item, just like how baseball cards can increase in value depending on their rarity.
Now the question going through your head is “how can I create an NFT,” and I can give you a starting point. It starts with any content that is created or obtained by you. It could be a drawing you’ve done in your spare time or even a photo or video clip of a vacation that you went on. What turns it into an NFT rather than just an old drawing or photo is the minting of your work, which happens when you upload it onto a website like Open Sea, but I’m getting ahead of myself.
Before you can upload anything onto an NFT trading website you have to create an NFT wallet. I will explain how to set up an NFT wallet in another article, but to put it simply, in order to upload any NFTs you must have an NFT wallet set up and linked with your account on any NFT trading website you choose to use. By uploading it onto one of these websites they will be considered minted and thereby ready for trading.
After the minting of your NFT, it joins a blockchain. A blockchain is an official registry shared on the internet where the ownership and receipts of purchases can be monitored and updated. Now that an NFT has been created it goes into your digital wallet where you can claim rightful ownership and, although it can be copied, you will always own the original work and have the metadata to prove it.
After creating your NFTs and having them secure in your wallet the next best step is to look up places to sell them. Common marketplaces to sell NFTs are OpenSea, Nifty Gateway, and Rarible. Within these websites, buyers can place bids or purchase NFTs for a listed price, or a fluctuating price called a gas price. "Gas" is what is referred to as the energy cost to write information on the blockchain. A more in-depth look at gas and this process will be the subject of a future companion article coming soon.
After selling a few NFTs, you have the option of buying and collecting other NFTs that you deem valuable and, like in the stock market, you can use your own judgment to either hold or sell your NFT for a higher price.
How Values are Determined
You may be asking yourself what determines the value of an NFT. I find that the value stems from rarity, how it can be used and how others view the item being sold. Going back to my CSGO example, skins can appreciate and depreciate in value depending on how others playing the game value them. The reason behind people wanting them is usually because of the desire of acquiring the rarer varieties or even something as simple as others showing off their lucky finds to friends after acquiring such a sought-after item. NFTs are similar in this way and going forward, depending on how society views NFTs value and utility, the market for them will likely skyrocket into something as renowned as the stock market.
People are now buying NFTs in the same way people buy physical items that either project their wealth or have a piece of historical importance. As of now NFTs may be talking points where people can share what they have collected and really come together in the same way people did when trading cards were a hot commodity. Eventually, using a digital wallet is what will give you access to virtual spaces, shopping, and entertainment and will be just as common as pulling out a credit card to make a transaction or gain access to goods or services. And having NFTs in your digital wallet will increase one's overall wealth.
Classification of NFTs
To reiterate, NFTs can be anything if you are creative enough. This makes the infancy of NFTs something so important to at least keep your eye on if you are not quite ready to join in on the fun.
As of now, NFT’s buzz is coming from digital artwork. Artwork that was once created by hand in a sketchbook or on a canvas can now be created by drawing with a pencil on an iPad or into photoshop on a computer screen. Making digital art is more accessible than ever before, as the majority of humans have some kind of screen or device to create with. The growing realm of digital artists thrives in the world of NFTs because of this. NFTs are helping our culture evolve into a more digital one. it’s pushing the world forward and at a faster pace. History tends to repeat itself, and just like people saying the internet would be a fad, NFTs are here changing the social sphere daily and quickly being met with skeptics saying they are a dying trend.
Is Investing the Best Idea?
NFTs are in their inital launch phase and with new floods of people are onboarding into the space who want to make a quick buck, I would implore an air of caution because this new market is volatile. Some NFT projects are vulnerable to a lack of quality due to the rush of people buying up NFTs in the hope of flipping. Short-term transactions will be rampant, so you need to decide now if you are joining for the long or short term. Doubling down on NFTs now is similar to the land grabs of the Western American expansion, people buy in bulk to resell to people who are coming in later. Be a part of the community, do your due diligence on projects you care about and the creators and look for initial drops and sales of NFTs you can invest and hold onto.
Investing in What is Right
Now you may be asking how you decide which NFTs to invest in. To start, you should split your decisions into two separate categories, being the art and the artist. Firstly, the art, which is the NFT itself. Do you like the way this NFT looks? Maybe it’s something completely original that you’ve never seen before, or maybe it’s a character you’ve always loved. These should be part of your decision in acquiring any NFT first and foremost.
You see art every day walking down the street, but what makes it truly original is the artist. Walking down an alleyway you may spot graffiti by a completely unknown artist, or even a tag by Banksy. How does that change the way you look at the art specifically? Investing in any person is a decision you will have to make on your own, but make sure you’re investing in someone who you believe has the potential to continue creating. The communities behind each individual can truly make or break the value of the artwork, so be sure to do some research and have conversations in the online communities to help your confidence in the decision you are making. If the artist is not in the space for the long haul, maybe it’s time to look around a little more for someone who will.
Will it Pop?
A common concern of people who have tried their luck in volatile markets is that the NFT bubble will pop. Will the NFT market crash? Most likely yes, but this doesn’t mean that the NFT market will disappear. Think back to the dot com crash of the early 2000s. People truly believed the internet was just a craze and when the crash happened their beliefs were reality. But the crash actually led to the inevitable stabilization of the internet, helping it become a part of our everyday lives for nearly two decades now. NFTs are currently in that stage, and because of that, there are a lot of risks. However, in the future, NFTs will be a valuable asset like the internet is now because of up-and-coming platforms like the Metaverse. People will want something on their virtual profiles to set themselves apart and owning digital art that is unique and valuable is just like walking down the street with a limited edition Louis Vuitton bag that the company only ever made 400 of. It’s something so special and I don’t see it going out of style any time soon.
NFTs are more than just a money grab, they are a new door for artists to reach their full potential. It allows artists to create for the general public, and rather than waiting and hoping for someone to stop and look at their work on the side of the road, these platforms are giving them an opportunity to find a greater audience than ever before. The positive influx of people coming into the world of NFTs and obtaining greater prosperity than ever before is helping artists thrive in this new world of creativity because any artist can find their niche.
NFTs are also going to be a game-changer in the IP world. Artists will be more involved with their property than ever. They will now be able to receive royalties and therefore a greater chance of creating a flow of income solely from their work. This will alter how art is now traded and art careers can be more viable for those with the talent to do so.
The Future of the NFT and Web 3.0
In conclusion, NFTs are now in a keystone stage of their development akin to the beginning stages of the internet and social media. A large influx of people entering the market will most likely cause some form of crash, but overall the NFT market will remain and recover. NFTs creators and artists create monetizing opportunities for themselves and others with their art being the centerpiece bringing powerful investment communities together.
Sources: Open Sea, "The Beginner’s Guide to Creating & Selling Digital Art NFTs";
MetaMask, "Getting Started with MetaMask"
Co-Written by Robert Muir and Annah Brice for Floh Creative.
Floh Creative partners with brands and businesses to develop brand strategy, storytelling content and design digital marketing tools to produce business growth and build relationships.
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