Simple guide to NFTs: All you need to know
Lately, the world has gone crazy about NFTs and you don’t want to miss out! What are they, why all the fuzz and how can you make money with them?
What are NFTs?
NFT stands for non-fungible token, which is, simply put, cryptographically unique piece of data stored on a blockchain ledger. The unique here is especially important, because it is (at least one of the aspects) what makes NFTs different from cryptocurrencies.
Cryptocurrencies in general are, similarly, pieces of data stored on blockchain ledger with transactions going through the blockchain. However, crypto-tokens are interchangeable, meaning if I lend you 1 ETH and after a while, I want it back, I don’t need to receive the exact same 1 ETH I sent you. There are over 119 million ETH tokens that are “same”, therefore interchangeable with one another.
When it comes to NFTs though, they are on the opposite side of the spectrum, so to speak. No 1 NFT is the same as other. And that’s exactly where their value comes from — from the uniqueness.
In some ways, NFTs are similar to regular cryptocurrencies — they are stored on a blockchain, in your wallet and you can send them similarly to how you would send a normal crypto transaction. However, they also expand the crypto-world in new ways, offer new possibilities and introduce a whole new, unexplored market.
NFTs are mostly associated with digital images or GIFs — one can think about them as digital art (and about NFT marketplaces as art galleries or auctions). The blockchain provides irreversible proof of ownership of an NFT, which is one of the reasons they are so desirable AND why their utility may not be strictly limited to trading images. The data (of which the NFT consists) can be anything — image, video, text, sound or it can be directly linked to a real world asset.
A bit of history
Kevin McCoy created the first ever NFT, which he called Quantum, in 2014:
It was sold later in June 2021 for $1,4 million.
From the creation of the first non-fungible token in 2014 to 2017, almost nothing significant happened in NFT community. The technology was not very popular yet. In 2016 a bunch of Ethereum users started trading Pepe memes as NFTs, but the project failed to gain any momentum.
In 2017, company called Dapper Labs, inspired by projects like Pokémon or Tamagotchi, created their own, first ever large-scale crypto collection: CryptoKitties. The project gained massive momentum, caused ETH fees to skyrocket and even slowed the whole network down.
Shortly after, in June 2017, Larva Labs launched first limited NFT collection: CryptoPunks. Their collection, unlike CryptoKitties, was limited only to 10 000 pieces.
Fast-forward to 2021, this was the year when NFTs became widely popular even in non-crypto community. The hype formed around non-fungible tokens increased incredibly as NFTs were sold for hundreds of thousands or even millions of dollars. New collections launched (Bored Ape Yacht Club is among the most (in)famous ones), celebrities with previously no interest in cryptocurrencies suddenly started buying these unique art pieces and regular users waited impatiently for the next big NFT drop.
How to create an NFT?
Generally speaking, NFTs are created through the process called minting. Minting is a process in which the digital art (or any picture, text, video, etc.) becomes part of the blockchain.
You will need to have a wallet supporting the blockchain on which you want the NFT minted. Nowadays, NFTs are mostly minted and traded on Ethereum, but Solana has been gaining a lot of attention as well, due to its significantly lower gas fees.
Minting is most easily done through an NFT marketplace (which there are plenty of). Pick any you like. For Ethereum, the most popular (and arguably the largest) one is OpenSea.
Then, create your NFT in 3 steps:
- Connect your wallet (if you don’t have one, check my article about creating a Metamask wallet) to the marketplace, similarly to how you would do so to a DEX (decentralized exchange). The prompt button for connecting a wallet on most marketplaces would be the Create button.
- After you connect your wallet, proceed to click on Create again. You will then upload the file, name your NFT and be able to fill out several optional fields like description or external links (e.g., to your website). You can also choose how much you will be paid in royalties, every time your NFT will be sold. 5–10% is considered the standard in the community.
- The final step is clicking on Mint NFT button. You will then have to sign the transaction in your wallet (the notification should pop-up automatically) as well as approve and pay the gas fee, so make sure your wallet is properly funded. The gas fee will depend on the blockchain (Ethereum is known for having high gas fees) and on its current overload.
How to make money with NFTs?
One of the main reasons for the hype surrounding NFTs is (not-surprisingly) the possibility of making money, a lot of money. Interested?
Now is a good time to remind everyone that I don’t provide financial advice in any shape or form. These articles are solely informational and educational and aim only to widen your knowledge of crypto. What you do with the information falls entirely on your responsibility.
First option of how to make money with NFTs is to create and then sell your own ones. Possibly, you can try and launch a collection, like CryptoPunks or Bored Apes. This method has proven very profitable to many, not only well-known artists, who are able to monetize their art. If you are interested in this option, just follow the instructions from previous chapter and then simply list your NFT(s) on the marketplace. NFTs are usually sold in auction, but you have the ability to set a minimum price. Choosing this method also bears the potential of future profits from royalties, paid to you every time your NFT is sold (again).
Secondly, because not everyone wants to create NFTs, there is the option to try to flip them for a profit. This method can lead to great profits; however, it also comes with huge risk. It involves finding an NFT that is in your opinion undervalued or which could become more popular/desired in the future (for example because it is a part of a collection which you think will become popular in the community). You then buy this NFT for as low price as possible, which can often be a challenge, as you may be competing with other people with similar intentions. If you are successful though, you can try and sell the NFT for higher price. It can be wise to do it after some time, to wait for the right oportunity.
Those are the main two ways of you can make money with NFTs. Both have their respective pros and cons (as does everything) and it is up to you to choose which one suits you better.
