NFTs Explained

WTF is an NFT?

NFT stands for ‘non-fungible token’.

For the 99% of folk who don’t know what ‘non-fungible’ means, it essentially means unique and non-interchangable. So in the case of NFTs, these are unique ‘tokens’ or ‘assets’ that cannot be replaced.

Think of it this way - I go to an art auction and buy an original ‘Van Gogh’. I hang it proudly on my wall knowing full well that this is verified as being the original, which means that there are no other exact copies of this out there. Sure, there are pictures, prints and replicas of this piece of art I just bought, but none of them are the original. Being able to confirm the originality is what it means to be ‘non-fungible’.

Whilst I don’t know how pieces of artwork like that are verified as being original (never bought one to be honest), NFTs are verified as being original on the blockchain. Put simply, a blockchain is a decentralised database that once information is allocated to it, it cannot be changed. Expect more to be coming on this website about blockchains in the future.

Now NFTs can literally be anything - digital art, music, words, videos, physical land - it doesn’t matter, as long as it is stored and verified somewhere on a blockchain. Whilst the current trend is certainly mainly around digital art, I believe we are going to start to see this space develop as more use cases for this technology and I will touch on some of these use cases later in the article.

So these profile pictures you see people sporting all over Twitter? There is only one of those exact images that is ‘verified’. And that is what an NFT is.

Can’t I Just Save the Image?

One popular argument against NFTs is that you can save the image, which of course is right. But as explained above, they are never going to be the ‘original’.

Really this is no different to owning a print of a famous painting. But also perhaps more relatably it is also no different to owning a fake item of designer clothing. Perhaps no one will know for sure if it is fake or real, and really there is no way of telling. But with NFT’s there is always going to be a way of telling officially who is the real owner of an item.

As I mention later in the article, there are sometimes extra benefits that come with owning an NFT, that a right click and a ‘Save Image As’ just won’t cut.

Why Are Some So Expensive?

You must have heard of ‘Cryptopunks’, and how some people have spent well over $5,000,000 to purchase one (the current record for Cryptopunks is $11.75m). So why do some NFTs go for so much money?

The short answer here is supply and demand.

One more mainstream comparison is Supreme with their clothing drops. They release a limited number of a certain item (be it a tshirt, or a hoodie) for a fairly reasonable price. People want them, who couldn’t get hold of them and therefore the resale market is driven higher and higher. A tshirt that perhaps cost an attainable $50 is now being resold for $500.

Another comparison is the infamous Hermès ‘Birkin bag’. The sale of these bags is strictly limited and how you get one is a closely guarded secret. Because of the exclusivity of them it drives the price higher and higher. The resale market for folk wanting to buy a second hand one, because they don’t have the know-how, patience or connections to get one of these bags from Hermès themselves but have the cash to spend, is therefore driven up.

Now you can imagine with NFTs, of certain pieces of art there is only one of each item in circulation. The Cryptopunks release was of 10,000 punks, each looked different by possessing different traits. Some had a mohawk, some were smoking a cigarette. Each NFT having a different trait means that some are rarer than others.

Whilst this certainly has an effect on the price, it is not always the case that this is the only factor that determines how much someone is willing to spend. Some folk just like a certain NFT more than others, despite the rarity of them, or perhaps they have found an NFT that looks similar to them or has a similar vibe. I mainly wear black tshirts and hoodies, so an NFT that features a character wearing a black garment is instantly appealing to me and I would probably be willing to pay more for it than someone else who always wore white tshirts for instance.

Cryptopunks is one of the original projects and therefore is engrained into the culture of NFTs. People know about it, and therefore having a limited supply and a huge demand the price drives it higher and higher. It has in a sense stopped being about the art, and has become more of an investment and being part of the culture - Snoop Dogg, for instance, has a portfolio of NFT’s worth over $17,000,000 which includes 9 Cryptopunks valued at $4.6m. Gary Vaynerchuk has 59 of them, which can be viewed here, and I don’t want to even try and calculate their monetary value!

We are also starting to see certain projects unlock benefits which make the NFTs more valuable as well. ‘Bored Ape Yacht Club’ is a project that does this. Owning one of their NFTs means that you get access to their Discord server, get access to exclusive merchandise as well as access to social events. At time of writing, a set of 101 Bored Ape Yacht Club NFT’s sold at Sotheby’s auction house for $24.4m.

Where to Buy Them?

That entirely depends on the NFT.

Originally, most NFTs were to be found on the Ethereum blockchain. However, now we are gradually seeing different blockchains start to house NFTs - Solana for instance.

The different blockchains have their own pros and cons - Ethereum is fairly expensive because of ‘gas’, which is the unavoidable cost of making a transaction. Due to the nature of the Blockchain, each transaction needs to be verified by a ‘miner’ who are rewarded in gas. (Again, more content on this soon!) When the network gets busier, the price of gas goes up, which means when a big project is launching the network gets incredibly congested and you could be paying upwards of $500+ for a transaction on top of the cost of the NFT you are purchasing.

Solana is much cheaper to transact on, however it does not have the volume of projects that Ethereum does, therefore for an artist to be selling their own digital art the demand is not as big meaning prices are generally cheaper. For now at least.

Many larger projects will ‘mint’ their NFTs directly from their own websites. This is the equivalent to Supreme original drop’s which can be purchased only from certain stores.

To get technical here, behind each NFT is a ‘smart contract’ on a blockchain, a piece of code that is creating and verifying each of the NFTs being sold. The website acts as a frontend to this smart contract, allowing purchasers to specify how many they would like and which wallet address they would like them to be sent to. Many projects sell out within a matter of minutes, and then it is up to the owners to list their NFT for sale on a marketplace.

Probably the most well known marketplace when it comes to NFTs is Opensea, which is on Ethereum. Here you will find a mix of bigger projects sometimes consisting of 10,000+ NFTs to single one off pieces of art being sold by artists.

Some other places to buy NFT’s you can check out are:

Foundation - Ethereum

Rarible - Ethereum

Magic Eden - Solana

Solanart - Solana

Ok Cool, But I Don’t Get the Point?

The point of all of this at the minute might seem fairly confusing.

There is really no real world utility for many of these items, they are often just pictures, which is true. At the end of the day, owning a piece of digital art is just the same as owning a physical piece of art. You can’t ‘do’ anything with a painting on the wall other than glance at it admiringly.

I liken it to Pokemon cards. This was huge in my childhood, and I spent all of my pocket money on buying packs of these trading cards to take to school and trade with people. They had no real use, not really - I don’t think I ever once used for the real purpose of playing the game with my friends. They were just assets, a bragging right, something to show off and collect and feel proud about. It was exciting to open a packet not knowing if you were going to end up with duplicates, or something new and rare. For many NFT’s are similar. They enjoy the buzz of buying into a project, the possibility that you are going to end up with something especially rare and then the satisfaction of owning a piece of art.

Currently I own the 20th & 30th rarest Grim Syndicates out of 10,000 released NFTs. I spent a total of $300 on purchasing these items, and due to their rarity, they now have a monetary value of $40,000+ and this is rising all of the time. It is exciting to me all of these years later, in the same way Pokemon cards were exciting.

But as I hinted to earlier in the article, there is emerging real world use cases for NFT’s that we are starting to see.

What are Some of These Use Cases Then?

Bored Ape Yacht Club is the example I mentioned ealier. Owning one of these NFT’s gives you access to exclusive communities, events and merchandise. It is not just a piece of art in that sense, but much more than that. It would almost be as though I could pick my Van Gogh off the wall and take it to a ‘Van Gogh’ owners club.

However, this is not an anomoly as many more projects are being built around communities. Developer DAO is another example, where purchasing an NFT allows you access to a community of programmers. Each individual there has an financial incentive to be part of that group, and therefore the quality of the community is improved over open access Slack or Discord channels. When all of the NFT’s are sold, the only way to get into the group is to purchase one from someone who already has one. The more demand there is to join the club, the higher the price of entry and the more financial value the original members NFT’s gather.

Gaming is also another huge utility of NFT’s. Axie Infinity, Sorare and Cryptokitties are all examples of games that are ‘Play-to-earn’, where you purchase an NFT which will be your character in-game. Now, take for example a game that already exists… lets say, Call of Duty. As time goes on, you build your experience points, you collect special weapons depending on whether or not you complete certain tasks and you unlock achievements. Play-to-earn follows the same paradigm, however the experience points you would otherwise earn in a game like Call of Duty, are assets that have monetary value. The items you find or earn are NFT’s, and these also have monetary value. This is an incentive to keep playing the game.

A valuable piece of the puzzle to understand is when an NFT is resold on the market, the original seller gets a percentage of that sale. So if I minted an NFT, and sold it for $100 - and the person who bought it resold it for $30,000 - I would get a cut of that $30,000 dollars as the original artist. This is completely revolutionary for many industries, as in the example I mentioned above and the gaming industry, game developers will be rewarded as long as consumers keep playing their games. Every time an NFT is sold in game, a portion of that will go back to the creators.

Musicians will be able to release tickets to a gig, and every time that ticket is resold they will be able to claim a percentage of the resale price back. The fact that the tickets are able to be verified on the Blockchain means that tickets can be limited to a certain number per buyer, completely eradicating the huge problem of ‘ticket touts’ the industry currently faces.

And this is just the first scratching under the surface as far as NFTs go. This is new and disruptive technology, and every day developers are coming up with more and more use cases for NFT’s.

You Have Convinced Me.. How do I Get Started?

Good question.

The space is still young and in that sense it is fairly unpredictable. For every good project, there are five bad ones. For every friendly face, there are five unfriendly faces trying to sell you a project that likely isn’t going to go anywhere. I would recommend approaching with caution and especially advise anyone to do their own research.

What makes a project good is not necessarily just the art, it is the community involved as well as the ‘project roadmap’. The roadmap acts as a whitepaper, for what the project wants to achieve, and what is likely to be offered to those who invest by purchasing an NFT.

I would recommend spending some time learning and getting a feel for what the NFT community is all about before splashing the cash. Find the projects you are interested in. For some, that is the digital art projects, however for others their entry into NFTs is going to be in the play-to-earn games we spoke about earlier. It very much depends on your interest.

Buying into well established projects is sometimes expensive. It pays to be involved fairly early, but you want to balance that with avoiding paying for something that is going to be a flop. Finding reputable designers and developers and looking at what they are building is a great way to start.

You will need to load yourself up with some cryptocurrency when you are ready. Depending on the blockchain you are purchasing on, the currency will be different (as different blockchains have different currencies.) Ethereum uses ETH and Solana uses SOL. You will need to deposit your currency into a browser wallet to purchase the NFTs - I recommend Metamask for Ethereum and Phantom for Solana.

Realistically the process of purchasing crypto can be a whole new article on it’s own, and this is something that is outside of the scope of this article.

If you are not on Twitter or Discord, then I advise you get yourself signed up to these platforms. These are the basegrounds for a lot of NFTs.

At the time of writing I would definitely recommend checking out Grim Syndicate for an art community. This is a great example of what a project can be like, and currently you can buy into the project for relatively cheaply. The Discord is one of the friendliest and less intimidating out there, and the project owners are incredibly transparent about their decision making process’.

If you are a builder/programmer/software engineer, then definitely check out Developer DAO. Again, for similar reasons.