What is an NFT?
What is a non-fungible token (NFT)?
Textbook Definition
NFTs (or “non-fungible tokens”) are a special kind of crypto asset in which each token is unique — as opposed to “fungible” assets like Bitcoin and dollar bills, which are all worth exactly the same amount. Because every NFT is unique, it can be used to authenticate ownership of digital assets like artworks, recordings, and virtual real estate or pets.
2021 was the year of CryptoPunks, Pet Rocks, and Bored Apes. Why are people paying millions of dollars for Jack’s (Founder of Twitter) first tweet or a JPEG of an ape?
Fungible means replaceable by another identical item; mutually interchangeable. Non-fungible, therefore, means it cannot be replaced by anything. There is only one.
NFTs are simply items that have been tokenized and immortalized on the blockchain. By now you must be tired of hearing how safe, secure, incorruptible the blockchain is.
Let us take Jack’s first tweet again. The NFT of the tweet was sold on auction to a Singaporean businessman for $2.9 million. The value of the NFT has been logged into public record and could exceed the current $2.9m depending on future potential buyers.
Let’s bring this back to normal art. Who decided that Picasso was talented or that his art was valuable? Th public of course. So just like with NFTs, the users decide on what is valuable. If everyone decides tomorrow that Picasso is rubbish, you can be assured that it will become pointless owning a Picasso.
What makes NFTs more special than physical art is that we have a public record of ownership that cannot be changed unless all miners agree.
The argument that looking at a JPEG online is the same as ownership does not hold. Looking at the Mona Lisa on the internet or reading Jack’s tweet until I am blue in the face does not make it mine. That my dear is an NFT.
Anything can be tokenized:
- Art
- Music
- Video clips
- Real Estate
- Collectibles
- Autographs
- Commodities
- Virtual worlds
- Domain names
- Marvel characters
- Rhino conservation
- Sports club fan base (voting rights)
How to Buy an NFT
You’ll need an Ethereum-compatible crypto wallet and some ETH to get started. Buy some ETH from an exchange like Coinbase/VALR and send it to Coinbase Wallet (which is separate from the main Coinbase app; you can download it via Apple’s App Store or Google Play).
- Tip: Buy ETH on VALR/Luno and send it to your Coinbase Wallet on the blockchain. Keep very accurate records of these transactions for tax purposes.
Follow the simple instructions to set up your wallet.
There are many NFT markets, from Rarible to Mintable. For this tutorial, we will focus on OpenSea – which is the biggest and works a lot like a decentralized eBay. To connect your wallet to OpenSea, go to OpenSea.io, click on the icon in the top right, and select “My Profile” – you will be prompted (and given instructions) to connect your wallet.
Get browsing! Prices range from essentially free to hundreds of thousands of dollars or more for a rare item. Some items are sold via auction, while others can be snagged immediately via a “buy now” button.
Even if the NFT is free or cheap, you’ll still have to pay fees to make the transaction happen. Most of the digital collectibles on OpenSea use the Ethereum blockchain, and the network charges a “gas” fee for transactions like NFT sales. Gas prices rise and fall depending on how busy the network is.
What can you do with NFTs once you buy them?
- Good question! Some people display their digital artworks on large monitors.
- Some buy virtual real estate (via NFT, of course) in which they’re able to build virtual galleries or museums.
- You can also roam virtual worlds like Decentraland and check out other people’s collections.
- For some fans, the appeal is in the buying and selling — much like any other asset class. We call this flipping NFTs. Buy them when they launch for cheap. Hold for a few months or years and then sell them high. This one is where the money is at. The first three are more for collectors.