NFTs Explained - Part 2
Why do NFTs Have Value?
Non-fungible tokens (NFT) are a fancy way of saying a digital asset is unique and because of their uniqueness, they have a rarity. The rarity of NFTs is what drives their value with digital tokens, allowing buyers to keep their digital assets securely stored where no one else is able to access them.
People online can go ahead and download the digital artwork, but the owner will have exclusive rights to its digital verification on the blockchain. This means the new owner owns the authentic version of the digital artwork from the artist. The important thing to remember here is that the artwork is not recorded on the blockchain but the owner of the token is.
NFT creators then create scarcity by issuing a limited number of tokens that people can collect. With a limited supply and ever-increasing demand, the value of these tokens begins to rise. NFTs cannot achieve the scarcity without the underlying technology they are built on. Each token has to be easily identifiable as unique and apart from any other, so NFTs are embedded with distinct digital signatures for this purpose. As such, NFTs aren’t easily interchangeable (or non-fungible, as their name suggests), since one possesses a unique value compared to the other.
The underlying technology for creating NFTs runs on highly programmable blockchains such as the Ethereum network and Binance Smart Chain (BSC). Ethereum is the most popular platform for this purpose and the creation of NFTs because of its token standards ERC721 and ERC1155.
NFTs on the Ethereum network get the following features:
Both ERC721 and ERC1155 standards make it easy to track the movements and ownership of every NFT within the blockchain. Therefore, identifying and authenticating an NFT is simple, accurate, and does not require any special skill set.
When minting NFTs using these standards, each embedded digital signature is secured against duplication or destruction. Although the creator can remove the token from their platform, they cannot destroy the token or duplicate it. Sometimes, a creator can issue multiple tokens that are visually similar. Even then, the tokens can easily be identified in the blockchain based on their unique digital signatures.
Another key feature that drives scarcity in NFTs is their indivisibility. Unlike fungible assets like money or even cryptocurrencies like Bitcoin, which have smaller denominations, NFTs cannot be divided into smaller units. Each NFT exists as a whole and derives its unique value in that state. If they were divisible into smaller units, NFTs would lose their uniqueness and value. To illustrate, if the Mona Lisa painting was cut into smaller pieces, it would lose its value despite its uniqueness or scarcity.
NFTs are digitally native and they possess their value solely in that digital environment, in the ecosystem they are produced. For instance, an in-game collectible possesses its value within its gaming ecosystem and will have no value in any other game. With the digital revolution in the fast lane, NFTs could soon become the staple for representing unique and rare items.
In the current NFT market, speculation has catalyzed the value of NFTs. The concept of NFTs has grabbed the attention of many crypto enthusiasts with its potential applications in the future. The speculation created more demand for these scarce collectibles causing the market activity to skyrocket.
How to Create an NFT
Creating an NFT doesn’t require in-depth knowledge of blockchain technology or cryptocurrencies. The technology is actually designed to be used by the end-user effortlessly. Whether you’re looking to create an NFT for your digital artwork, music, GIF, video, or even a JPEG file of a picture you just took, you can go ahead and tokenize it without any special requirements.
To get started, you will need to decide on the blockchain where you’ll issue your NFT. Token standards make NFTs interoperable, as mentioned above. NFTs created on the Flow Blockchain will only be issued on Flow-based marketplaces like VIV3 and not on Rarible which is an Ethereum-based marketplace.
The Ethereum network currently has the largest share of the NFT ecosystem, but as people are finding out it’s quite costly minting an NFT on the system. Another popular blockchain for minting NFTs is Flow by Vancouver-based Dapper Labs, which is the platform that issued the NBA Top Shot NFTs. Other blockchains rising in popularity include BSC, Tron, EOS, Tezos, and Polkadot.
To mint an NFT on the Ethereum network, you can follow these simple steps:
#1 Set up a Wallet
#2 Top up your Account
Then, top up your account with some ETH. Depending on the gas fees on Ethereum, the cost of minting NFTs will vary from time to time. A safe amount to start with is approximately $100 CAD in ETH with the option to topping up more as you wish.
#3 Connect your Wallet
Now you can sign in by connecting your wallet to OpenSea or Rarible these are the two largest NFT marketplaces. Then follow the simple steps to upload your file, tokenize it and issue it on the marketplace.
The process will vary in some blockchains, but for the most part, the procedure is fairly similar. Minting tokens on the Ethereum network opens your NFTs to a wider market despite being more expensive than lesser-known blockchains.
One thing to note is that some minting platforms are exclusive and mint only specific types of NFTs such as Valuables by Cent who only mints Twitter tweets. So keep this in mind when looking to mint an NFT on a particular blockchain network.
Where to Buy and Sell NFTs
There are a wide variety of NFT marketplaces where you can buy and sell your digital assets. As mentioned above, depending on the platform of your choice the NFT can only be traded on the respective blockchain it was created. Tokens created on Ethereum for example will only be tradable on Ethereum-based marketplaces. Some marketplaces trade specific items such as music or artwork like KnownOrigin and SuperRare.
Marketplaces that offer the biggest variety of NFTs with the largest market audience include Rarible, OpenSea, VIV3, Nifty Gateway, and Mintable. These offer NFTs spanning from digital artwork, trading cards, collectible game items, music, domains, and videos. Other popular NFTs to purchase are metaverse items such as Virtual Land, Virtual Property, and Virtual Pets like CryptoKitties.
- Open OpenSea on your browser, click the “My Profile” icon on the top-right then, click my profile. On Rarible, after opening the page on your browser, click "Connect Wallet", which is on the top right of the page.
- Then, proceed to sign in with your Ethereum wallet. If you have no wallet yet, you can create one on MetaMask, Coinbase Wallet, WalletConnect, and MyEtherWallet.
- Now you are all set so you can start exploring the categories offered by creators. Replenish your account with ETH to make your purchase and your all set.
If you’re looking to sell an NFT you have created or previously purchased, you can sell on marketplaces like OpenSea or Rarible. The process again is relatively straightforward and just requires you to locate the NFT in your collection on the marketplace first.
You'll be redirected to the pricing page. Here you can customize your sale by setting a fixed price or an auction with the time when the sale will end.
The NFT space is soaring to new heights and with it the overall blockchain ecosystem. The industry has other technology to thank for its success. An example of this would be electronic games that have highly popularized ownership of digital collectibles. Towards the future, NFTs will be leveraged in more applications given their robust underlying technology.