What is an NFT?
A non-fungible token (NFT) is a unit of data that lives on a blockchain. Each NFT has a unique identification code that can’t be replicated or copied and metadata that can be linked to a variety of things to provide immutable proof of ownership. NFTs can be linked to digital files such as images, songs, videos, avatars, or physical items like cars and yachts. They can also provide access to exclusive merchandise, tickets to events, and many other perks.
Key Takeaways:
- NFTs (Non-Fungible Tokens) are unique digital assets living on a blockchain with a one-of-a-kind identification code and metadata, revolutionising ownership and provenance.
- NFTs extend beyond art and collectables, offering exciting applications such as ticketing, memberships, real-world asset representation, gaming, and the potential to transform how we interact with the world.
- Despite their rapid rise, NFTs still face challenges, including market volatility, environmental concerns, and the need for broader adoption and education, yet their ongoing evolution promises an exciting future.
Let’s take a journey through the wonderful world of NFTs!
How are NFTs different from cryptocurrency?
Cryptocurrency is fungible, meaning one unit is interchangeable with another. For example, one Bitcoin can be exchanged for another Bitcoin. NFTs, on the other hand, are non-fungible, as each one is unique and cannot be replaced by an identical version.
Cryptocurrency is used for transactions on the blockchain, while NFTs represent unique and irreplaceable assets that can be bought using cryptocurrency. NFTs can gain or lose value independently of the currency used to buy them, similar to traditional collectables or art.
More than just a PFP (Profile Picture)
While PFPs and art are two of the most popular uses for NFTs, they are just the beginning. There are many other potential applications for NFTs, including:
Ticketing: NFTs can be used to create secure and verifiable tickets for events, such as concerts, sporting events, and conferences. This helps to reduce fraud and scalping, and it can also give fans more control over their tickets.
Membership: NFTs can be used to create exclusive memberships for clubs, organisations, or even online communities. This could give members access to special benefits, such as early access to new products or services, discounts, or exclusive content.
Real-world assets: NFTs can be used to represent ownership of real-world assets, such as property, cars, or even artwork. This could make it easier to buy, sell, and trade these assets, and it could also help to reduce fraud.
Gaming: NFTs can be used to create in-game items that have real-world value. This could lead to a more immersive and engaging gaming experience, and it could also create new monetisation opportunities.
In addition to the uses mentioned above, NFTs also have the potential to revolutionise the way we interact with the world around us. For example, NFTs could be used to create digital identities that could be used to verify our identity and access services online. They could also be used to track the provenance of products, ensuring that we know where our food comes from or that our clothing is made ethically.
Why own NFTs?
Empowering artists: NFTs allow artists to mint and sell their work independently, retain intellectual property rights, and earn royalties from secondary sales. It bypasses traditional gatekeepers and supports creators directly.
Collectibility: NFTs offer a unique opportunity for individuals to build collections of digital assets, similar to traditional collectables and art markets.
Investment: Some collectors treat NFTs as an investment, as their value can increase over time. High-profile NFT sales have demonstrated the potential for significant returns.
Community: NFT ownership can provide social benefits as many NFT projects have vibrant communities. Ownership can grant access to exclusive events, merchandise, and a sense of identity and belonging.
A Brief History of NFTs: Exploring the Evolution of Non-Fungible Tokens
While many people became aware of Non-Fungible Tokens (NFTs) in 2021, these unique digital assets originated nearly a decade earlier. In 2014, Kevin McCoy minted the first-ever NFT called “Quantum” on the Namecoin blockchain. However, it wasn’t until 2017 that NFTs gained mainstream momentum with the launch of collections on the Ethereum blockchain. CryptoPunks, one of the early NFT projects, played a pivotal role in the rise of crypto art.
Two key factors contributed to this: the COVID-19 pandemic, which drove digital adoption, and Beeple’s groundbreaking sale of “Everydays — The First 5000 Days” for a staggering $69 million at a Christie’s auction.
As mainstream adoption grew, so did the interest from companies and brands. Coca-Cola, Taco Bell, Hot Wheels, and Adidas were among the early adopters who ventured into launching their own NFT projects. The future of NFTs remains uncertain, given their relatively young age but the NFT landscape will likely undergo significant transformations in the near future.
Timeline of Notable NFT Projects
Let’s explore some of the remarkable NFT projects that have shaped the NFT market. Although this list is not exhaustive, it provides insights into the diverse range of NFTs that have emerged over time.
Quantum (2014) – In 2014, Kevin McCoy minted the world’s first NFT, “Quantum,” on the Namecoin blockchain. Recently sold for $1.47 million, the ownership of this NFT has been subject to legal disputes, highlighting the regulatory complexities surrounding NFTs.
Spells of Genesis (March 2015) – Spells of Genesis, developed by EverdreamSoft on the Bitcoin blockchain, introduced the concept of blockchain trading card games. It allowed players to own their digital assets and engage in strategic battles using unique blockchain-based cards.
Rare Pepe (September 2016) – Rare Pepe Wallet, created by developer Joe Looney, enabled users to trade and destroy their “Rare Pepes.” These web-based, encrypted wallets ran on Counterparty, with the rarest and most valuable card paying homage to Satoshi Nakamoto, the creator of Bitcoin.
CryptoPunks (June 2017) – CryptoPunks, launched by Larva Labs, is one of the most influential NFT projects. These algorithmically-generated unique characters inspired the current wave of popular generative profile picture (PFP) projects, such as Bored Ape Yacht Club.
CryptoKitties (November 2017) – CryptoKitties, developed by Dapper Labs, introduced collectable virtual cats on the Ethereum blockchain. Each cat possessed distinctive traits, and users could breed, trade, and own these one-of-a-kind digital felines.
Axie Infinity (March 2018) – Axie Infinity, an Ethereum-based online video game, revolutionised the play-to-earn model. Players collect and breed creatures called Axies, which can be traded in a marketplace, allowing users to increase their in-game value.
Decentraland (February 2020) – Decentraland, a browser-based virtual world, offers users the ability to buy and sell virtual land and other in-game items. It serves as an early model for the metaverse, with users having complete ownership of the virtual spaces they acquire.
NBA Top Shot (October 2020) – NBA Top Shot gained significant popularity by turning basketball moments into NFTs. Users could collect and trade highlights of NBA games, creating a new digital collectables market.
These projects merely scratch the surface of the expansive NFT landscape. The ongoing evolution of NFTs is set to bring forth fascinating innovations, further blurring the boundaries between the physical and digital worlds.
Creating, buying, and selling NFTs
Step 1 – Get a crypto wallet A crypto wallet is a device or program that allows you to store and transfer digital assets. There are software wallets (hot wallets) that can be downloaded and installed on your device, and hardware wallets (cold wallets) that are physical devices similar to USB sticks. Hardware wallets are considered more secure. |
Step 2 – Buy crypto To participate in NFT transactions, you need cryptocurrency. Ether (ETH) is the leading cryptocurrency used for NFT transactions on the Ethereum blockchain. It can be purchased on major trading platforms like Coinbase and Gemini using a bank account or credit card. Alternative blockchains like Solana (SOL), Tezos (XTZ), Flow (FLOW), and Binance Smart Chain (BSC) also support NFT transactions. |
Step 3 – Find a marketplace Choose an NFT marketplace based on your needs. OpenSea is the most popular marketplace, with various others like SuperRare, Foundation, and Rarible offering different features and target audiences. Consider the fees, royalty splits, and auction methods offered by each marketplace. |
Step 4A – Mint an NFT To create a new NFT, you need to go through a process called “minting.” This associates a specific set of data (the NFT) with a unique asset or object. Select a marketplace, create an account, and follow their specific minting process. You may need to upload the file associated with the NFT and fund the transaction using cryptocurrency. |
Step 4B – Buy or sell NFTs If you want to buy an existing NFT, browse the marketplace, find an item you like, and make an offer or purchase it outright using the marketplace’s built-in transaction system. You can also participate in NFT auctions, where the highest bidder at the end of the auction period wins the item. |
To sell an NFT you own, list it on a marketplace with details such as title, description, and price. You can choose between fixed-price listings or auction-style formats. When someone purchases your NFT, the marketplace will facilitate the transaction and transfer ownership to the buyer in exchange for cryptocurrency.
Considerations and risks
While NFTs present exciting opportunities, there are important factors to consider:
Market volatility: NFT prices can fluctuate dramatically. Be prepared for potential losses, and only invest what you are willing to lose.
Environmental impact: Some blockchain networks, like Ethereum’s previous proof-of-work consensus mechanism, have high energy consumption. However, efforts are being made to improve sustainability by transitioning to more energy-efficient consensus mechanisms.
Due diligence: Research the artists, projects, and platforms you engage with. Verify the authenticity and reputation of the assets and individuals involved.
Storage and security: Safeguard your NFTs by using secure wallets and following best practices for storage and backup. Be cautious of phishing attempts and scams.
NFT scams
NFT scams can take advantage of unsuspecting collectors in the market. Here are some scams and problems to watch out for:
Rug Pulls: Rug pulls occur when NFT project creators take the investment money and disappear, leaving collectors with a valueless asset. Sometimes, rug pulls may not be illegal, making it difficult to take legal action against scammers. In some cases, NFT developers may also remove the ability for investors to sell their tokens, which is an illegal form of rug pull.
Wash Trading: Market manipulation can happen during NFT auctions through wash trading. This occurs when a group of potential buyers artificially inflates the bid price of an NFT to make it appear highly sought after. After the sale, the value of the asset deflates, leaving the buyer with a valueless NFT.
Phishing Scams: Scammers may use fake advertisements, NFT giveaways, or coercion to ask for private wallet keys or sensitive information like seed phrases. If scammers gain access to this information, they can access your wallet, remove cryptocurrency or NFTs, or sign transactions without your consent. It is essential never to share your seed phrase or private keys with anyone and only follow links from official websites and accounts.
Tax Considerations: Taxes related to NFTs and crypto can be complicated and vary by country. Acquiring a large sum of money by trading NFTs is often considered a capital gain and taxed accordingly. NFT creators who mint and sell their NFTs may need to separate trading income from the sales of their pieces and pay taxes on the profits as regular income.
Final Thoughts
Non-Fungible Tokens (NFTs) have come a long way since their inception, with the recent surge in popularity making them a topic of widespread interest. While NFTs gained mainstream attention in 2021, their origins can be traced back to earlier projects like CryptoPunks and CryptoKitties. These unique digital assets have opened up new avenues for creativity, ownership, and value exchange in the digital realm.
The explosion of NFTs can be attributed to several factors, including the COVID-19 pandemic, which accelerated digital adoption, and high-profile sales like Beeple’s artwork. As a result, NFTs have captured the attention of artists, collectors, brands, and investors alike. Companies have begun exploring NFT projects as a way to engage with their audiences and tap into the growing NFT market.
Additionally, NFTs have introduced novel concepts such as play-to-earn models, where players can earn real value through their in-game activities.
Despite their rapid rise, NFTs still face challenges and uncertainties. Issues such as environmental concerns, regulatory complexities, and the need for broader adoption and education continue to shape the NFT landscape. However, the ongoing evolution of NFTs holds great promise for the future. As technology advances and the market matures, we can expect to see further developments and exciting opportunities emerge.
They have empowered creators, collectors, and users by providing a secure and transparent way to establish ownership and value in the digital space. While the full extent of their impact is yet to be realised, NFTs have undoubtedly ushered in a new era of digital ownership and expression, with a future that holds immense potential.
We hope you found this blog insightful and feel free to reach out to the team if you’d like to fast-track your crypto results and minimise the downside!
Joe and the CCI Team
