What is an NFT — Practical Guide
NFT means non-fungible token
What is an NFT?
NFT means non-fungible token. Fungibility is defined simply as ‘the ability of one element to be replaced by another identical article’. To understand what this means, just think about most of the things you own. Your phone, your computer, etc. Anything you could sell on OLX, etc. falls into the category of non-fungible items.
NFTs are digital tokens that are stored on the blockchain in the form of a ‘smart contract’. These tokens can be used to represent ownership of many things, including art, videos, music, domain names, virtual experiences, and even real-world objects.
A single digital signature is used when an NFT is placed on the blockchain. This means that a signature can be the sole owner of any NFT. This makes each NFT unique.
How do NFTs work?
NFTs are bought and sold with cryptocurrencies through a marketplace. Most NFTs are stored in smart contracts on the Ethereum blockchain.
The blockchain on Ethereum is a decentralized public registry that stores and verifies the details of all transactions on this network. When you buy or sell an NFT using Ethereum, the blockchain tracks the current owner, as well as all former owners.
By decentralization, blockchain NFTs are not stored on a specific server. Records of ownership of all NFTs are stored on many servers and computers around the world, called ‘nodes’. This makes it virtually impossible to counterfeit.
How is cryptocurrency NFTs different?
NFTs and cryptocurrencies go hand in hand, but they are not the same thing. While NFTs are stored on the same blockchain as certain cryptocurrencies, the difference is that the coins are fungible. You can exchange one Ethereum for another Ethereum and the value would be the same.
NFTs differ because each NFT has a unique digital signature on the blockchain. Because of this, each NFT is unique and may have a different value.
What does it mean to give a ‘Mint’ to an NFT?
Minting usually refers to the process of publishing a digital work of art or a blockchain collection for the first time, making it available for purchase.
What is an NFT collection?
An NFT collection is simply a group of NFTs within a given project. You can view some of the top collections on Opensea and CoinMarketCap using the links below:
What is OpenSea?
OpenSea is the first and largest peer-to-peer marketplace for crypto-goods (such as an eBay for crypto assets), which includes collectibles, game items, and other blockchain-backed virtual goods. On OpenSea, anyone can buy or sell these items using smart contracts.
What are NFTs used for?
All artists can easily display and monetize their work. Artists can sell their works directly like NFTs for a profit. Royalties may be included, ie each time an NFT is sold the artist may receive a certain percentage (usually 5% -10%), regardless of the price the consumer decides to resell. Royalties are paid to the original artist each time an NFT is moved from consumer to consumer. NFTs will revolutionize the work of artists and more. There can be a lot of collections that give you value in the real world so NFTs are useful to everyone in one way or another, not just artists.
How do you buy an NFT?
You can buy an NFT from any available marketplace. Most NFTs are sold on the Ethereum blockchain, so for that, you need Ethereum to buy an NFT. The first thing you should do is buy Ethereum from any crypto exchange such as Coinbase, Binance, etc. and send it to a wallet (MetaMask is currently the most used).
Connect your MetaMask wallet to OpenSea or any NFT marketplace. Once you have selected an NFT that you want to buy, follow the instructions in the wallet. When the transaction is completed, NFT will be transferred to your wallet.
How do you set up your MetaMask?
Log in to the MetaMask site using your Chrome browser
Add MetaMask as a Chrome Extension
Once you’ve installed MetaMask, click ‘Get Started’ to create your ow wallet
If this is your first time using MetaMask, click ‘Create a Wallet’
Follow the instructions and create a password
Write down and keep a secret backup phrase in a safe place
Once you have created your MetaMask account, you can store crypto in it.
What are the different blockchains for NFTs?
NFTs are usually on the Ethereum blockchain, but can also be on other networks such as Solana, Polkadot, etc.
OpeanSea specifically accepts the Ethereum blockchain where ETH is used to pay transaction fees. Polygon is another blockchain used mainly because it is gas-free (no commission) unlike ETH, but most good projects are on the Ethereum blockchain.
How do I store an NFT I own?
On OpenSea, whether you are a creator or a collector, the platform will allow you to customize your profile as you wish. When you buy an NFT it will be transferred immediately to your account. When people click on your profit, they will see what NFTs you have collected.
What is an NFT Wallet and why do you need it?
A wallet like MetMask stores your cryptocurrencies and the location of your blockchain assets. It is the link to blockchain applications because it equips you with the necessary tools to buy, store, and exchange NFTs. To buy or create an NFT you will need a wallet to store your cryptocurrencies and process transactions on the Ethereum blockchain.
OpenSea is a platform with the sole purpose of interacting with the blockchain, it does not store your NFTs and does not take possession of your assets. OpenSea is the place where NFT exchanges take place, but you will need a wallet because it is a mandatory tool in which your blockchain transactions are translated.
Can you protect your NFTs with a Cold Storage Wallet?
Yes, if you intend to keep an NFT longer, it may be a good idea to protect it on wallet hardware. Hardware wallets are much more secure than standard crypto wallets because you can only be hacked if a hacker has physical access to your device. A good example of wallet hardware is Ledger Nano.
How do you choose a potential NFT project?
Community — When choosing an NFT project, you want to make sure it has an active community with a vision for the future and a roadmap.
Brand — When you invest in NFT, you invest in the brand behind them. Unlike cryptocurrencies, an NFT cannot be sold instantly. You need to find a buyer who is willing to buy an NFT from you on a marketplace. Liquidity can become an issue if the creator or team behind the project has no long-term plans to maintain the project.
Vision — When choosing an NFT project to invest in, it is important to buy one that you believe has a future. It is important to know that the team is long-term committed. To determine this, look for a roadmap to see what plans they have in the coming months/years.
Limited Mind — If a project has a limited number of mints available, it is more likely to be valuable. If a project has a limited number of mints in a collection, there will be fewer available on the market, and it may increase their value.
The product — when buying an NFT, it is important to look at it from the perspective of the value it brings. The value can be in two forms, either tangible or intangible. An example of tangible value is exclusive access to events. Intangible value can be in the form of art itself or association with a community or brand.