Due to the quick advance of modern technologies, it is often difficult to stay up to date and be aware of every new term and feature. One particular abbreviation that has confused a lot of people lately is NFT.
If you've been following the news, you must certainly have heard about some personality investing money in NFTs or an artist getting a huge payoff thanks to this new phenomenon. For example, one of the famous deals made in 2021 was the selling of works for some 69 million dollars by the digital artist Beeple.
Nevertheless, very few articles explain what NFTs actually are, why it can be so beneficial to buy them and what's the connection between NFTs and the world of art.
If you are also among those who find that whole NFT business confusing, our article will help you find the answers to these and many other questions, so you can judge on the interest of NFT for yourself and even buy some if you feel like it.
So let's start with the basics.
Blockchain technology
NFT is a digital phenomenon whose appearance is linked to one technology in particular: blockchain. With the recent rise of cryptocurrencies, like Bitcoin and Ethereum, there is hardly anyone who has never heard this word. Still, not all of us understand exactly what it is, so we thought it could be useful to look at the definition of blockchain once more.
Blockchain is basically a technology for storing information. What makes it different from traditional databases is that instead of being kept in form of tables, information is organised into blocks. As soon as one block of information has been completed, a new one is added.
Digital blockchain technology was first invented in 1991 but it's only in 2009 that it became widely known in relation to the Bitcoin crypto.
In the case of Bitcoin or any other cryptocurrency, the blockchain serves to record transactions. When a bitcoin is sold, the data is added to a block and once the transaction has been approved, it becomes immutable.
Another feature of the Bitcoin blockchain is that it is public. This means that anyone can access transactional information, which guarantees a high degree of security.
Now, what does NFTs have to do with the Bitcoin crypto? Well, NFT uses exactly the same digital blockchain technology. However, there is a substantial difference about which you can learn from the next section.
Non-fungible tokens
NFT stands for non-fungible token. This name already reflects the main difference of NFT as compared to simple crypto. While Bitcoin or Ethereum units are interchangeable and all have the same value, each NFT is unique and linked to a particular digital object or work of art.
When you buy an NFT, you become the owner of the object it is related to. An immediate consequence of this is that the value of a particular NFT depends on the popularity of the corresponding digital work of art.
This means that buying NFTs is in a way similar to collecting art in general. The collector needs to identify the most promising work and choose the right moment to buy or to sell it.
Where is the best place to buy NFT?
Thanks to blockchain technology, anybody can safely buy NFTs at a digital marketplace and store their tokens in their wallet. The four main steps to buy an NFT are the following:
- Register a cryptocurrency wallet.
- Choose your NFT marketplace.
- Buy Ethereum to pay for NFTs.
- Select the NFTs you want to invest in.
As you can see, buying NFTs is not really difficult, but there are still some details you should keep in mind.
First of all, most NFT transactions are recorded on the Ethereum blockchain. This is the reason why you will generally need some ether, the cryptocurrency of Ethereum, to purchase them.
The same appliance to when you want to sell your NFTs. In most cases, you will first be paid in Ethereum for your tokens and then you can convert them to real money.
Another important moment is to choose a crypto wallet for you. Some of the best wallets are Metamask, Coinbase Wallet and Alphawallet. These wallets are compatible with Ethereum and NFTs, and on Coinbase Wallet, you can even store Bitcoin and other crypto-currencies.
Finally, to start trading, you will need to find the right marketplace where NFTs are sold. Probably, the best and the most popular NFT marketplace is OpenSea where you can easily search for tokens depending on what kind of digital items you are interested in.
If the OpenSea marketplace doesn't suit you for some reason, you can also choose another platform to buy and sell NFT using Ethereum. Here are some possible options: Rarible, SuperRare, Foundation, Nifty Gateway.
Each market platform may have its strong and weak points. You can learn more about them in our article to choose the perfect place for you and start trading Crypto and NFT in Australia.
What can I use NFT for?
As NFTs are mostly used to buy and sell works of digital art and other intangible items, it may be not clear to a lot of us why anybody would ever want to buy them. Many of the objects represented by NFTs can be freely accessed on the Internet by anyone and many of them have already been seen by millions of users. So why spend your money?
Well, the main reason to buy NFTs is prestige. As NFTs are unique and linked to other assets, they are an opportunity to acquire something that no one else will have. This can be compared to the purchase of real works of art that people often buy simply to show off their wealth and invest their money in something likely to get more expensive with years.
This can explain, for instance, the popularity of NFT avatars. These are unique pictures linked to NFTs that people can buy and then use on social media, in video games and so on. Though they can, of course, be copied and pasted by anyone, only the owner of the NFT can claim their rights to them, recorded on the Ethereum blockchain.
An example of NFT avatars is the Bored Apes Yacht Club monkeys. They are unique avatars that were created in May 2021 and auctioned off on the OpenSea marketplace. The most expensive one cost the buyer about 109 Ethereum, which today would equal several hundred thousand dollars.
NFT are attractive items for collectors and, as a result, are used in numerous areas, including gaming, fundraising, gambling and digital art. If you want to learn more about the use of NFT, you can have a look at our article on the subject.
How to make money on NFT?
Similarly to other collectibles, NFT trading can be a good way to make money in Australia. The most obvious approach would be to buy promising tokens while they are cheap and then resell them for a higher price.
Another way to make money on NFT is to rent them. As we have said, tokens are sometimes used as avatars or for gaming purposes. If you have a few of them in your wallet, you can lend them to someone else for a price. Make sure to negotiate the best rental terms and your NFTs will become a good source of revenue.
Finally, people can earn money by minting their own tokens if they possess digital items like photos, pictures or, say, tweets that someone might want to buy. Of course, it may take some time for you to become famous and earn a lot of Ethereum out of your NFT, but it can still be a great option for an artist.
If you want to find out more about making money on NFT, you can have a look at our article to find even more excellent solutions.
What do you need to make an NFT?
As NFTs are recorded on the Ethereum blockchain that is public, anyone can create them given they have a digital item to offer. The process of making a token is called minting and can be realised directly on your marketplace platform.
To mint NFTs, you basically need the same tools as to buy them. You will need to open a cryptocurrency wallet to store your tokens and Ethereum and a marketplace account to create and sell them.
For example, if you use OpenSea, you can just click on the "Create" button on the page of the market and upload the item you want to be minted. You can then determine the terms on which it will be sold and wait for buyers to show up.
If you are already a famous digital artist, chances are that your token can be auctioned off at a high price. On the other hand, if you are just starting as a digital creator, you shouldn't expect it to bring in high revenues even though miracles may happen.
If you want to find out more about minting NFT, have a look at our article where we describe the process in detail.
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