NFTs for Beginners (What Is It, Types, & Creating One)

One way or the other, you’ve most likely heard of NFTs by now.

After all, the space is filled with mind-boggling stories, like the artist Beeple selling his NFT artwork for a whopping $69.3 million or a 12-year-old coder making six figures with his "Weird Whales" NFT collection.

These stories have captured the imagination of digital artists and designers everywhere, hinting at the potential for NFT projects to generate serious income.

While NFTs have been around since 2014, it wasn't until 2021 that they really took off. Global NFT sales skyrocketed from $82.5 million in 2020 to an astounding $17 billion in 2021.

All this data might have you wondering: what exactly is an NFT? And more importantly, can you still earn from NFTs?

In this comprehensive guide, we'll explain NFTs, show you how they work, and explain how you can harness their potential by creating and selling your own. So buckle up and get ready!

What is an NFT?

NFT stands for "non-fungible token." Now, "fungible" is something that’s easily replaced by an identical item - like a dollar bill. "Non-fungible," on the other hand, means the item is unique and irreplaceable.

Think about the Mona Lisa. There's only one original, and it hangs in the Louvre in Paris. Its non-fungibility gives it such immense value - nothing else in the world can replace it, and only one entity (in this case, the French government) can own it.

NFTs are the digital equivalent of unique, non-fungible items. They're essentially digital records created using blockchain technology - the same tech behind cryptocurrencies. When you create an NFT and assign it to a digital asset, like a piece of artwork, you're creating a one-of-a-kind digital item that can be bought, sold, and owned.

A common misconception about NFTs:

Many people misunderstand NFTs, thinking the digital item itself (like an image or video) is the NFT. In reality, the NFT is just a set of information stored on a blockchain. The actual digital item is kept separately, often on regular web hosting services.

This is why you can easily save a copy of an NFT image from a website. But this copy doesn't include the special data that makes it an NFT, so you don't actually own the NFT. It's like having a photocopy of a valuable document - it looks the same, but it's not the real thing.

The NFT itself is basically a unique code that proves ownership of a digital item. This code is what's recorded on the blockchain, not the item itself.

What Do NFTs Have to Do with Blockchain?

You've probably heard of blockchain in relation to cryptocurrencies, but it's also the technology that makes NFTs possible.

Here's how it works:

The blockchain is a super-secure digital ledger that contains records of every transaction made through it. When a transaction occurs with crypto or an NFT, it's logged into the blockchain as a block of data that can't be changed, deleted, or hacked.

This makes the blockchain an incredibly secure way to authenticate ownership of digital art. It lets digital artists and designers create scarcity, which drives value. While there's no guarantee your art will become the next CryptoPunks sensation, blockchain technology enables digital artists to earn a living from non-physical assets.

While Bitcoin was the original cryptocurrency, Ethereum has played a crucial role in pioneering NFTs. Ethereum was the first to create a standard (ERC-721 tokens) for the process and information required to create a valid NFT and enter it into the blockchain.

This includes details like who created it, where it's located, and even custom information like the artist's signature. That's why most NFTs are minted and sold on the Ethereum blockchain.

Are NFTs the Same as Crypto?

NFTs and cryptocurrencies are often mentioned in the same breath but are not the same thing. While both have a digital certificate of authenticity stored in a blockchain, NFTs are not interchangeable like Bitcoin or Ether.

Cryptocurrencies like Ether can earn interest, be borrowed, lent, and traded like normal dollars. This falls under the umbrella term of DeFi (decentralized finance). Anyone can participate in DeFi using decentralized apps (dApps).

So, where do NFTs fit in? Given their value in the crypto world, at least one DeFi platform plans to accept NFTs as loan collateral. This shows how NFTs are carving out their unique space in the digital economy.

Types of NFTs or Digital Assets

NFTs can represent a wide variety of digital assets. Here are some of the most common ones:

Artwork

NFTs have revolutionized the world of digital art. They allow artists to sell their work directly to collectors and enable collectors to verify the authenticity of their purchases.

Collectibles

One of the most popular applications for NFTs is digital collectibles. These can include virtual trading cards, in-game items, and other collectible digital assets.

Real estate

Believe it or not, you can own virtual real estate as an NFT. This could represent ownership of digital land in virtual worlds or metaverses.

Music

Musicians are using NFTs to sell digital copies of their music and provide fans with exclusive experiences like backstage passes and meet-and-greets.

Domain names

NFTs can represent ownership of unique domain names and other online assets.

Tickets

NFT tickets can represent ownership of event tickets, allowing for easy verification of ticket authenticity and resale on the open market.

Identity

NFTs have the potential to represent a person's identity or reputation, allowing for the verification and protection of personal information.

Utility

Some NFTs can also give you access to exclusive memberships and unlock benefits.

How to Make and Sell NFTs (What the Process Looks Like)

Now that you understand NFTs, let's dive into how you can create your own. Here's a step-by-step guide:

Minting an NFT isn't just for tech gurus—with the right tools, anyone can tokenize their creativity.

Here’s a brief overview of the creation process:

1. Choose your digital asset: Select the unique digital content you want to tokenize. Ensure you have full rights to the asset to avoid legal issues.

2. Select a blockchain: Pick a blockchain that supports NFTs, such as Ethereum, Solana, or Flow. Consider factors like fees, speed, and environmental impact when making your choice.

3. Set up a digital wallet: Create a crypto wallet compatible with your chosen blockchain. Store your private keys and recovery phrases securely offline.

4. Choose an NFT platform: Select a platform to create and list your NFT, such as OpenSea, Solanart, or a crypto exchange with NFT support. Consider the platform's user base, fees, and supported blockchains.

5. Create the NFT: Connect your wallet to the chosen platform. Upload your digital asset, add metadata, and mint the NFT. Be prepared to sign transactions and pay associated fees.

6. List for sale: Set a price and duration for your NFT listing. Complete the listing process, which typically involves signing additional transactions. Be aware of any platform or blockchain fees for listing.

Why Are Some NFTs So Expensive and Valuable?

The current NFT market is worth about $3 billion and is expected to reach $13.6 billion by 2027. But why are people willing to pay thousands of dollars for a digital asset?

NFTs have exploded in popularity for the same reason certain high-grade sports cards have become so valuable: they represent a finite commodity with significant cultural and historical value. Speculators also hope certain items will skyrocket, leading to hefty profits.

For example, Bored Ape Yacht Club is a non-fungible token (NFT) collection of 10,000 cartoon-like apes. At launch, each Bored Ape Yacht Club token cost 0.08 Ether (ETH), or $220. But by mid-October 2022, they cost 76 ETH, or approximately $100,418.

Key Features of NFTs

To understand why NFTs are so valuable, let's look at their key features:

1. Ownership: NFTs denote ownership of a digital asset. They enable people to own and trade unique digital items.

2. Verification: NFTs are verified because they're stored on a decentralized, secure blockchain. This enables the confirmation of an NFT's authentication and ownership.

3. Scarcity: NFTs are generally produced in limited quantities, maintaining their rarity.

4. Divisibility: NFTs can be divided into smaller units representing fractional ownership or smaller units of value.

5. Programmability: NFTs can be programmed using smart contracts. These are self-executing contracts where the terms of the buyer-seller agreement are directly written into lines of code.

6. Interoperability: NFTs can be used on various platforms and applications, allowing for multiple usage possibilities.

Platforms for Buying NFTs

If you're interested in purchasing NFTs, you have several options. Traditional auction houses like Christie's and Sotheby's now offer NFTs, where you can bid using U.S. dollars or cryptocurrencies like Bitcoin or Ether.

There are also numerous online marketplaces specializing in NFTs. Some popular ones include OpenSea, Nifty Gateway, SuperRare, Rarible, and Binance. Even eBay has entered the NFT market.

Remember, because an NFT is, by definition, one-of-a-kind, it can't be exchanged for another exactly like it. An NFT can only be swapped for an entirely different NFT or NFTs.

How Do You Know That You Actually Own an NFT?

When you purchase an NFT, your proof of ownership comes with:

1. A token ID: A unique number string

2. A wallet address: Where your digital asset is stored on the blockchain

3. A smart contract address: A computer program that serves the same purpose as a physical contract

4. The NFT itself: In whatever form you acquired it (like a .jpg file)

What Benefits Do NFTs Offer Artists and Designers?

Here’s a quick look at the biggest pros:

Digital ownership

NFTs allow digital artists to make each creation unique. This means every digitally created work of art has value, and buyers can prove they own the original, not just a copy. This legitimizes the value of digital art and opens up the potential for lucrative earnings.

Global reach

NFTs have made it possible to trade digital art globally. Even physical artists can turn their projects into NFT collections and sell to an international audience online. This allows artists to reach a much wider audience than traditional exhibitions or private sales.

A secure source of income

NFTs offer a safe, non-hackable method of payment. An NFT cannot be purchased unless fully paid, eliminating the need to chase clients for missed payments or hunt down illegal copies of your work.

Royalties

When you mint an NFT using the Ethereum ERC-721 standard, you can build royalties into the smart contract. This means you can earn a percentage of future sales of your digital artwork, creating a steady source of income.

Empowering artists

NFTs allow artists to take control of their art and the entire process of bringing it to market. You can release your work directly to your fans without needing publishers or agents who often charge hefty fees.

Utility and value

While many early NFTs focused solely on artwork, today's NFTs often offer more to owners. For example, some NFTs provide access to exclusive content, events, or services.

What Are the Downsides of NFTs?

Of course, NFTs have their drawbacks. Here’s a brief overview:

Energy consumption and environmental impact

NFTs and similar digital assets (NFTs) have a significant environmental impact due to their energy consumption throughout their lifecycle - creation, transactions, and storage.

Minting an NFT involves energy-intensive blockchain operations. Selling them triggers further energy use for transaction validation. While the NFTs themselves reside on the blockchain, the linked digital files are stored elsewhere, also consuming energy.

The environmental toll depends heavily on the underlying blockchain's efficiency. As the NFT market expands, so does its energy footprint. Importantly, even inactive NFTs require ongoing energy for storage, adding to the environmental impact.

Potential for scams

The NFT market is still relatively new, and safeguards are still developing. The most common NFT scams involve counterfeits. As a buyer, you need to be vigilant and do your research to avoid falling victim to these scams.

Price volatility

NFT prices can be highly volatile, with values sometimes fluctuating by 30% or more daily. This volatility can scare away potential buyers and make it difficult for artists to predict their income.

Popular Examples of NFTs

To give you a better idea of what's out there in the NFT world, let's look at some famous examples:

1. CryptoPunks: One of the earliest NFT projects, these 10,000 unique pixel art characters have become highly valuable. One CryptoPunk sold for $11.8 million at a Sotheby's auction.

2. Bored Ape Yacht Club: A collection of 10,000 unique ape avatars granting access to an exclusive online club. Numerous celebrities have purchased these.

3. NBA Top Shot: Official NBA-licensed highlight reels sold as NFTs. This project brought NFTs to mainstream sports fans.

4. CryptoKitties: A game where players can buy, sell, and breed virtual cats. It was one of the first NFT games to gain widespread popularity.

5. Decentraland: A virtual world where users can buy and sell virtual real estate as NFTs.

6. Axie Infinity: A popular blockchain-based game where players can earn cryptocurrency by battling with and breeding cute creatures called Axies.

Interesting NFT Facts

What are the most expensive NFTs?

The NFT market has seen some jaw-dropping sales. Here are a few of the most expensive NFTs to date:

• The Merge – $91 Million
• Clock – $52 Million
• Human One – $28 Million

Who are the prominent NFT collectors?

Several collectors have made names for themselves in the NFT world:

• WhaleShark: An anonymous Hong Kong-based collector with a collection reportedly worth over $50 million.
• Eric Young (a.k.a. @etyoung): Has invested over $1 million in NFTs, including a piece by Pak bought for $1.4 million.
• Colborn Bell: Owns more than 2,000 NFTs, which he displays in his Museum of CryptoArt.

Who are the famous Crypto Artists?

The NFT art market has given rise to several prominent artists:

• Beeple (Mike Winkelmann): Known for his record-breaking $69 million sale.
• FEWOCIOUS (Victor Langlois): A young artist who has made millions from his NFT art.
• Mad Dog Jones (Michah Dowbak): Sold an NFT that generates new NFTs monthly for $4.1 million.
• ThankYouX: Started as an L.A. street artist and is known for mixed-media cubes and abstract elements.
• Bosslogic (Kode Abdo): Produced a one-of-a-kind NFT featuring soccer superstar Lionel Messi.
• Pak (anonymous): A designer/developer known for celestial-themed works, with one collection selling for over $16.8 million.

NFT Education, Jobs & Salary

Job opportunities in the NFT industry are diverse and constantly evolving. Some potential roles include:

1. NFT artist or creator
2. Web3 marketing lead
3. NFT developer or engineer
4. Tokenomics analyst
5. NFT lawyer or legal specialist

Salaries in the NFT industry vary greatly depending on the position and company. Remember that the NFT market is still relatively new and unpredictable, so research before pursuing a career in this field.

The Future of NFTs

As we look to the future, it's clear that NFTs are here to stay. Despite their current drawbacks, they have the potential to revolutionize how digital artists and designers monetize their work. NFTs offer a way to create scarcity and value in the digital realm, opening up new possibilities for creators to earn a living from their digital creations.

So why not dive in and explore the exciting world of NFTs?