NFTs, or non-fungible tokens, are unique digital assets. Want to know how they work and why NFTs are important? This guide explains everything about NFTs.
Main conclusions
NFTs are unique and irreplaceable digital assets, representing ownership and authenticity on blockchain platforms.
The NFT market has grown considerably, with applications in digital art, games and collectibles, attracting artists and investors.
Despite the opportunities for appreciation, NFTs present challenges such as volatility, fraud and low liquidity, requiring caution when investing.
What are NFTs?
NFTs, or Non-fungible Tokens, represent a special type of digital asset that is unique and irreplaceable. Unlike traditional cryptocurrencies such as Bitcoin, which are fungible and can be exchanged for others of equal value, each NFT has a unique identity, making it exclusive in the digital market.
This uniqueness ensures that only the buyer has a unique digital certificate of authenticity for the item, functioning like an encrypted virtual certificate of ownership. Scarcity, a crucial factor, sets prices in the NFT market, making them highly coveted items.
Definition of a non-fungible token
The main difference between fungible and non-fungible goods lies in their interchangeability. While fungible goods, such as coins and cryptocurrencies, can be exchanged for the same, non-fungible goods are unique and irreplaceable. This means that items such as works of art, music and game items can be transformed into NFTs, representing unique digital assets with high value due to their exclusivity and rarity.
This exclusivity arouses emotions in collectors, who see an NFT as a limited and valuable item. It is this rarity that makes NFTs an object of desire, similar to works of art in the physical world.
By purchasing an NFT, the buyer is not only purchasing a digital asset, but also a piece of an exclusive and limited universe.
How NFTs work on the blockchain
NFTs operate on the blockchain, a technology that guarantees public and immutable verification of transactions, preventing fraud and unauthorized copying. Unlike other digital assets, NFTs have a unique identity on the blockchain, which allows them to be transparently verified and authenticated. Several blockchain projects, such as Ethereum and Binance Smart Chain, offer robust infrastructure to support NFTs.
Interoperability between different blockchains, facilitated by solutions such as Polygon, allows NFTs to be transferred and used on different platforms, increasing their versatility and reach.
In addition, infrastructures such as The Graph allow efficient indexing and querying of NFT data, ensuring that information on these assets is always accessible.
Practical uses of NFTs
NFTs have found applications in a variety of industries, from digital art to games and collectibles. The ability to digitally represent a unique asset, be it a work of art or a game item, has opened up new opportunities for creators and collectors.
The NFT market, which has surpassed US$ 60 billion, offers an alternative for content creators to sell their works directly, without the need for intermediaries, thanks to authentication guaranteed by the blockchain. This significant growth since 2021 has attracted the attention of celebrities and investors, solidifying the presence of NFTs on the digital scene.
Digital art and NFTs
The NFT revolution in digital art has brought new names to the market and increased the visibility of digital arts. Projects such as CryptoPunksNFTs, created by Larva Labs, consist of unique pixel art characters and are considered some of the first examples of NFTs. The dissemination of NFTs on a variety of platforms significantly increases the visibility of artists, allowing them to reach a wider, international audience.
NFTs not only facilitate the direct sale of artworks, but also guarantee artists control over the copyright and authenticity of their creations. This new technology has allowed independent artists to monetize their works efficiently, without the need for traditional intermediaries, redefining the digital art market.
NFTs in games
In games, NFTs act as certificates of ownership for unique digital assets within virtual worlds. Games like Cryptokitties pioneered the use of NFTs, allowing players to own and trade virtual kittens on the Ethereum blockchain.
Another example is Axie Infinity, which recorded an impressive transaction volume of US$ 586 million in a given period, demonstrating the significant impact of NFTs on the gaming market. The growing adoption of NFTs in games transforms the way players interact with digital assets, promoting a new ownership model.
With more than 1.7 million Axies holders worldwide, it's clear that NFTs are reshaping the gaming industry, offering new forms of engagement and monetization for players and developers.
Digital collectibles
NFTs as digital collectibles promote a new level of emotional involvement between collectors and rare items. A notable example is the use of game highlights by the NBA, which has turned videos of iconic plays into NFTs, creating a vibrant market for fans and collectors, such as the nba top shot.
The exclusivity and rarity of digital collectibles make them highly desirable, similar to physical trading cards. The possibility of owning a piece of digital history and participating in a community of passionate collectors adds significant emotional value to these assets.
How to buy and sell NFTs
Buying and selling NFTs has become a relatively simple process, thanks to the specialized marketplaces that facilitate these transactions. Navigating these platforms, choosing the NFT you want and following the steps to purchase can be done in just a few minutes.
These marketplaces offer a wide range of NFTs, from digital art to gaming items, catering to different tastes and interests.
Where to buy NFTs
Platforms such as OpenSea and Rarible are considered the most relevant for buying NFTs. Each of these platforms offers different fees, audiences and resources, which can impact the visibility and value of the NFTs listed. To buy NFTs, you need to use a digital wallet that supports Ethereum, the most common cryptocurrency used in these transactions.
OpenSea, for example, is known for its wide selection of NFTs and ease of use, while Rarible stands out for its active community and the possibility of creating and selling NFTs directly on the platform. Choosing the right platform depends on the buyer's needs and preferences.
NFT purchasing process
The first step to buying an NFT is to register on a marketplace platform. After registering, it is necessary to convert fiat currency into cryptocurrency, such as Ethereum, which will be used to finalize the purchase. Once the buyer has the cryptocurrency available in their digital wallet, they can browse the marketplace and choose the NFT they want.
NFT negotiations can vary between timed auctions, fixed prices and items that are not for sale, allowing for different acquisition strategies. This process, although simple, requires attention to the details of the transactions and the associated fees.
Sell your NFTs
Selling NFTs is also a straightforward process. Simply list the NFT on a marketplace, set a price and wait for a buyer. These marketplaces offer tools to facilitate the sale and management of NFTs, allowing sellers to reach a global and diverse audience.
How to create your own NFT
Creating your own NFT can be a rewarding and lucrative experience. The types of files that can be used include:
Images
Videos
Music
3D models
The sizes generally don't exceed 100 MB on platforms like OpenSea.
In addition, it is possible to set up a portfolio exclusively with NFTs, which makes it easier to manage these assets. The minting process involves recording the digital asset on a blockchain, ensuring that it is unique and authentic.
Choosing the right platform
Choosing the right platform to create NFTs is crucial to the success of your project.
The Ethereum blockchain is the most widely used for the development of NFTs, using the ERC-721 standard, which allows the creation and issuance of NFTs that can be exchanged and tracked.
However, other blockchains also offer significant advantages, such as:
Binance Smart Chain, which has low transaction fees
Solana, known for its fast processing times
Avalanche, which offers scalability
Tezos, which is more ecological
Flow, which is optimized for games and applications
Considering these options can help maximize the potential of your NFT project.
Before creating:
Each platform has its own unique characteristics, and it's important to consider factors such as fees, efficiency, scalability, and the community when choosing where to create your NFTs. For example, Binance Smart Chain is known for its low fees and speed, while Tezos is attractive for its energy efficiency.
After creating:
Each platform has its own unique characteristics, and it is important to consider the following factors when choosing where to create your NFTs:
Fees
Efficiency
Scalability
Community
The choice of platform can directly impact the cost and visibility of your NFT.
Minting an NFT
The process of minting an NFT involves the following steps:
Recording the digital asset on the blockchain, making it unique and verifiable.
Upload the files needed to create the NFT.
Creation of the NFT on the blockchain, where it becomes publicly visible.
Record of NFT transaction history, guaranteeing authenticity and ownership.
Protection of the NFT against fraud and unauthorized copying.
This process ensures that the NFT maintains its integrity and value in the digital market.
The costs of minting can vary depending on the platform chosen, and may include additional fees on top of the cost of issuing. It is important to consider these costs when planning the creation of an NFT, as they can impact the profitability of the project.
In addition, the choice of platform can influence the speed and effectiveness of the minting process.
Advantages and challenges of NFTs
NFTs offer numerous advantages, but they also present significant challenges. Functioning as proprietary digital certificates, NFTs confirm authenticity in an immutable way. However, mining costs, market volatility, and being targeted by hackers are all issues that need to be considered.
We will explore these advantages and challenges in the following sections.
Advantages of NFTs
One of the main advantages of NFTs is the expectation of future appreciation, similar to what happened with the appreciation of Bitcoin. NFTs, such as CryptoPunk #7804, have demonstrated that digital works can appreciate significantly in value. In addition, the new NFT technology allows independent artists to monetize their works directly, without relying on traditional intermediaries. This direct monetization model is a pragmatic change in the world of digital art.
NFTs in games also create a new model of digital property, allowing players to own and trade items in a unique way. Celebrities such as Neymar and Justin Bieber have acquired NFTs from Bored Ape Yacht Club, boosting its market value.
Investing in NFTs offers advantages such as appreciation, scarcity and ease of transfer, making them an attractive option for collectors and investors.
Challenges and risks
Despite the advantages, NFTs also present significant challenges and risks. Market volatility is high, reflecting the uncertainty and speculation surrounding this emerging sector. The main risks include fraud or theft, where hackers can sell counterfeit artworks as if they were legitimate.
The liquidity of NFTs is also considered low, which can make it difficult to sell them quickly, similar to the traditional art market. Finding a buyer for NFTs can be time-consuming, and the value of an NFT is not fixed, with wide variations in market prices.
These factors make investing in NFTs risky and require a lot of caution on the part of investors. It is essential to be well informed and understand the risks before entering this market.
Success stories and notable examples
The NFT market has seen some impressive success stories, which not only highlight the potential of NFTs, but also inspire new breeders and investors. From the historic sale of Beeple to the success of the Bored Ape Yacht Club, these examples show the diversity and breadth of the impact of NFTs on the digital market.
Beeple's historic sale
On March 11, 2021, Beeple's digital artwork "Everydays: The First 5,000 Days" was sold at Christie's for US$ 69.3 million, marking a crucial moment in the NFT market. This sale made Beeple the third most expensive living artist at the time, and transformed the perception of digital art, bringing it into the mainstream. Before the auction, the NFT market had already grown substantially, with the total value of transactions quadrupling in 2020.
Beeple's sale was the first time a renowned auction house had sold a purely digital NFT, attracting widespread attention from collectors and the media. However, despite the initial enthusiasm, by September 2022, transaction volumes of NFTs fell by 97% compared to the peak in January 2022. This event also highlighted concerns about fraud and market volatility.
Bored Ape Yacht Club
The Bored Ape Yacht Club, created by Yuga Labs, consists of 10,000 unique cartoon-style NFTs, each with distinct characteristics. Owning a Bored Ape Yacht Club NFT grants access to exclusive events, merchandise and online spaces for members, creating an exclusive community.
The exclusivity and additional benefits offered by the Bored Ape Yacht Club exemplify how NFTs can go beyond simple digital collectibles, creating unique experiences and communities for their owners. This business model has inspired other NFT creators to offer similar advantages to attract more buyers.
Other notable examples
Other notable examples of NFTs include Jack Dorsey's first tweet, which was sold as an NFT for US$ 2.9 million. CryptoPunks' image number 7523, known as Alien, is also an iconic example of how high NFTs can go.
Artist Grimes raised around US$ 6 million in a single NFT auction event, showing the monetization potential for independent creators.
Another impressive example is the NFT The Merge, created by Pak, which was sold for more than US$ 91 million, fragmented into 312,000 shares. These cases highlight the diversity of types of NFTs and the wide reach of this market.
Summary
NFTs are revolutionizing the way we perceive and interact with digital assets. From digital art to games and collectibles, these non-fungible tokens offer new opportunities for creators and investors. However, it is essential to be aware of the associated challenges and risks, such as fraud, theft and market volatility. By balancing the advantages and challenges, NFTs have the potential to transform various sectors and create new forms of value in the digital world.
Frequently Asked Questions
What does buying an NFT mean?
NFT purchasing refers to the acquisition of unique digital tokens that represent ownership of virtual goods, such as works of art or collectibles, through blockchain platforms. This process ensures the exclusivity and authenticity of the item, acting as a digital certificate of ownership.
What is an NFT?
An NFT, or Non-Fungible Token, is an exclusive digital asset that certifies ownership of specific items, such as works of art or game items. This type of token is irreplaceable, differentiating it from other forms of digital currency.
How do NFTs guarantee authenticity?
NFTs guarantee authenticity through public verification on the blockchain, ensuring that each token is unique and cannot be counterfeited. This technology provides trust and transparency in digital transactions.
Where can I buy NFTs?
You can buy NFTs on marketplaces such as OpenSea and Rarible, where you'll find a wide range of options to suit different tastes and interests.
What are the main risks of investing in NFTs?
The main risks of investing in NFTs include the high volatility of the market, the possibility of fraud, theft and low liquidity, which can make it difficult to sell these assets quickly. Caution is essential when considering this type of investment.
