The other day I was on FB and had an interaction with someone who asked what an NFT was. I am currently 3 months into the NFT space. I have been in Crypto since 2013 on and off. I decided I would write something easy to share across social media in a centralized location. This also serves as an outlet for me as I compile my knowledge on the current state of Crypto, Web3, DeFi and NFT’s.

The best iteration of Non-Fungible Tokens (NFT’s) right now is as art (mainly as jpegs and other digital artistic creations, but that will expand) you can buy and sell them as assets on opensea (currently the biggest marketplace for NFTs). Opensea supports multiple blockchains on ethereum blockchain (I’ll explain later). There are also NFT marketplaces on other blockchains as well. I’ll focus on Opensea because they are valued at almost 13 billion dollars and did 20 billion USD in transactions last year. The next largest marketplace last year did $3 billion in transactions. For a daily idea of current performance: on January 4th of this year, trading volume of transactions on Opensea was 26 million USD. The purpose of NFTs is to create a proof of concept for digital assets and how to use them in an economic system. NFTs show that you can buy something that is completely digital and assign a monetary value to it. Eventually they intend to have these NFTs represent something like a house, among many other use cases. This monetization of NFTs is what you want to pay attention to. NFTs are related to Crypto because they are built using code on blockchain technology. They use blockchain technology because it is trustless (you don’t need to trust the person you transact with to buy and sell or whatever transaction it is because the coding is transparent, traceable, and irreversible. Every transaction on a blockchain can be looked up and reviewed which means you will always know where your money went (I can see this being important with financial crimes in the future). For tracking transactions on Ethereum you will use a website called Etherscan. Ultimately, blockchain technology is important to understand because that is the vehicle that has allowed us to add a monetary value to NFTs through the tokens that are represented on each blockchain. There are different types/layers of blockchains. I’ll use two popular examples to illustrate this concept. Bitcoin the current most popular blockchain is referred to as a layer 1 coin. Most of this popularity with it is because it has first mover advantage with all of crypto. The basic function of blockchains is as software facilitating networks of computers that validate transactions (proof of stake or proof work). Blockchains were created to create a trustworthy form of transacting through a network that was equitable and fair and not controlled by one entity. Ethereum, which is the blockchain that most NFTs are bought/created on, is also a layer 1. It adds more utility to itself however because it can incorporate smart contracts which are basically automated programs or code that are trustless (also forgot to add earlier — meaning you can buy something from a stranger through a smart contract where certain terms have to be met before money is exchanged).

So the medium of exchange is no longer a marketplace or centralized big company like MLS (Multiple Listing Service which aggregates home listings across geographic regions in the USA, we don’t need to focus on the different MLS’s that exist for this example). You can always interact with the system without the need to go through someone like the MLS to buy a house or Sotheby’s to buy art. An example of a layer 2 blockchain is polygon. It’s its own blockchain as well but is built on top of the Ethereum network. With layer 2s you can easily interact with the blockchain they are built on and themselves so you can imagine how that is great for scaling. What this does is also allow for many ecosystems to exist under one blockchain. That’s why overtime something like Ethereum is more likely to surpass Bitcoin because Bitcoin is strictly layer 1 and doesn’t have all these other benefits that come with layer 2 integrations so that massively limits it. Although consider that there are some solutions are being created to try to retrofit Bitcoin to include Dapps and other layer 2 solutions. Back to NFTs. Opensea is also an example of a layer 2 solution. I consider it a semi decentralized solution, but that is for another day… On opensea you can buy Ethereum from an exchange like Coinbase or crypto.com and then move that to a hardware wallet (like nexo) or a browser extension wallet (like Metamask). These wallets are just like your wallet. You need to have a wallet to buy an NFT and store it in that wallet. This is why crypto is great because traditionally online when you need to do anything with money you either use your debit card which is in the real world or you have to store your money within the app you are buying from like Coinbase or Robinhood. But now with crypto you have can have a digital wallet and store digital currency in it and then go to websites and shop and click and buy like you would do anywhere else AND be in full control of custody of the assets in the wallet. Overtime I believe security will be much better. Right now risks associated with these wallets are hackers and malicious websites. So when interacting with websites make sure you trust the company first and Do Your Own Research. A lot of scam activity stems from people spending crypto on sketchy websites and not using proper security measures available today. You can always look up how to protect your crypto as well for more options. It’s different from your card being stored on an online extension because that money is actually in the bank and at the end of the day it is still physical. But with crypto, now that adoption is increasing and monetization setting in, these digital coins are getting more value because they are being exchanged like assets. And so you are holding something truly digital and spending it which is crazy. Once you have your wallet setup, link it to Opensea and send your Ethereum from Coinbase or whatever exchange you use to it and buy the coins. Once you are buying and selling then you can apply your knowledge of markets and business and research NFTs that are performing well and speculate that way or just buy art you like. An important point on wallets and crypto: You have to pay fees. Fees are what facilitate transactions across whatever network you are using. This is the same as paying a transaction fee every time you buy something with your debit/credit card. They are currently working to improve the Ethereum’s system which will lower fees but this important to know because when you buy something be aware the cost is the asset (the NFT) plus the cost of gas (term used to refer to fees these networks charge for transactions). It is also important to know because at the moment Ethereum has high gas fees and most other blockchains have much cheaper fees. Here are some YouTubers and YouTube videos that will help you and resources to research what NFTs to buy. https://youtu.be/p7Gu5J8eN5s. He is really good for NFTs. Here is a good video on crypto and its future https://youtu.be/0tJrla31t8I. For resources icy tools is good and rarity tools as well. Twitter is a great place to start. For actual people: Cryptowhiteboard, Brett Malinowski, TheDefiant, Raoul Pal are also great on YouTube. For those worried about this being a scam or being too late, we are literally just starting to get mass adoption. This is why this last year was so important. Crypto technology is in its infancy and is currently being built out with a lot of money being poured in along with more and more talented human capital to lead projects, program them, etc… joining in every day. A look at the adoption and transaction stats will illustrate that. You can see these stats on dune analytics for your research. So when you see people make big gains remember that is more akin to buying land in the USA in the 1800s vs buying into a Ponzi scheme. When you are an early adopter, you always make more money than everyone that comes after. With this in mind it’s also always important to ask yourself with crypto, what are the uses of this technology because everything now is only going to evolve and grow and add more use cases and become more developed. This will allow you to focus on the future value of an investment and its potential growth. That is how I see it at least. ALL of this was the same with software in the 90s and 2000s. A little addition: with all these NFTs, some are just jpegs but others have really cool utility with them. So after you buy them you can also interact with them based on what their creators intended. You can breed some of them, stake them to earn even more blockchain tokens for free, you can resell for profit or use in games or whatever ecosystems they are intended for, among many other implementations.