With more mainstream adoption of NFTs, it becomes increasingly difficult for the world to ignore this rising wave. In this article, we'll dig deep beyond the hype and cover everything you need to know about NFTs.

What are NFTs?

NFT is an encrypted token with non-fungible metadata stored on the blockchain, and each NFT is unique. In contrast, other fungible tokens (such as ERC20 tokens) are fungible, and BTC and ETH are examples of fungible tokens. Each BTC is interchangeable, and users don’t care which BTC they buy or receive; each NFT is uniquely identifiable, and in most cases, users care about which BTC they buy or receive which NFT it is.

Blockchain is a distributed and decentralized digital ledger. They are made up of chunks of data concatenated together in chronological order. Currently the most used blockchain in the NFT field is Ethereum . At the same time, we are also starting to see the rise of niche blockchains like Flow and Ronin , which are built on top of NFTs and games.

Metadata for NFTs can be found in their smart contracts, which are stored in blocks on the blockchain. A common misconception about NFTs is that some people believe that the digital avatars of NFTs we see or the JPEG images representing the NFTs are stored on the blockchain - while this is true for a few projects (eg Anonymice, Chain runners), most NFTs The project is to store these images on an external storage platform (such as IPFS, Arweave, etc.) , while storing the NFT metadata on the blockchain contains links to these images . The reason is that it is very expensive to store images on the blockchain due to the file size of the images, which makes it uneconomical for NFT projects to store them entirely on-chain.

What problem does NFT solve?

The Internet solves real-world problems by digitizing everything. It is now easier than ever to have unlimited scale and global reach of Internet users, and the cost of distribution has been greatly reduced, such as newsletters vs newspapers.

However, this digitization also lacks the benefits of the physical world. Ownership and scarcity are virtually non-existent, and authenticating digital assets is much harder than physical goods. Just as a "right click and save" NFT is a meme, this reflects the current state of the internet. Digital assets have no ownership and little appreciation.

At its core, NFTs provide proof of ownership that is missing in the current digital economy . It creates the ability to combine the benefits of the digital world (global audience, scale and distribution) with the benefits of the physical world (ownership and authenticity).

Before the rise of NFTs, it was difficult for digital assets to accumulate and capture value. This makes it very cheap for users, but terrible for creators. Tracking and determining true ownership on the Internet is difficult these days, and NFTs solve this problem. Creators are paid more accurately for their work and are able to extract a larger percentage of the value they create. Users also benefit from being able to take ownership of digital assets and be able to easily trade and value them.

What are the use cases for NFTs?

1. Art

The most popular use case for NFTs is as collectible artwork NFTs. NFTs offer artists a way to easily sell their artwork to a global audience while securing ownership. Art NFTs can be roughly divided into two categories: non-generative art & generative art.

1. Non-Generative Art

When we think of art, we usually think of non-generative art . They were created by humans without the help of autonomous computer systems. Digital artists are able to list their artwork on NFT marketplaces (like OpeaSea) so that anyone anywhere in the world can view and buy their work.

In today's traditional market, artists can only make money from the initial sale of their work; NFTs give artists the option to write royalties into the smart contracts of their NFT artwork , which allows them to make money from the value of their artwork get a fairer share. NFTs make it easy to verify the authenticity and ownership of artwork, which is a huge benefit of this technology. Well-known artists in this field include: Beeple , ppplpleasr, ferocious and Pak.

Photo NFTs are also an emerging NFT use case. Some photographers are selling their lockscreens as NFTs and earning similar returns to artists who sell NFT artwork. Justin avisano is one of the most famous figures in this field. He made history when one of his " Twin Flames" NFT series was auctioned off at Christie's. Major markets for such NFTs include Opensea, SuperRare, Foundation, Rarible and Nifty Gateway.

1. Generative Art

In addition to art drawn and created by artists alone, the rise of artwork NFTs is largely due to generative art . Generative art is art created by using an autonomous computer system (usually an algorithmic computer program). Profile picture (PFP) series like CryptoPunks and Bored Ape Yacht Club (BAYC) are created with the help of these programs. The creators modeled each individual trait, and the program randomly combined those traits to create unique characters by combining them .

Some production art NFT series are done entirely by computer programs without any human input other than the need to create algorithms. The most popular of the NFT series of this type are some series from the generative art platform Art Blocks , such as "Chromie Squiggle" by Snowfro and "Fidenza" by Tyler Hobbs. OpenSea is the leading marketplace for generative art NFTs, and LooksRare is also a popular new NFT marketplace.

game

While art NFTs are a use case that has gained mainstream attention, there is one NFT series that outsells all art NFT collectibles in terms of sales: Axie Infinity , an NFT game that currently holds the crown in terms of transaction volume (excluding the wash trading on LooksRare). This integration of NFT technology and games creates a whole new game mode: Earn while Playing/GameFi .

Axie Infinity is a rising star in 2021 and kicks off the rise of P2E (play and earn) games. The game generated more than $1.3 billion in revenue in 2021 and has more than 2.5 million daily active players. Unlike traditional games, where publishers earn revenue by selling assets to players, Axie Infinity earns revenue by taking commissions from market transactions and breeding fees for Axie digital pets. Players create new Axies by breeding these Axie pets. The motivation of the game team is to create the best games to expand the user base, not to sell assets to users.

Integrating NFTs in games can provide players with similar advantages to artistic NFTs, allowing players to truly take ownership of their in-game assets . In-game items and even characters themselves can be NFTs. In Axie Infinity, in order to play the game, you need to own an NFT digital pet called Axie, and the in-game currency is a cryptocurrency (SLP token). In traditional games, the money that flows into the game usually stays in the game because the player cannot get value from the game. And NFT games give players control and ownership of assets, and they can decide to sell and realize these assets .

music

Music NFTs are an emerging use case for NFTs. Just like art NFTs, music NFTs are the key to artists getting a larger share of the value from the work they create . Music artists typically only earn about 12% of the revenue they generate for the music industry. Recently, music artist and producer Daniel Allan minted a piece of music he made into an NFT and sold the music NFT on OpenSea for 1.1 ETH, which is equivalent to 1.2 million streams on Spotify quantity.

This trend also empowers those true fans to support and own copies of the works created by their favorite music artists , directly from the artists. It also creates new ways for artists to engage fans at a level that is difficult to achieve with existing methods. By owning an original copy of an artist's work, fans are able to place bets on the artist's future success. Artists are rewarded more equitably, and as a fan, you can also help artists early on . Soun.xyz and Catalog are two projects that provide a platform for music artists to directly sell their works to fans in the form of NFT.

sports collectibles

Sports NFTs are a growing and thriving NFT use case. Similar to baseball trading cards, sports NFTs allow fans to create collectibles of their favorite teams and players. The two most popular sports NFT projects right now are NBA Top Shot and Sorare . Both projects have official partnerships and official licenses with the relevant organizations.

NBA Top Shot is essentially creating a GIF of the best moments from NBA games and randomly bundling them into digital card packs, with each moment minted as an NFT. These packs have different rarities, depending on the players, importance, and popularity of the moment. The rarer a moment is, the less its NFT supply will be. Regular packs start at $9, and Legendary packs start at $999. Users can trade the NFT series on NBA Top Shot's official marketplace. In the 2020 Finals, the NBA Top Shot for a legendary dunk by Lebron James sold for $230,000, the highest price in the series to date.

Sorare is a combination of fantasy football and NFTs. Each player card is an NFT, and rewards are paid in ETH. Users can trade these NFT cards in the Sorare market. The benefits of Sorare are similar to NFT games in that players have ownership of in-game assets and the freedom to cash in and extract value from the game.

Pass

Due to the simplicity of authentication through NFTs and their ability to verify ownership, NFTs can act as access passes . One such example is Flyfish Club, which claims to be the world's first private dining club to join by holding its NFT; in addition, Adidas' NFT collectible provides holders with exclusive access to the brand's entity and virtual goods. While some NFT collectibles have the sole purpose of serving as membership passes, this use case is an overarching theme for many NFT collectibles, including BAYC (Bored Ape Yacht Club) which also offers special benefits to Bored Apes (Bored Apes NFT) holders. All forms of NFTs can act as various types of passes.

A key factor driving the rise of artistic NFTs is the community that supports NFT projects . Holders of NFTs have exclusive access to certain Discord chat channels and a sense of belonging in the community. Larger projects (like BAYC) also host offline meetups and exclusive parties for those who hold their NFTs. Holding certain NFTs entitles you to early collectibles for a new NFT project from the same team, or other new NFT projects from that team partner. Similar to Adidas NFTs, some NFT collectibles (such as BAYC and Creature World) also release their own physical items, and their NFT holders can gain early/exclusive access to these physical items. Music artists and games can also offer similar benefits to their NFT holders.

DAOs (Decentralized Autonomous Organizations) and gaming guilds are another area where NFTs can serve as access passes. Holding the relevant NFT will make you a member of a DAO or gaming guild, and the NFT can also act as a voting token. Yield Guild Games (YGG) is one gaming guild organization that uses NFTs in this way, and its NFT holders can access exclusive features on its website and register for various projects in the guild.

How to create NFTs?

There are many ways to create an NFT, you can do it manually, or you can use a system created by NFT marketplaces such as OpenSea and Rarible . In addition to some technical details to master when creating an NFT, there is one more important thing to consider, which is which blockchain you want to create your NFT on: Ethereum, Solana, Avalanche, Polygon , etc. Different blockchains have different tradeoffs and communities, which can have a big impact on the success of an NFT project.

OpenSea has a great guide on how to easily create your own NFTs on Ethereum using their platform:

https://opensea.io/blog/announcements/introducing-the-collection-manager/

How to buy NFTs?

The largest NFT marketplace in terms of trading volume is OpenSea , which may be the starting point for your NFT trading journey. While the most popular NFT collectibles today are all built on Ethereum, there are also thriving NFT projects on other blockchains, such as Solana, Terra, and Polygon. Other popular NFT marketplaces include LooksRare and Rarible on Ethereum/Polygon, Magic Eden and Solanart on Solana , and Random Earth on Terra .

In order to interact with these NFT marketplaces, you need to set up a crypto wallet that is compatible with the blockchain the NFT project is on . The most commonly used wallets are MetaMask for Ethereum, Phantom for Solana and Terra Station for Terra. Once you've set up a wallet, transfer ETH/SOL/LUNA from the centralized exchange of your choice to that wallet, and you're ready to start buying!

How to choose NFT for investment?

When considering buying an NFT as an investment, it is important to evaluate the NFT project comprehensively and not just rely on appearances. Similar to picking a Crypto project to invest in, the quality of the founding team, its ability to execute and deliver, and the project roadmap are all important factors to consider. Perhaps the most important and also the most difficult factor to measure is the strength of the community that NFT projects have successfully built . The value of NFTs mainly comes from their communities, and projects with strong communities will be able to withstand a bear market . We've even seen cases where the community came together to revive projects by delivering on projects that the founding team failed, such as the recent example of Pudgy Penguins .

The only way to truly measure the strength of a community is to get in, and the quality of community members is more important than quantity. Join the Discord channel of the NFT project, go around and feel the atmosphere of the members. If the conversation revolves primarily around floor prices and the environment is dire, this may not be the one you want to bet on.

With the number of NFT projects being released every day, it is almost impossible to keep up with all NFT projects. One strategy is to follow savvy investors, focusing on projects that pique their interest, and the NaNsen platform’s NFT dashboard helps in this regard: you can view transaction data for specific projects in “NFT Gold Mode”, and in “NFT Gold Mode”. View NFT minting data on "Mint Master" and get smart money movements over the past 24 hours on "NFT Smart Money" .

Common Criticisms of NFTs

• "Why spend thousands of dollars on a JPEG image that I can save with a right mouse click?"

Yes, you can indeed "right click and save" to get a copy of a piece of art, but that doesn't mean you own the actual NFT. Just as counterfeit luxury goods can never be as valuable as an authentic one, a "right-click-to-save" version of an NFT will never be of the same value, even if the materials and build quality are exactly the same. A knockoff, or in this case a "right-click-to-save" version, only adds to the value of the original . This creates a feedback loop: the original work gets copied > gains virality and traction > rises in value > the work gets copied more.

The more times a particular image is seen around the world, the more widely it spreads, the more iconic it becomes, and the more valuable the original is. It was the virality of the painting when it was stolen that made the Mona Lisa famous, not the painting by Leonardo da Vinci. Appeared on the front pages of newspapers around the world, making it an internationally known and household name.

You might argue that physical fakes aren't worth the same price as the real thing because they're not 100% the same item. This is true for physical goods, and the same is true for NFTs. The concept is more difficult to understand because NFTs are fully digital and, on the surface, the copied JPEG files are 100% identical to the original. However, like the real thing, what really matters is what's hidden in it .

A "right-click-to-save" version of the image won't have the same underlying data on the blockchain , and it won't give you the same benefits and rights as having a real NFT . It doesn't give you access to events or locations, doesn't give you access to a community of individuals holding that NFT, you can't resell it on the NFT marketplace, or get in-game experiences, etc.

The implementation of NFTs does not mean that users will have to pay more, it just means that users have a choice. Don't want to spend thousands of dollars on a JPEG? Of course, you can download and use it for free if you want. And for those who want to support them by buying and owning the work of creators they love, they now have the ability to do so in a fairer way than existing methods. Looking at the trading volume on OpenSea (NFT sales of around $17 billion in 2021), we can clearly see that there is a considerable amount of capital interested in this space.

• "NFTs are bad for the environment."

While PoW (Proof of Work) blockchains like Ethereum are indeed energy intensive, many newer blockchains and even Ethereum itself are moving to PoS (Proof of Stake). PoS blockchains like Solana consume far less energy and are likely to be carbon neutral. Beyond that, NFTs are unlikely to result in additional energy usage, since other applications (such as DeFi applications) could take up any excess transaction capacity on the blockchain without NFTs.

The future of NFTs

The NFTs of the future may be completely different from the NFTs we see today. While NFTs have become a viable and valuable tool for artists, we are still in the early stages of using the technology.

Considering that the primary function of NFTs is as ownership tokens , NFTs can be tokenized representations of any asset, both physical and digital . House deeds, school certificates, ID cards, etc. are all potential projects that can be improved by tokenizing them into NFTs. Since the blockchain is immutable, the data is easy to verify, and if a person’s academic credentials and past work experience are stored on the blockchain, then institutions can verify it seamlessly.

Rather than exist as a siloed asset, NFTs can be integrated with DeFi protocols to create a liquid cryptocurrency system . Just imagine a world where we can borrow and lend from DeFi protocols like Aave or JPEG'D using NFTs as collateral.

Currently, NFTs are a relatively illiquid asset, and their high prices prevent small players from participating in the appreciation of certain NFT collectibles. Fragmentation of NFTs will help increase liquidity in the space and allow smaller players to share the benefits. An NFT index that tracks the total market capitalization of NFTs could create new investment avenues for investors and open up space for investors who want to get involved in the industry but don't want to hold specific NFTs.

Some popular NFT collectibles may start to become highly valued assets in the " metaverse ", and there may be a need to use NFTs for advertising purposes in the metaverse . In the real world, brands tend to use celebrities for advertising, using their brand and influence to promote their products. And specific NFTs may become influential things in the universe, and brands rent these NFTs for their promotion purposes.

Over time, successful NFT projects themselves can grow into big brands. Once an NFT project has cemented its place in popular culture, gaining enough traction and cultural significance, they may be able to compete with legacy companies like LVMH . Owning an NFT in such an NFT project becomes a strong signal of social wealth, making it very desirable, like owning a Rolex watch.

Summarize

NFTs give us a way to take advantage of the physical and digital worlds, creating new distribution channels and ways to monetize creators. It gives us a new way to engage and inspire communities of like-minded people, and has the potential to change the way we coordinate social groups. NFTs allow the value of digital assets to be better defined and determined, and allow the creators involved to get a larger share of the value they create. "Right-click and save" will always be a feature of the internet, but NFTs give creators and users the option to take ownership and have a greater degree of distribution control over their assets. "Right click and save" also increases the value of the original version, not decreases it.

The current implementation of NFT technology is limited and not perfect. However, this does not affect the long-term potential of NFTs and the use cases that will emerge in the future. We are only in the first phase of the rise of the virtual economy, and we need to find new and exciting ways to harness the benefits of NFTs.