NFTs Explained What is an NFT and How to Create Non Fungible Tokens article

NFTs Explained: What is an NFT and How to Create Non-Fungible Tokens

If Bitcoin and cryptocurrency are believed to be the digital answer to currency, then NFTs are being pitched as the answer to digital collectibles. While interacting with people around, you’ve probably heard something about non-fungible tokens or NFTs.

NFTs seem to be the next big thing around and you’re probably wondering if it’s going to blow up like Bitcoin and cryptocurrency did which might probably happen. You’re also probably wondering if you should get in on NFTs right now while it’s still early? My advice is that you don’t jump into what you don’t understand. Try to understand NFTs first before you get into it or stay away from it. And what’s the best way other than with this neutral article on the topic showing you most sides of NFTs?

In this article, I will be explaining what an NFT is, how non-fungible tokens work, why they’re so popular and how to create an NFT. Let’s get started.

NFTs Explained What is an NFT and How to Create Non Fungible Tokens

NFTs Meaning: What is an NFT?

NFT stands for non-fungible token. This means that an NFT is a token which can not be replaced or interchanged because it is UNIQUE.

Let me explain in simpler terms that anyone can understand. In econonomical terms, a fungible asset is an asset whose individual units are interchangeable like regular currency.

An example of a fungible currency is a dollar. If you have a dollar and someone or a celebrity in another state or country has a dollar, the $1 you own along with the one owned by that celebrity whether it is rumpled or not have the same value of $1. This also applies to regular cryptocurrencies and 1 bitcoin in my wallet is the same as 1 bitcoin in a friend’s wallet. But that is not so with an NFT.

Although non-fungible tokens work just like bitcoin or other cryptocurrencies, each NFT is unique and indivisible. Despite the fact that the video, picture, art or audio used to create a non-fungible token can be easily copied, saved, used and shared online, NFTs serve as proof of ownership for those items on the blockchain.

An NFT makes it easy for someone to say that they’re the original owner of the authentic or original copy of a particular artwork, music, audio, etc. Therefore, when a person purchases a non-fungible token, they’re actually buying a token proving the ownership of an asset.

Non-Fungible Token examples

Here are a few examples of famous NFTs:

How do NFTs work?

NFTs are bits of data secured with powerful encryption to represent an image, a video, audio, a piece of art, a jpeg, etc whether digital or physical.

Usually, NFTs are recorded on the blockchain. And each non-fungible token can represent a specific item that is stored somewhere else, digitally, physically, or even in the metaverse.

Unlike regular pieces of art or videos that can be easily duplicated or tampered with, the owner of an NFT is stored on the blockchain and will only change if the NFT is sold to a new owner.

Adding an NFT to a blockchain creates an unchangeable record on the blockchain of who owns whatever item. And the blockchain also keeps track of who owns the NFT as sales are made in the future.

Please note that in most cases, NFT files are not actually stored on the blockchain, rather a link to the file is stored along with the ‘proof of ownership’ token over what you’re linking to.

Why are people spending millions of dollars to buy Non-Fungible Tokens?

As I have already said, non-fungible tokens are proof of ownership of an item in a world where digital files can be copied and used by almost anyone. Therefore, an NFT can also mean the bragging rights of ownership of an item even though many people have illegitimate copies of the same item.

For example, if a photographer took an excellent photo of a moment in his life and sold it exclusively to me. If I upload that photo to my Instagram or use it as my profile photo, without a doubt, others who like the same photo could make copies and pass it around. Very soon, it would be hard to know who exactly owns the original digital photo. If the original photographer creates an NFT of the photo, I can be assured that I am the authentic owner of the original copy of this photo. And when I show off to others that I am the authentic owner of the original copy, I have proof that I am. Even if I want to sell it to others in the future, I can also assure them that the picture is the original bought from the owner and not an illegitimate copy.

Why NFT is so Popular?

Non-fungible tokens are so popular because just like regular cryptocurrencies like Bitcoin and the blockchain which maintains records without a central authority like the bank or government, an NFT is a market disrupter.

Many people are amazed at the wonderful changes that non fungible tokens can bring to the ownership of artwork, memorabilia, videos, audio, and basically digital property.

Did you know that collecting royalties on artwork is possible with non-fungible tokens? In fact, the creators of NFTs can earn up to 10% royalties on their artwork every time it changes hands. Therefore, as an artist, if a buyer buys your artwork as an artist and sells it later on in the future, you’d still get up to 10% royalties of the sale of that artwork. Amazing, right?

Well, that’s not all non-fungible tokens can be used for. While doing my research, I found that NFTs can be used to indicate ownership of land in the metaverse space. Of course, there are so many ways that non-fungible tokens can be used by different companies in different niches to serve their needs.

Why Do People Buy Non-Fungible Tokens?

People are buying NFTs everywhere for millions of dollars these days. Look at Mr. Richerd who bought CryptoPunk #6046 on March 31 for $86,000. After claiming that the NFT was not for sale, he was offered 2,500 ether  ($9.5 million) the very next day for the same crypto just to test the credibility of his words. However, he still didn’t sell it.

One of the Bored Ape Yacht Club collections was also acquired by Jimmy Fallon. Initially, BAYC was sold at $190 each at launch but over time, some of the rarer NFT Apes in BAYC have sold for over a million dollars and even common variants have sold for around $200,000.

You’re probably wondering why people are spending millions of dollars on pictures and videos? And it probably seems as insane to you as it did to me before I started my research for this article?

Actually, there are many reasons. Some people are buying non-fungible tokens at these prices because of the possible future prices of these NFTs, that is, the profit they’ll make after reselling these tokens.

According to an article I saw on CNET, NFTs can also be seen as status symbols among some of the rich in the crypto space. Just like a $20,000 new car or a house worth millions of dollars, a non fungible token can be used by the rich to flex their wealth ONLINE.

Showing off your wealth online has never really been possible until NFTs. Of course, this is not just a mindless show of wealth, this show of wealth is used to increase influence.

Let me put this in perspective with Mr. Richerd who bought a Crypto Punk NFT at $86,000 as an example. Mr. Richerd runs his business Manifold where he shows digital artists how they can make artworks that only exist as NFTs. Buying one NFT of the 1000 collections of one of the most sought-after NFT collections in his circles helps his business and shows his potential clients how much he believes in NFTs.

Trouble in NFT Paradise?

Yes, there is certainly a bit of trouble where NFTs are concerned. But then again, NFTs are new on the block and not everyone understands them or has taken kindly to them so that’s understandable.

1. The NFT Controversy

Non-fungible tokens can be controversial. Some people believe they’re the next big thing because the internet and cryptocurrency were just as polarizing as NFTs currently are and yet, they’ve moved us forward in various ways. Some people just believe in the underlying purpose of non-fungible tokens as tokens to prove ownership of items on the blockchain. And some people regard NFTs as a new way to make money either by creating one or flipping (buying and selling) them. Some people don’t quite understand what they are and some people simply think the entire thing is a scam.

2. The Outrageous Fees

Most NFTs are built on Ethereum and we all know how outrageous Ethereum fees can get. If you don’t, let me give you some examples, when creating an NFT on Ethereum, you need to prepare about $60-$400 dollars as gas fees (Ethereum transaction fees) for creation. Even for those buying NFTs, spending between $1000-$10,000 or more on gas fees is commonplace especially if the NFT is sought after by many. Worse yet, a failed transaction can have people losing up to $1000 in gas fees without actually buying the NFT they were trying to buy which, by the way, is insane.

Why the outrageous fees? Because of the Ethereum blockchain. The more people using the Ethereum blockchain at the same time, whether they’re sending or buying altcoins or buying NFTs, the higher the fees. Therefore, in situations where about a thousand people are trying to buy one NFT, there might be tremendous spikes in transaction fees.

3. NFTs may be bad for the environment?

No, NFTs aren’t bad for the environment. At least, not that I know of. Rather, Ethereum, which most NFTs are built on, has a pretty big carbon footprint. Why? Because it uses an energy-extensive “proof of work” system which consumes massive amounts of energy. Hopefully, with the planned launch of eth 2.0, as Ethereum developers have promised, mining Ethereum will consume 1% of the energy it currently consumes.

Read more about NFT’s climate controversy.

4. The Scams

Many people are trading NFTs to make profit. Many of them don’t really care about what they’re buying or the technology. Therefore, it is inevitable that there are all kinds of NFT-related scams and people really do need to be careful.

5. Volatile Prices

For a few reasons which I explained in the FAQ part of this article, NFT prices can be quite volatile. So trade or flip with care.

The Different Types of NFTs

Frankly, there are many types of non-fungible tokens on the market. Because it’s a pretty new thing, new NFT types keep cropping up every day but I will just stick to sharing the common ones. This is because you can definitely tokenize all kinds of assets into NFTs.

  1. NFT Artwork
  2. Collectibles such as the Cryptokitties
  3. Event Tickets
  4. Music and Audio
  5. Gaming items
  6. Big Sport Moments
  7. Virtual Fashion
  8. Assets in the Real World
  9. Memes
  10. Identity
  11. Domain Names
  12. Miscellaneous Items like when Jack Dorsey sold his first tweet.

Choosing the Best NFT Marketplace

There are all sorts of NFTs out there and many more are getting created every day. An NFT Marketplace is a market where people create and sell or buy and sell NFTs.

There are all types of NFT marketplaces and when choosing, it’s best not to just pick the most popular one that catches your eye. You need to consider some things before you choose such as:

  • What kind of non-fungible tokens you’re interested in creating, buying, or selling.
  • What type of tokens are supported in each marketplace? Are the tokens you’re interested in available on that marketplace?
  • Are you creating and selling tokens, are you buying for your private collection, or are you buying and selling?
  • If you’re creating, do you have the money to pay for Ethereum gas fees or not?
  • And if you don’t have the money, don’t fret. You just need to read this article further to find out how you can create NFTs free of charge or at incredibly lower gas fees (like $0.50). It’s possible. In fact, using the Polygon network on OpenSea, you can create NFTs almost free of charge.

1. OpenSea

OpenSea is the leading NFT marketplace as far as NFT sales are concerned. OpenSea has many types of digital assets such as art, collectibles, domain names, music, photography, Sports, Utility, Trading Cards, and Virtual Worlds.

It’s free to sign up and browse their offerings. OpenSea supports more than 150 different payment tokens making it easy for anyone to buy or sell an NFT. If you’re new to the NFT world and you want to explore it, I would suggest starting at OpenSea. If you want to mint or create an NFT, then OpenSea is also a good option. You can try creating while paying gas fees (Ethereum Network) or creating at low cost with Polygon (MATIC).

2. Rarible

Similar to OpenSea, Rarible is another large marketplace for non-fungible tokens. And NFTs can be bought, sold, or created on this platform. Just like OpenSea, it also has a free option.

Unlike OpenSea, however, if you want to use Rarible, you’ll need to use the Rarible token (CRYPTO:RARI), which is built on the Ethereum blockchain, to buy and sell on Rarible.

3. Nifty Gateway

Unlike OpenSea, Nifty Gateway is an art curation platform powered by crypto exchange Gemini. Nifty Gateway, whose NFTs are known as Nifties, has facilitated the sales of popular digital artists such as Beeple and Singer Grimes.

4. SuperRare

Similar to Rarible, SuperRare is another marketplace for NFT digital creators. On this site, you can buy and sell art, videos, or 3D images. Purchases are usually made using Ethereum even though SuperRare has announced the possible launching of its own token.

5. Foundation

Foundation.app provides a simple way for enthusiasts to bid on digital arts. The Foundation Community invites artists to the platform and then buyers can make purchases with their crypto wallet funded with Ethereum.

6. Mintable

Mintable aims to be another NFT marketplace like OpenSea and they support NFT minting for all sorts of creators as well. To buy non-fungible tokens on Mintable, you will need to buy Eth from a crypto exchange and then connect your wallet to Mintable to bid and buy.

Other Marketplaces

7. Theta Drop

8. Enjin Marketplace

9. Myth Market

10. NBA Top Shot Marketplace

11. Larva Labs/CryptoPunks

12. Axie Marketplace

13. KnownOrigin

14. Binance NFT Marketplace

15. Solana-based Solsea

16. AtomicHub which uses Wax Blockchain

17. Solana Art

You can find out more information about these marketplaces here:

How to create an NFT?

STEP 1: Select the Asset to be Tokenized

Based on the concept of NFTs, you can tokenize anything you own or create. Of course, it’s important to choose something that holds some value in itself such as NFT artworks or NFT gaming characters or cards.

You can tokenize anything actually: gold, diamonds, platinum, commemorative coins, gems, a yacht, luxury car, aircraft, house, music collections, graphic design, pet images, sports collectibles, antiques, etc. You can even tokenize intangible assets like trademarks, copyrights, patents, etc. That’s the exciting thing about NFTs.

If you really don’t have anything to tokenize, how about buying NFT art online? Get a freelancer to help you create exclusive NFT art and you can tokenize it. You don’t have to be an artist to create and sell NFT art.

STEP 2: Choose your NFT Marketplace

There are quite a variety of NFT marketplaces and blockchains that you can use to mint and sell your non-fungible token. For example, you can mint your NFT on Solana rather than Ethereum. You can also mint your NFTs on the Polygon network on OpenSea at little to no fees or on the Flow blockchain on Rarible for little to no fees.

STEP 2B: Creating an NFT Without a Marketplace?

If you have the technical skills and knowledge, you can choose to create your NFT without a marketplace. Here’s what you’ll need to do:

Even if you have the technical knowledge and skills, it’s still somewhat better for you to use a marketplace because there are very few collectors who are willing to buy NFTs on an unknown platform. Also, your NFT can be discovered on Nft marketplaces without as much marketing as it’ll need as on your self-created smart contract.

STEP 3: Choose and Set Up a Wallet

When you mint/buy an NFT where do you store them? On Cryto Wallets. Your wallet is where you also store your cryptocurrency which you use to buy NFTs.

If you want to get started creating NFTs, the one thing that should be important to you when choosing your wallet is its compatibility with the blockchain you’re using.

Find out how crypto wallets work here

The two crypto wallets I’ll recommend are MetaMask and the Coinbase Wallet especially if you’re going to be trading on Ethereum-based NFT marketplaces. For Solana-based marketplaces, you’ll need to get Sollet and Phantom wallets.

Both MetaMask and the Coinbase Wallet can also be used as either a Chrome or Firefox browser extension or with your iOS or Android phone.

Creating your MetaMask Wallet

Set Up and Use your Coinbase Wallet

Things to Remember When Setting Up your Crypto/NFT wallet:

  • Keep your Seed Phrase!

Don’t lose your seed phrase! Don’t make the mistake that many others have which costs them both their wallet and all their cryptocurrency funds stored in the same wallet.

Your seed phrase is 12 random words that both MetaMask, Coinbase, and in fact, all wallets will give you while creating your wallet. These 12 random words in the right order are what you’ll use to recover your wallet if you uninstall your wallet app, lose your phone, or need to set up your wallet on a new device.

You can either write and store your seed phrase in a special book that you won’t lose or store your phrases in the cloud.

If you lose your seed phrase, there’s really nothing that could be done to help you recover your wallet or its contents no matter how much you have on it or what NFT you have stored on it.

STEP 4: Connect Your Wallet

Once you’ve got your wallet set up, all you have to do is connect it to your NFT Marketplace. Most marketplaces make this easy. For example, you just need to click the Create button in the top left on Rarible and OpenSea and you’re connected.

Connecting Meta Mask Wallet to OpenSea to buy NFTs

It would be easier to complete this connection if you’re using the MetaMask or Coinbase wallet extensions. If you want to use the app, you can also connect by scanning the provided QR code.

Connect with the NFT marketplace by scanning the QR code

Remember: to be cautious how you connect your wallet to any marketplace because scammers are always inventing new ways to access your funds or NFTs.

STEP 5: Create your NFT

If you already have the asset that you want to tokenize, then this part should be easy.

But first, you need to understand what NFT collections are because most platforms support collections and you will most likely be asked if you’re going to create a collection or not. An NFT collection is a series of NFTs that are related. For example, there are over 10,000 Bored Ape Yacht Club NFTs, each with different traits and outfits. Some are super rare and some aren’t. Those 10,000 NFTs are a collection.

Bored ape Yacht Club Non-fungible tokens collection

Rather than explaining how you can create NFTs, why don’t I show you? Here are some videos that would help.

If the video guides are not enough, you can always explore Youtube and gather all the information you need for creating your own NFT.

How to buy and sell NFTs

Frankly, you can buy an NFT on any of the marketplaces and it’s pretty easy to do it. Much easier than creating NFTs anyways. All you need to do is identify the non-fungible token you want to buy, get the funds and gas fees to pay for it into your wallet, and then make a purchase. That probably sounds abstract right? So I’ve provided some videos that you can use to learn how to buy and sell NFTs.

Some things you should know before minting/creating NFTs on OpenSea and Rarible

  1. When listing your first Ethereum NFT on OpenSea, you will need to initialize your account. This is usually done by paying a one-time fee for creating NFTs on OpenSea before you get access to lazy minting on OpenSea (I’ll explain that in a minute). This one-time fee can be as high as $300-$400.
  2. Lazy Minting: You can create NFTs on the Ethereum network without gas fees on OpenSea and Rarible as a result of “lazy minting systems”. Lazy minting means you can create your NFT and put it up for sale without actually writing it to the blockchain. When someone finally buys your NFT, the fees will be added to the fees every buyer has to pay for the transfer of the non-fungible token to their name.
  3. Removing your Rarible NFT from sale will cost a fee: around $20-30.
  4. There is a 2.5 percent fee from Rarible and OpenSea for all NFT sales.
  5. Rather than using the Ethereum blockchain, you can create your NFT for free or at almost no cost on Rarible using the Flow BlockChain and on Opensea using the Polygon blockchain.
  6. The downside of using the low-cost Flow blockchain on Rarible is that you can only create a single edition NFT and you won’t be able to sell your Polygon-based NFT via auction. Also, buyers can’t use Ethereum to purchase your NFTs easily. Some collectors could definitely get thrown off by the extra steps and fees they’d have to take and pay to get your NFT.

NFTs Frequently Asked Questions (FAQs)

1. Can NFT be copied/copyrighted/stolen?

Yes, unfortunately. For now, there’s no rule that dictates that two or more NFTs can’t exist for the same file. That’s what makes 10 copies or more of the same NFT possible. This also means that there’s nothing stopping anyone from taking a file you’ve used for your NFT to create their own NFT where the blockchain entry comes from their account rather than yours.

2. Can NFTs make you rich?

Yes, but it can also put you into debt. If you pick the right NFT either by luck or with excellent research, you can get rich with NFTs. To avoid gut-wrenching losses, please only put the money you can afford to lose into creating/minting, buying, and selling NFTs. Like a guy in one of the many youtube videos I watched to write this article said, buying NFTs for flipping casually or creating them is just a gamble with the hope that it would become valuable because no one can see the future.

3. Can NFTs lose value?

Definitely. When you want to sell your NFT but you can’t find any buyers to buy it, your NFT has lost value.

You can read through this Quora thread to understand how NFTs can make you lose money in the long run. It should help you understand the risks involved with NFTs.

4. Are NFTs a good investment?

Sometimes. Sometimes not. Frankly, it depends on who is investing. Are you a seasoned expert with extensive knowledge on how NFTs and blockchain technology works or are you a gambler hoping to make your next big buck with NFTs?

Anyway, you can read this article and this article for more context on whether NFTs are a good investment or not.

5. How NFT price increase?

Similar to price changes due to the law of supply and demand, the cost of an NFT is determined by its rarity and desirability. The more demand there is for an NFT, the higher the price of the NFT. Of course, the price of an NFT can increase due to the ‘bigger fool’ theory where you buy something of no value in the hopes that you can sell it to an even bigger fool for a profit.

You can read more about this here

6. Which NFT crypto to buy?

I’m sorry, I can’t give much advice on this. Why don’t you do your own research? Learn all that you need to learn before venturing near NFTs so you don’t find yourself at a loss or end up losing all your money.

6. NFT with Solana

NFTs made with Solana are slowly becoming popular especially because of the low cost for creating them as compared to Ethereum.

You can find more info on this video:

Thanks for reading this article. If you’re interested, you can check out my article on Creating a Reliable Financial Plan.

Moshope

Moshope Ajiboye is a freelance writer, blogger, and small business owner. She is passionate about writing, financial freedom, learning, and becoming a better person. You can find her on Twitter and Instagram with the same handle: @ajiboyemoshope. She also has a Youtube channel called Pursue Better Me.

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