NFTs, Explained: A Complete Primer

Oluwatobi Oluyede
Oluwatobi Oluyede
NFTs, Explained: A Complete Primer

Non-fungible tokens gained massive popularity in 2021 after the crypto market reached new highs. At the time, the crypto collectibles market was a relatively new sector of the rising Web3 industry. Yet, a lot of smart money flowed into non-fungible tokens.

NFTs, as they’re popularly called, have now grown into a global cultural phenomenon with a tight-knit community of collectors and creators alike. To date, the NFT market has seen hundreds and thousands of projects launched, and billions of dollars in trading volume.

According to research reports by Technavio, the global NFT market size is expected to grow by USD 147.24 billion from 2021 to 2026 at a CAGR of 35.27%. The report cites the growing demand for digital artwork as the key driver for the NFT market growth.

Indeed, it wouldn’t be an overstatement to say that NFTs have contributed significantly to increased exposure for cryptocurrencies and their resulting adoption. There’s a good chance you’ve heard about NFTs even if you're not into cryptocurrencies. There is a lot of talk of NFTs, both positive and negative, on all forms of social networking sites like Twitter, TikTok, etc.

To the average person, an NFT might mean a picture of cute and cuddly cats, seafaring apes, or pixelated punks looking like something out of a 90s 8-bit game. However, NFTs hold a much more complex story (and potential) than simply being digital images.

What Exactly Is an NFT?

An NFT is a digital asset representing a tangible item that exists in the real world or digitally. NFTs are unique cryptographic tokens representing tokenized assets that become tradable. These tokenized assets use NFTs as verifiable proof of scarcity, authenticity, and ownership on the blockchain.

You can trade fungible tokens like Ethereum and Bitcoin for the same value. NFTs are unique, and only one version of the same asset exists.

Non-fungible tokens can be images, videos, music, and other digital media. Most blockchains typically follow a token standard defining how they can be created, transferred, and stored.

In the present age of big-money moves in the crypto market, non-fungible tokens are fast becoming an essential weapon in the savvy investor’s arsenal. Currently, the news indicates that NFT sector is still going through a growth spurt despite the bear market--we've seen some mind-blowing sales recently.

I might even go as far as to say that, in the coming years, the NFT market will be mature enough to rival the traditional collectibles market. Undoubtedly, the rise of non-fungible tokens has helped the crypto space move towards its goal of widespread adoption of cryptocurrencies.

Now that we’ve covered what an NFT is, let’s briefly go over how you can use them.

“How Can I Use NFTs?”

All your favorite cryptocurrencies are stored on the blockchain, and so are your NFTs, safely tucked away in your wallet. Besides their security, NFTs are a compelling use case for cryptographically created digital items with several use cases.

For instance, NFTs are primarily perfect for representing tokenized assets. Therefore, you can tokenize various real-world items as NFTs, from digital media and artwork to real estate and in-game assets.

Imagine being a collector of artwork and having to move around with bulky certificates of authenticity. That sounds like a real headache, right? Now, imagine buying one of your favorite works of art, and the COA is a non-fungible token.

Or imagine buying a piece of real estate, and the deed/title is an NFT, immediately verifiable and secure. The possibilities for NFTs are endless. Bottom line: any tangible asset with value can be tokenized as a non-fungible token and safely traded on the blockchain.

Furthermore, NFTs can be used in the supply chain industry to verify changes in ownership information (aka provenance). Quite simply, provenance is “a record of ownership of a work of art or an antique, used as a guide to authenticity or quality.” For example, we can use NFTs to track a product containing information about its origin, history, and current location.

Imagine a bottle of sparkling 1995 Dom Perignon from a vineyard in Spain. Now, imagine the bottle carrying an NFT on its packaging that holds metadata on the date and current location. As the bottle moves through each stage of the supply chain, the NFT metadata is updated.

Once the bottle arrives at a wine store, the storekeeper can scan the NFTs and confirm its delivery. The item’s history and proof of authenticity are then stored on the blockchain and publicly available for anyone to view.

Finally, non-fungible tokens can represent digital identities, intellectual property (IP) rights, domain names, memes, and more. In the case of digital identity, employee data could be tokenized as a mutable NFT and written into a physical card. The NFT holder could then be granted access to the restricted levels of the office building based on their privileges.

Moreover, intellectual property is becoming a popular ‘meta’ in the NFT space. Creative works like software, films, music, works of art, brand assets, inventions, patents, domain names, etc., all fall under the IP category.

Big companies like Warner Bros, Nike, Adidas, and even Google could potentially unlock billions of dollars by tokenizing their IP on the blockchain. That shows the immense value the NFT sector could contribute to the larger crypto space.

We’ve seen examples of how you can use NFTs, so let’s see how they work.

How Do NFTs Work?

Non-fungible tokens are tokens, and just that — not cryptocurrencies (more on this later). NFTs are a different class of digital asset mainly because of their uniqueness. Cryptocurrencies have rightly dominated the crypto space for over a decade, but NFTs are the next biggest thing.

Here’s how NFTs work, summed up in three key features:

Rarity

Cryptocurrencies usually have a limited supply, like Bitcoin, with a total supply of 21 million BTC. However, a cryptocurrency can have an unlimited supply if the developer wishes. Still, that doesn’t change the fact that all cryptocurrencies are interchangeably similar.

Unlike cryptocurrencies, non-fungible tokens have a capped supply. Popular NFT collections Bored Ape Yacht Club and DeGods have a 10,000 supply. Indeed, part of what makes these NFTs and many others so desirable is their uniqueness and scarcity, but it doesn’t end there.

This uniqueness allows NFT creators to integrate rarity into their NFT metadata. Imagine a rare Babe Ruth baseball card. Have you ever wondered why it’s rare?

Besides his ‘larger-than-lifeness,’ it’s because Ruth has some traits that most players don’t. You’ll agree that the Babe Ruth card is valuable because of the player’s on-field achievements, a direct result of his exceptional throwing and swinging ability.

Now, thanks to blockchain, we can equally define traits for non-fungible tokens. We can then specify which NFTs will be rare by combining these traits in their metadata. Say you launched a 1,000-supply PFP (profile picture) collection and set hair colour as one of the traits.

You could include only one NFT in that collection with red hair, while the remaining 999 NFTs have black hair. In other words, people who mint the NFT with red hair are holding a rare item. This rarity reflects on the value of the NFT, which drives its price up.

Indivisibility

Quick question, what came to your mind the first time you heard the word “fungible”? “Edible shrooms”? God, I hope not.

Going by my iPhone dictionary, a fungible product or commodity is mutually interchangeable or replaceable by another identical item. A dollar bill is fungible. Bitcoin and Ethereum are fungible. Stock options are fungible.

NFTs are non-fungible — “no kidding, Sherlock.”

You’re probably wondering, “What does an NFT have that these fungible assets don’t?” Short answer: indivisibility (besides uniqueness, at least).

Say I give you a $100 bill to help me ‘change’ it. You can split it into ten dollar, five dollar, or one dollar bills. I don’t really care as long as you give me the value of my $100 back. The point is fungible items are typically divisible into smaller units.

The dollar has cents, Bitcoin has sats, Ethereum has wei, and NFTs have what? It’s a trick question, fren. NFTs are not denominated.

You can only buy, sell, and hold NFTs as a whole — at least for now. That said, I imagine it won’t be long before we can buy bits of NFTs, kind of like Apple stocks. After all, we’ve already seen liquidity pools for NFTs pop up. Interesting to see how this bridge between fungibility and non-fungibility would work.

Uniqueness

Uniqueness is a result of non-fungibility. Non-fungible assets like plane tickets and domain names are unique. There can only be one registrant of www.google.com, and your ticket bears your name, among other details.

Non-fungible tokens are characterized by their uniqueness, containing metadata specifying traits and attributes for each one.

However, unlike traditional non-fungible assets, non-fungible tokens never expire. For instance, you could lose your domain name if you don’t renew it, and said ticket becomes useless once the flight has taken off.

NFTs are a special type of cryptographic token. They leverage blockchain to provide an immutable record of ownership of the reference asset (a picture, in most cases). This record describes who owns the NFT and what it represents.

Your NFT sits pretty in your wallet once you mint or purchase it. Unless you trade it or your wallet gets drained, that is. Only you can own that particular NFT(s) since the token is stored in your wallet. Think of the NFT like the COA you get when you buy a rare artwork.

Are Cryptocurrencies and NFTs Different?

Bitcoin, Ethereum, and every other cryptocurrency you know have a major use case. They’re fungible assets used as a store of value, medium of exchange, unit of accounts, etc. If you get confused, remember this rule: all cryptocurrencies are tokens, but not all tokens are cryptocurrencies.

Much like tokens and cryptocurrencies, NFTs and cryptocurrencies share the same asset class: digital assets. However, NFTs are different from cryptocurrencies. NFTs represent assets, while cryptocurrencies are used to perform transactions.

It’s also noteworthy that you can’t exchange one NFT for another without referencing the underlying price in fiat currency. An NFT is worthless if its monetary value is removed; then, it’s nothing more than a picture.

To put it differently, NFTs hold value because they’re assets influenced by the same economic principles as currencies (demand and supply, for instance). We measure the value of NFTs in cryptocurrencies, which have their value pegged to fiat currencies.

In summary, both cryptocurrencies and NFTs are a measure and store of value, but NFTs are not a medium of exchange. And if you really think about it, it wouldn’t be a smart move to trade your NFT for another one without first evaluating how much it’s worth in crypto/currency.

In the first part of this article, I laid the groundwork so you can understand NFTs and how they function. Now, let’s see the popular NFT marketplaces and how to trade there. We’re #ICPSquad, so we’ll focus on the Internet Computer network.

The Internet Computer NFT market is booming, with several exciting projects launched. There have been flashes of brilliance indicating that IC marketplaces can play in the big leagues of the biggest marketplaces across all chains.

Here is an overview of the top three NFT marketplaces in the IC ecosystem.

Entrepot

The pioneer marketplace on the Internet Computer blockchain, Entrepot is a fully decentralized NFT marketplace developed by ToniqLabs. More specifically, Entrepot allows users to connect their wallets and trade crypto collectibles, in-game items, and digital assets in a decentralized, non-custodial manner.

If you’re wondering how the name came about, it’s no coincidence. By definition, an entrepôt is a port, city, or trading post where goods and merchandise may be imported, stored, or traded.

And true to its name, Entrepot plays this role quite well. The marketplace provides users with a simple way to trade NFTs on Internet Computer. Entrepot’s interface is similar to the top NFT marketplace, OpenSea.

Yumi

If you’re looking for a backstory behind this one, you’ll find none. At least, as far as anyone knows.

“Yumi is a high-speed, low-cost, and fully decentralized NFT marketplace built on Internet Computer,” the official website reads. By leveraging the infinite performance of Internet Computer, Yumi enables ultra-fast transactions, allowing users to mint and trade NFTs at zero gas fees.

All NFTs (including the metadata) available on Yumi are fully hosted on-chain. In addition to NFTs, users will earn Yumi Credit points for trading NFTs, exchangeable for Shiku metaverse tokens (coming soon).

Yumi provides a one-stop-shop experience for NFT enthusiasts. The platform supports NFT minting, bidding, and trading. Although it launched much later, Yumi has risen to become one of the best places to trade NFTs on IC.

CCC

Crowd-Created-Canvas (CCC) is the next NFT marketplace to take the Internet Computer by storm. CCC allows the community to contribute to creating art or stake NFT projects to that art and earn revenue. The marketplace has risen to second place on IC, and it’s now a worthy challenger to Entrepot.

CCC is gradually gaining market share for several reasons, mostly due to its rich features. One, CCC has a transparent rarity for checking the rarity score on NFTs and the score breakdown. The marketplace also features exclusive drops from top NFT collections.

Even more, CCC allows you to stake your NFTs towards completing a canvas. You’ll earn ICP once the canvas is completed and receive your NFT back. The marketplace offers detailed analytics on each NFT’s activity, which is the cherry on top.

How to Buy NFTs on Internet Computer

Okay, you’ve learned all there is to know about NFTs and a little about Internet Computer. Now, it’s time to buy them. While the steps may slightly differ for each platform, the overall process is pretty much the same.

Here’s how to buy NFTs on Internet Computer marketplaces in three easy steps.

Step 1: Buy Some ICP — or Lots Of It 🤷

Internet Computer NFTs are denominated in ICP, so it makes sense that you would want to grab some of it before you hop on a marketplace. There are many centralized exchanges where ICP trading takes place. Binance, Kucoin, and Coinbase are just a few examples of popular CEXs where you can buy ICP.

Shameless plug: you can refer to our complete guide to investing in Internet Computer cryptocurrency for more information on buying ICP.

So you’ve bought your ICP, it’s time to transfer the tokens to a crypto wallet that supports storing ICP. When it comes to choosing an ICP wallet, you have several options. Stoic, Torus, Plug, and Infinity Wallet are all great options.

Once your ICP lands in your wallet, it’s time to move to step two.

Step 2: Do Some Research and Connect Wallet to Marketplace

Now that you’ve got some ICP, head over to your desired marketplace and connect your wallet. You can generally do this through the “Connect Wallet” button on the marketplace. Doing this will trigger a prompt in your chosen wallet to log in.

*In DJ Khaled’s voice* Another one: here’s our guide to the best ICP wallets for safely storing your tokens.

Most IC marketplaces allow you to securely log in with your Internet Identity (NNS) wallet. As an alternative, you can use one of the popular supported wallets.

You can trade with Plug, Stoic, or even InfinitySwap wallet. These three are supported by every popular NFT marketplace on Internet Computer. Once your wallet is connected, you can now buy, sell, and view the NFTs you currently hold.

Of course, it’s up to you to research which NFTs to buy. That said, I can give you a few pointers on what to look for.

An important metric of a project’s long-term vision is the roadmap. Does the project have a clear roadmap — or even one at all? Another point to watch out for is engagement since the level of engagement shows the hype. What is the Discord community like? Do holders engage well with Twitter raids? Pro tip: you can learn a lot about a project by how well the website is built.

Finally, look out for projects with battle-tested teams of real builders. What do I mean by this? The project founders should ideally have a track record of delivering on their roadmap. If the project you’re looking at is their first rodeo, then they should have at least delivered some utility beyond the art — unless the project is relatively new.

You should be able to pick out a solid project if you look at these points. Happy hunting!

Step 3: Like, Actually Buy the NFT (What Are You Waiting For?) 🙂

Once you pick out a project, it’s time to take the leap into actually buying the NFT on the marketplace. On the item’s page, there should be a pretty obvious “Buy Now” button (or something similar).

By clicking this button, you will trigger a prompt from the marketplace asking you to confirm your purchase. Your wallet will also ask you to complete the transaction by clicking the “Confirm” button.

Keep in mind that it costs 0.0001 ICP to process transactions on Internet Computer, so you might want to add that on top of your purchase amount. That said, you won’t be paying any gas fees because of IC’s reverse gas model.

Now, simply wait for the transaction to go through (instantly), and voila!🎉 You just bought yourself an NFT on Internet Computer! Now you can flex your brand new PFP on Twitter or brag about it to your frens on Discord💪.

Before we wrap up, let’s address a burning question you might have: “Should I buy NFTs?🤔” While the answer seems straightforward, it’s not so simple. NFTs are cool and all, but the truth is whether you buy NFTs or not is ultimately your decision to make.

Still, I’ll go ahead and shill you reasons why you should buy NFTs.

Should You Buy NFTs?

I just want to make it clear right off the bat that none of this is financial advice; you’re responsible for every decision you make. However, I can tell you one thing: NFTs are the future of collecting — well, so it seems right now.

Today, many digital artists are making lots of money by selling their works directly to the public. Artists like Beeple and PAK have racked up millions of dollars from sales of digital art. NFT profile pictures (PFPs) are now a staple in almost every conversation and Twitter header.

Imagine a future where art of all kinds, forms, and sizes is tokenized on the blockchain. NFTs could potentially be used as certificates of authenticity. This alone could solve a lot of issues like counterfeiting, distribution, and ownership.

NFTs are rewriting the future of digital art and collectibles, and we’ve only just scratched the surface. As the world around us evolves into a virtual one, NFT portraits and PFPs will become more prominently used as avatars in the metaverse.

We'll also see more utility for non-fungible tokens as more Web2 brands onboard their customers into the space and partner with OG NFT projects to tokenize their IP.

It’s still early days, but one thing is obvious, NFTs are here to stay.


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