A primer on NFTs

A primer on NFTs

The global NFT market size touched $40 Billion (source: BusinessInsider) in 2021 and is projected to grow by $147.21 Billion (source: Technavio Market Research report) between 2021 and 2026.

What is an NFT?

NFT is short for non-fungible token. Non fungible means that each token is unique unlike tokens like Bitcoin or Ethereum where each token is identical. For example, digital images, education credentials, medical records or property deeds are all examples of non fungible tokens that can be minted on a blockchain.

Similar to tokens like Bitcoin and Ethereum, NFTs are minted on the blockchain. Minting is the process of creating a record in the blockchain's digital ledger. The first entry is made when the NFT is created and it is referred to as minting the NFT. A new entry is then created whenever the NFT is transferred to a new owner.

NFT and the Blockchain

Today's internet is technically free for everyone and companies make money through advertisements, subscriptions and so on. #web3 is a collection of blockchains and each chain has its native token. The idea is to give creators a chance to own their content and to be able to monetize it.

An NFT is a special kind of token that was initially being minted on the Ethereum blockchain. Other chains have subsequently added support for NFTs and several use cases are being built in the NFT ecosystem of individual chains.

The following are popular blockchains to mint NFTs:

  1. Ethereum - The Ethereum blockchain introduced the ERC-721 standard to support NFTs. The standard supports the use of smart contracts and many popular NFT projects with different use cases have been launched on the Ethereum blockchain. Ethereum charges a gas fee, that can be paid with its native token Ether, each time an NFT is minted on its chain.

  2. Solana - Solana's NFT standard offers smart contract support, low fees and support for both on-chain and offline storage.

  3. Tezos - The Tezos blockchain offers a low cost, high speed NFT creation platform.

  4. Cardano - The Cardano blockchain offers NFT creation support by linking the NFT's unique metadata to the chain's native token.

Types of NFTs

NFTs started out as unique tokens on a blockchain and the space is evolving with new use cases with different types of NFTs. The following are some types of NFTs that are gaining popularity.

  1. Digital Media and artwork Art has long been seen as an investment class and NFT provides a way to mint art and other media on the chain. It gives the owner a certificate of authenticity and offers higher liquidity through access to trading the NFTs in marketplaces.

  2. Collectibles Any kind of collectible like sports memoribilia, cards are great for minting on chain as NFTs.

  3. Virtual Land Land in the metaverse, referred to as virtual land is minted as an NFT and is traded in marketplaces.

  4. In-game assets Any kind of gaming asset like costumes, shoes, weapons are minted as NFTs and can be used in the game or traded with other players.

  5. Real world assets Real assets like real estate, certificates can be minted as NFTs. Real estate can also be tokenized or converted to fractional shares and each share or token can be minted as an NFT.

  6. Domain names Domain names can be minted as NFTs and .eth domain names are gaining popularity. Minting domain names as NFTs will create several opportunities for new use cases.

  7. Ticketing Any kind of ticket or subscription can be minted as an NFT.

NFT Marketplaces

An NFT is a token similar to any other token on a blockchain and the NFT token can be traded in marketplaces. The marketplace can support NFTs on either a single chain or multiple chains.

Steps to get started in an NFT marketplace:

  1. Set up a wallet and fund it with tokens. The wallet will need to be specific to the NFT chain, example, you'll need an Ethereum wallet funded with Ether to mint or buy NFTs on the Ethereum chain.

  2. Connect the wallet to an NFT marketplace.

  3. Mint NFTs using your digital files or buy NFTs from the marketplace.

Each time an NFT is traded, the marketplace makes an entry in the blockchain's ledger with the price of the transaction and the wallet address of the new owner.

The following are some of the popular NFT marketplaces.

Multi-chain marketplaces

  • Opensea
  • Rarible
  • Super Rare
  • Nifty Gateway

Solana Marketplaces

  • Magic Eden
  • Solanart

NFT Air Drops

Air drop refers to getting free tokens into your crypto wallet. New projects usually distribute their initial tokens through free air drops. It is used as a promotion mechanism by both new and existing projects.

NFT air drop refers to getting free NFTs or related tokens into your wallet. Project teams usually come up with some criteria for receiving the free air drop. For example, holders of a certain NFT may receive additional NFTs or other tokens.

Genuine airdrops are a legitimate way to receive free NFTs and other tokens. However, fake air drops are often used to scam and cheat wallet holders. You'll need to use extreme caution and verify an air drop before participation.

The following opensea airdrop tracks upcoming airdrops.

NFTs are gaining rapid adoption in gaming and other web3 projects and several different use cases are being developed. The following are early NFT projects that gained huge popularity and adoption.

  1. Crypto Punks is an NFT project that was launched in 2017 on the Ethereum blockchain. It consists of 10,000 unique computer generated images and the collection was initially released for free to users on the Ethereum blockchain. The project gained major traction due to adoption by crpto influencers and individual NFTs were bought for several thousands of dollars. In 2022, one individual crypto punk was auctioned by Southeby's. The collection was launched by Larva labs and was later acquired by Yuga labs.

  2. Crypto Kitties is one of the first NFT games created on the blockchain. It was created in 2017 on the Ethereum chain using the ERC-721 NFT standard. The kitties are created as NFTs and players can buy, own, breed and sell them as part of game play. As of 2022, there are about 2M cryptokitties that have been minted and each of them is traded for about $100+.

  3. Bored Ape Yacht club is a collection of 10,000 ape NFTs on the Ethereum blockchain. The NFT is a membership token and all the holders get access and benefits to the yacht club. As of April 2022, the floor price of 1 BAYC NFT reached 154 ETH or about $430K and its total market cap touched $1B.

NFT and corporates

Corporates like Adidas, Coco Cola, McDonalds and Nike have launched NFTs as of 2022.

The creator economy

The creator economy is an umbrella term that includes the combined economy around influencers, youtubers, bloggers and other creators who monetize their content online. It is estimated size according to the influencer marketing hub is about $104 B.

NFTs used in web3 projects are expected to further create huge opportunities for creators. For example, creators will develop armor, costumes and other gaming assets for web3 games. These items will be minted as NFTs and traded in the metaverse. If all of us go to work and meet in the metaverse and need attire and other accessories that will create huge opportunities for creators.

NFTs offer creators the ability to protect their creations from duplication. For example if a creator is in the business of creating hats, they can create several hats with slight variations and each of them will be minted as an NFT and so cannot be duplicated or re-used.

Web3 and NFTs

Several #web3 projects have integrated NFTs into gaming, utility and other use cases. The following are two popular #web3 projects with NFTs:

  1. Decentraland is a 3D virtual world referred to as the Metaverse. The land and wearables in the metaverse are minted as NFTs on the blockchain. As of April 2022, several brands have bought land and participated in a Fashion week event in the Metaverse. $MANA is the token that can be used to buy virtual land and a variety of wearables in the metaverse. $DG is the governance token of the metaverse.

  2. Stepn is a lifestyle app on the blockchain that uses NFTs. It is referred to as a move to earn app since players with NFT Stepn sneakers are rewarded with Stepn GMT tokens for moving around. Players are encouraged to move outdoors and the movement is tracked using GPS. The $GMT token has voting rights and can also be used to buy digital items.