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What Is An NFT And How Do They Work [Complete Guide On NFTs]

What Is An NFT And How Do They Work [Complete Guide On NFTs]
What Is An NFT And How Do They Work [Complete Guide On NFTs]

If you've been on the internet at some point over the last year, you may have heard of this new thing that's taken the internet by storm.

While a minority of people know what they are and how exactly they work, the majority of the world seems to be allergic to this new 'trend,' as they call it.

You may have realised that I am yet to write a single article on my blog about NFTs and what they are exactly.

Although I've released a youTube video describing them briefly, there was a lot of information withheld for the simple fact that NFTs were brand new to me.

In general, I dislike jumping on trends and would rather make evergreen content, or work on evergreen ideas with long-term sustainability.

However, after taking a closer look at the world of NFTs and learning more about their concept, it's starting to seem like NFTs are not just a 'fad' and actually something worth looking into.

Every day, news drops surrounding this mysterious new concept that shocks the world and pulls in a handful of new fans into its ecosystem.

With that said, we're going to be discussing NFTs today and talking about how exactly they work.

By the end of this article, you're going to fully understand NFTs, their use cases, how they work, and what you could start doing to get involved.

What is an NFT?

What Is An NFT And How Do They Work [Complete Guide On NFTs]

Before we begin, we must first understand what an NFT is.

An NFT is short for 'non-fungible token,' essentially meaning something that cannot be replaced for something else.

Let's say that you give your friend $10 to go and get something from the shop.

Your friend, being the great person that they are, will end up giving you $10 back at some point in the future because a $10 note is fungible (replaceable with another $10 note).

Even what seems to be an NFT's closest counterpart - cryptocurrencies and Bitcoin, are fungible since any single Bitcoin can be replaced by another.

However, what seems to trip people up with the idea of 'fungible' or replaceable assets, is the part at the front of the word - 'non.'

See non-fungible assets are not a completely new concept to us.

Famous paintings are all examples of non-fungible assets because you simply cannot trade the fake Mona Lisa for the real one.

Even the website you're currently on, or my domain, mohamadalasadi.com, is non-fungible because no one else can own it unless they buy it from me.

And that's exactly what an NFT is - it's a digital asset that cannot be replaced with another.

  • Art
  • Music
  • Images
  • Game assets, and more

Every NFT can be verified through the blockchain in order to pinpoint the original token and its creator or holder.

That's why you can't just change your computer background into an NFT and say you own it.

This is all basic information anyone can access through the blockchain!

The first time the entire world caught wind of NFTs was when a spontaneous sale was made for a JPEG that cost almost $70 million.

An artist, by the name of Beeple, was able to sell a digital piece of art for over $69 million that compiled 5000 pieces of art dating back to the first day he started creating art.

Why are NFTs so expensive?

What Is An NFT And How Do They Work [Complete Guide On NFTs]

By now, I've shared one example of a very expensive NFT, but are there more?

Although the digital art that Beeple sold for $69 million is by far the most expensive NFT, every day, news of crazy sales is made public around the world.

You may have come across some funny-looking pieces of art called 'Cryptopunks.'

These are pixelated images that resemble slightly different characters with different traits and assets.

After checking Opensea, I was able to find out that there has been a total traded volume of 750K Ethereum.

That means that the Cryptopunks collection alone has traded over $2.3 billion, with a single NFT selling for over $10 million.

So why is this specific collection so much more expensive than the others?

There are many reasons why that might be, however, the main reason is that the Cryptopunks collection is the first NFT collection to exist on the blockchain.

That means when NFTs started to get popular, celebrities all started buying Cryptopunks, pushing the price and exclusivity of the collection to the moon.

There are other amazing collections such as:

  • Cryptokitties - a collection of collectible kittens that can be breaded to make new, rare NFT kittens
  • Bored Ape Yacht Club - a collection of apes that were later merged with a 'serum' to create the Mutant Apes
  • VeeFriends - Gary Vee's NFT collection which can get holders exclusive rewards like dinners with Gary, NBA games alongside Gary, and more

Now you might be starting to see that there's a lot more to NFTs than what meets the eye:

  • Decentralized trading
  • Collectibles
  • Communities

However, here's the real magic behind NFTs.

Creator commissions through smart contracts

Imagine Vincent Van Gogh sold The Starry Night for over $100 million.

That's already enough to go into hiding and never come out ever again, while still having enough money for generations to come.

However, after the sale of this painting, the buyer goes on and sells the painting for a much higher price, this time maybe for $200 million, or more.

The painting carries on being sold over and over, however, the original creator - Van Gogh, gets no upside for being the original creator of the painting.

Prior to NFTs, this was how the world worked.

Thanks to the power of NFTs, creators are now able to get royalties every time their artwork sells, creating a passive stream of income.

The very first time you sell a piece of art, as the creator, you're getting 100% of the sale price.

However, once the NFT is no longer within your possession, you are still able to benefit from the ongoing sales of your NFT.

Through embedded smart contracts, creators can receive 5-10% or more of the sale price of their NFTs every time they're sold after the initial purchase.

The Cryptopunks were all free when they were first released.

Therefore, let's assume that the $2.3 billion in trading volume is all after the initial sales.

This means that the creators of the Cryptopunks have made a total of $115 million within a few years or less simply by being the creators.

The tight-knit community

The community is another massive driver of NFTs and their value.

A few months back, a rapper, Tory Lanez, released 1 million copies of his album in NFT form allowing his followers to purchase them for $1 each.

There was no limit on how many can be bought, and so once the value of those NFTs inflated after the initial 1 million were sold, these fans were able to then resell their Tory Lanez album NFTs for $30K to $70K each!

This not only made Tory Lanez a bunch of money, but also the fans who decided to buy his NFTs.

See, once they bought the NFTs, they then owned a part of his intellectual property, bringing them ever closer to their idol and each other.

Similarly, with Gary Vee's collection, each piece of artwork has a different smart contract hard-coded into the token that has different benefits and incentives for buyers.

At first glance, they might look like stupidly simple pieces of art that a baby drew.

However, when we really dig deeper, each NFT has its own smart contract that gives the buyer an experience.

For example, some NFTs would give the buyer the opportunity to go to an NBA game with Gary Vee, while another might give them a chance to have a call with Gary, or a dinner, etc.

This builds a very tight community of fans who love the creators and are there to support their content because both parties will benefit from the project's success.

How do you make an NFT?

What Is An NFT And How Do They Work [Complete Guide On NFTs]

So how can you make an NFT yourself?

Before you get carried away, there are different types of NFTs, meaning, you don't need to be Leonardo Da Vinci in order to get involved in the NFT world.

Whether you're an artist, a musician, a singer, rapper, photographer, game designer, gamer even, you're able to make an NFT.

Let's say that you're a really good gamer and you clip an insane moment while gaming.

You can touch this up using video editing software and sell it as an NFT.

(Let's hope you don't get sued by the game makers)

If you're a musician or you make some sort of music, you can turn sound or music into an NFT - I'm not going to explain how this works because I'm not a musician myself.

If you're a photographer, then you can turn your images and photos into a collage, into a reel, or even upload them as they are and sell them as NFTs.

Once you 'mint' your assets, you're essentially putting them up on the blockchain, and so it's impossible for anyone to steal your idea or artwork because there's proof that you're the original creator of the piece of work.

The most popular type of NFTs is artwork.

When you're on the markets, or scrolling through Instagram, the most common sort of NFTs are pieces of artwork.

There are a few ways you can make your art.

For example, in an interview with Beeple, he said that he creates one piece of art every day and uses a platform called Cinema 4D to create it.

Although it's difficult to learn, you can gain very valuable skills when learning how to create art on these platforms.

If you're looking to create 2D artwork, you can use software like Photoshop, after effects, etc.

Then there are voxel designs - The Sandbox, a metaverse game, is an example of voxel.

Some creators use Sketchpads or iPads to draw their NFT art.

Cryptopunks is also an example of voxel art.

These are pixelated pieces of artwork and have proven to be more valuable than normal art.

Simply go on YouTube to find videos on how you can create NFT art.

There are a bunch of different ways you can get involved.

Find a way that works for you, and stick to it.

Did you know it took Beeple over 13 years of creating art every day before he hit the $69 million jackpot?

To stand a chance at succeeding with NFTs, you need to learn about marketing.

NFTs are 30% artwork, 70% marketing.

Learn to build a community around your project, build a fanbase, build a personal brand, and your chances of succeeding are 1000x higher.

Where can you buy/sell NFTs?

What Is An NFT And How Do They Work [Complete Guide On NFTs]

You came on this article as a complete NFT beginner.

You mostly likely knew nothing about NFTs, what they are, and how they worked.

Now, you're able to tell others exactly what an NFT is, how they work, what's so special about them, but where exactly do you buy and sell NFTs?

This is something that's important to understand before beginning your NFT journey.

In one of my other articles, I said that learning about NFTs and the blockchain is likely going to pay MASSIVELY in 2022 and forward.

This is no longer just a 'trend that will die down eventually.'

NFTs and the metaverse are the future of the internet.

Businesses like Facebook have fully committed to this shift by changing their name from Facebook to Meta.

Adidas and other companies are buying land in the Metaverse games like The Sandbox which will likely be used to increase their brand awareness through the power of NFTs and the metaverse.

The NBA is already involved in the world of NFTs - a 'moment' of LeBron James dunking sold for over $200K.

Even a Yacht in The Sandbox game sold for $650K.

This is no longer just a joke, a little hoax that will go away at some point - it's important to embrace this change that's upon us, and take full advantage of it.

Will NFTs and the metaverse make people rich?

Yes.

Will it make new millionaires?

Yes

Will it make new billionaires?

Most likely.

The companies that pioneer the shift to this digital age will be the ones who become billion or trillion-dollar companies.

With all that said, how do you buy and sell NFTs online?

To buy and sell an NFT is very simple, but can be complicated to understand.

Firstly, you will need to have something called a 'crypto wallet' set up.

The most popular wallet you may have heard of is the Metamask wallet, the one with a fox as the logo.

You can connect it to your crypto exchange account - a lot of people's go-to here is Binance.

Simply download Metamask on your computer, and connect it to your Binance account (or whatever account you use to trade cryptocurrency).

Now, you'll want to head over to a marketplace that sells NFTs.

New markets are coming out every day and so it's important to understand the reason behind this.

Different cryptocurrencies all have their own ecosystem.

When Bitcoin was built, it had an inherent issue that stops it from being able to be used for NFTs.

This is why Etheruem is rapidly growing in popularity - Etheruem allows for NFTs to be minted, bought, and sold on its blockchain.

Once again, there's a problem with Ethereum that makes it so that the gas fee for minting, buying, or selling NFTs is very expensive.

To buy an NFT that costs $100, for example, you'll be paying another $100 or more in fees.

This is where other currencies like Solana or Polygon come in to solve these problems.

Now that we understand this, I can introduce you to the different marketplaces around.

The most popular are:

However, there are new marketplaces such as Solsea which are primarily focused on the 'gas-free' ecosystem of Solana.

These marketplaces (including Mintable) allow their users to buy, sell, or even mint NFTs without paying gas fees.

Although there are new currencies looking to solve this issue, Ethereum is working on building Ethereum 2.0 which will likely resolve these gas fees.

Now once you're on a platform, you simply connect your Metamask account to the marketplace and you're able to easily buy, sell, or mint NFTs seamlessly.

You will need to deposit crypto (such as Ethereum or Solana) into your wallet in order to participate.

That's it!

This was a step-by-step, complete guide on NFTs.

You've now learned what an NFT is and how they work.

Did you find this article helpful? 

If so, please leave your thoughts in the comments below - let's get some conversations going.

Share this article on social media and with others, let's help more entrepreneurs realize their dreams!

Get involved in our NFT collection's Discord server now.

Join my Quora group where we're building the largest community of online entrepreneurs in the world.

Don't forget to subscribe for free and get the 1-page business plan template!

(Find me on social media if you don't receive it)

Till next time,

Mohamad

Comments

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