Everything you need to know before investing in Non-Fungible Tokens (NFTs)
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Despite the enthusiasm of groups of tech and art lovers, NFTs continue to perplex many individuals. This uncertainty is understandable, as it is difficult to be excited about something when you don’t know what it is
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What are NFTs?
Non Fungible Tokens are digital tokens/assets such as digital artwork, sports cards, and rarities. The term “non-fungible” refers to the fact that each token is distinct and cannot be swapped for something identical.
However, what distinguishes NFTs from other digital assets is that they are supported by blockchain technology, which is the underlying technology on which cryptocurrencies operate.
Blockchain is a distributed ledger that records all transactions. It’s similar to your bank statement, except that all your transactions are visible to everyone and cannot be edited or updated after they’ve been recorded.
NFTs also contain ownership details for identification and transfer between holders. Owners can also add metadata or attributes of the asset in NFTs. For example, artists can sign their digital artwork with their signature in the metadata.
What all can be converted to NFTs?
Everything from your drawings, photos, videos, GIFs, music, in-game items, selfies, and even a tweet can be turned into an NFT, which can then be traded online using cryptocurrency.
How do NFTs derive value?
Essentially, NFTs are intended to establish digital scarcity to increase its value which contrasts sharply with most digital assets, which are virtually endless in supply. It is based on the belief that reducing the supply of an in-demand asset should enhance its value.
However, many NFTs have been digital compositions that already exist in some form elsewhere, such as classic video snippets from Amitabh Bachhan films or securitised copies of digital art that are already circulating on Instagram.
What are NFTs used for?
NFTs provide a unique option for artists and content makers to better monetise their work by selling it directly to the buyer as an NFT, allowing them to keep a larger percentage of the profits.
Furthermore, artists can set up royalties to receive a portion of the proceeds whenever their work is sold to a new owner. They love this feature because most artists do not receive any income after selling their work through galleries or auction houses.
But art isn’t the only method to generate money using NFTs. Many brands have auctioned off themed NFTs.
Which are some of the most popular NFTs?
-Nyan Cat, a 2011-era GIF of a cat with a pop-tart body, sold for nearly $600,000.
-NBA Top Shot generated more than $500 million in sales.
-A single LeBron James highlight NFT fetched more than $200,000.
-Twitter co-founder Jack Dorsey sold his first ever tweet as an NFT for more than $2.9 million.
-Digital artist Mike Winklemann, better known as “Beeple”, crafted a composite of 5,000 daily drawings to create perhaps the most famous NFT of the moment, “EVERYDAYS: The First 5000 Days,” which sold at Christie’s for a record-breaking $69.3 million.
-Snoop Dogg’s NFT collection earned over $100,000 in just 48 hours.
NFTs in India
-Singer Ritviz released two of his albums with 21 songs along with one-of-a-kind artwork with collaborator and visual artist Santanu Hazarika. The NFT, released on WazirX NFT Marketplace for $388.5, was sold out 37 seconds after going live.
-Vishal Malhotra, a TV artist in collaboration with artist Ishita Banerjee, has sold close to eight NFTs the last year, priced between Rs 15 lakh and Rs 20 lakh.
-Amitabh Bachchan’s NFTs were launched and sold for more than Rs 7 crore. Fans bought his autographed posters, his father’s renowned poem Madhushala, and a handful of his other works. Two NFTs of Bachchan’s most recent film, Jhund, were also priced at Rs 2.15 lakh.
-Salman Khan launched NFTs of the Dabangg series in 2021.
-Southern giants such as Rajinikanth and Kamal Haasan joined the NFT bandwagon to get their tokens.
NFTs are an extension of celebrities’ identities as they capitalise on their brand value.
Fans and followers purchase these tokens and brag about their involvement with the film on their social media pages. They can also move these assets to their MetaMask (a cryptocurrency wallet) and sell them on OpenSea (an NFT marketplace).
For other Indian creators and influencers, NFTs are paving the way for platform-independent monetisation solutions as they search for alternatives to collaborations and paid partnerships. They are placing a price tag on bits and parts of their content and immortalising it, thanks to blockchains.
Sharan Hegde, an influencer, created an NFT that was a five-second animated art of him executing his famous outro and auctioned it. While the special digital token’s initial price was roughly Rs 700, it was sold to the highest bidder for Rs 65,000. According to Hegde, story-based NFTs don’t work in India, unlike in the Western market.
Application-based NFTs are easier to sell in India as they add incentives for the buyer. In these NFTs, collaborations and special access to communities are occasionally included, but it may also be the ticket to an in-person encounter with the creator.
Why are people spending millions on something they could easily download?
An NFT not only allows the buyer to acquire the original asset but also has built-in authentication, which acts as proof of ownership. The buyer appreciates “digital bragging rights” nearly as much as the thing itself.
How is NFT related to cryptocurrencies?
The only similarity between NFTs and Cryptocurrency is that both use blockchain technology.
Cryptocurrencies, like actual money, are fungible, which means they may be sold or exchanged for one another. For example, one bitcoin is always worth the same as another.
NFTs change the crypto paradigm by making each token unique and irreplaceable, making it difficult to compare one non-fungible token to another. They are digital representations of assets, and each token carries a unique, non-transferable identity that allows it to be distinguished from other tokens. They are also extendable, which means that you may combine one NFT with another to create a third, distinct NFT.
How to create an NFT?
1. Choose the asset
Choose the asset you want to make into an NFT. One thing to remember here is that you must own the intellectual property rights to the item you intend to make into an NFT.
2. Choose the blockchain
The minting procedure may now begin. It all starts with deciding which blockchain technology you want to use. Ethereum is the most popular among NFT makers and artists. Other prominent alternatives include IBM Blockchain, Hyperledger Fabric, Hyperledger Sawtooth, R3 Corda, Cosmos, Tezos, EOSIO, Stellar, and others.
3. Set up your digital wallet
The next step is to create your digital wallet. Metamask, Coinbase, Trust Wallet, Math Wallet and Enjin Wallet are among the most popular digital wallets. After you’ve set up your digital wallet, it’s time to buy some cryptocurrency as you need some initial investment. Most NFT marketplaces accept Ether, the coin of one of the most famous blockchain platforms, Ethereum.
However, if you already have cryptocurrency, connect it to your digital wallet so that you can use it to create an NFT.
4. Pick the right NFT marketplace.
Some top NFT marketplaces include OpenSea, Rarible, Solanart, Nifty Gateway, Binance, SuperRare, Foundation, Mintable, Async Art, Makersplace, and KnownOrigin.Certain marketplaces require you to use their cryptocurrencies, for example, RARI for Rarible.
OpenSea is an excellent marketplace for most beginners and lets you mint your own NFTs. Of course, you may even build your own NFT marketplace per your requirements.
5. Upload your asset
The procedure of uploading your digital files differs from marketplace to marketplace. It is typically discussed in depth in the marketplace, primarily through informative videos, tutorials, and FAQs. You can convert your PNG, GIF, MP3, or any other file into a marketable NFT at the end of the procedure.
6. Set up your sales process(Pricing)
There are three ways you can price your NFT
Fixed-price –When you set a fixed price for your NFT, you sell it to the first person who offers the money listed.
Timed auction –A timed auction is one in which you set a deadline for all interested bidders to put their bids. The highest bidder wins the auction and purchases the NFT at the end of the time limit.
Unlimited auction –The auction is not time-bound. You may select when to conclude the auction and accept the highest bid as the NFT creator.
For each of the monetisation approaches, you will need to select.
Minimum price – This is the minimum price you’d be willing to sell your NFT in an auction. You must factor in the platform charge while determining this price. You may lose money on the sale if you set the minimum price too low.
Royalties –If you wish to continue earning money from your NFT after selling it, you may set a royalty amount and include it into your smart contract to make money from each secondary sale of your NFT.
*The fees for selling and minting NFTs can be confusing, not to mention expensive. A listing cost, an NFT minting fee, a sales commission, and a transaction fee for transferring money from the buyer’s wallet to yours may be required.
How to buy an NFT?
1. Choose the blockchain
The Ethereum network currently powers the majority of marketplace transactions. To purchase an NFT, you will need Ethereum’s native token, Ether. If you don’t have it, you can register an account with a cryptocurrency exchange like WazirX or Binance and buy the tokens there.
2. Set up your digital wallet
You must also create an Ethereum-compatible crypto wallet. Metamask, Trust Wallet, Enjin Wallet, Math Wallet, and Coinbase are among the most popular digital wallets. To open a wallet with the platform of your choice, you must first register on their website. After you open the wallet, you must send the Ether you purchased from the exchange to the wallet’s address, or you can even purchase through the wallet.
3. Pick the right NFT marketplace.
Register an account at the marketplace(List provided above) you prefer. Different marketplaces have different registration processes. Connect your wallet to the marketplace. Most marketplaces have a simple ‘Connect wallet’ option on the platform.
4. Select the NFT
Browse the marketplace and choose an NFT of your liking. Most marketplaces have an auction system for purchasing NFTs; you must bid for the NFT you want.
5. Execute the transaction
After a successful bid, you will execute the transaction, deducting the necessary amount from your wallet. Remember that you may be required to pay a transaction charge to the marketplace. However, the fee will vary depending on the marketplace.
Should You Buy NFTs?
The value of NFT is determined by what someone else is willing to pay. As a result, demand drives the price rather than economic factors fundamental or technical, which often impact share prices or, at least, serve as the basis for investor demand.
This means that an NFT may resale for less than the price you paid for it. Or you may be unable to resell it if there are no buyers.
You should approach NFTs the same way as any other investment:
- Do your research.
- Understand the risks (including the possibility of losing all of your investment rupees).
- Proceed with extreme caution if you decide to take the plunge.
It may be worth considering if you have money to spare, especially if a particular piece holds meaning for you.