Hello and welcome to this blog post about the Simplest Guide to Understand NFTs Before you Invest
I am very exicted to know that you getting start with this amazing technology, you will be going to amazed by the incredible potential of the NFTs.
There is a lot to learn about this futuristic tech, lets get started to dive into it and start to leverage it to build Industry 4.0 applications.
The aim of this blog post is to help you quickly understand about the fundamentals related to NFTs.
I will ensue you that, i will going to explain every bits and pieces related to need of blockchain and will help you throughout your learning journey.
Without wasting any further time lets get started dive right in the:-
The Simplest Guide to Understand NFTs Before you Invest
Have you made some investment in a cryptocurrency?
Although NFTs are cryptographic assets on a blockchain, they come with unique ID codes and metadata. Therefore, every NFT you will find on the Internet will be different from any other NFT available online. Hence, NFTs cannot be utilized as a mode of commercial transaction like Bitcoin.
So, what value do they serve?
The uniqueness of NFTs makes them a practical currency for sharing assets. For example, if you have a work of art that you want to buy online, you can do so by using NFT. Furthermore, there is absolutely no risk of fraud as each NFT has its unique signature ownership.
One crucial thing to remember is that NFTs do not automatically grant you the copyright or the reproduction right. If you want to make different versions of the asset that you have bought online via NFT, you will have to purchase the copyright from the asset owner.
What are Non-Fungible Tokens? Explained with an Example.
In case you want more clarification about what is an NFT, then the example mentioned below will make it clear to you:
The creation of work by an artist is called minting. If an artist has painted a masterpiece, that piece of art will be considered the original. The NFT created for this work will be regarded as the original NFT. The original NFT of the artwork will be saved in the blockchain, which means it cannot be deleted or manipulated in any way, shape, or form.
If someone reproduces the same artwork at a later date, then it will be called a copy. However, the NFT of the copy will not hold the same value as that of the NFT of the original work.
Difference Between Cryptocurrency and NFT
Both cryptocurrency and non-fungible tokens have their foundation laid in blockchain technology.
The only difference between cryptocurrency and NFT lies in the ‘fungibility’ aspect of cryptocurrencies like Ethereum. While an Ethereum coin can be exchanged for another
Ethereum coin, an NFT does not allow this type of transaction. The NFT remains attached to a specific digital asset, and it is entirely irreplaceable.
What are NFTs Used for?
As NFT does not allow you to reproduce a particular digital asset, you might wonder why you should buy it in the first place.
The answer: NFT comes with a value of its own. If you are a collector, you will benefit significantly if the value of the artwork increases in the future. For example, suppose you had bought an NFT for a digital art for $1000 in 2020 when the value of the masterpiece was US$500 million. Now, in 2022, the speculation is that the price of the masterpiece has increased to US$1000 million. In this case, the value of the NFT will also increase based on projection. If you want to cash in on the increased value, you can contact potential buyers and sell the NFT.
As the price of a work-of-art depends upon speculation, demand, and the buyers’ requirement, you can’t be sure about the price you will get. Therefore, the best way to sell an NFT for art is via auction, where you have the option to sell it to the highest bidder.
Currently, NFTs are mostly used for digital assets because of convenience, but we might see them used for physical assets as well in the future.
How to Ensure NFT is Profitable for You?
As it is difficult to pinpoint the value of NFT, especially in the early stages when it is a relatively new concept, we can use the formula mentioned below to determine if a particular
NFT for an asset will be valid for the developer or buyer.
NFT Value = Ownership and History + Utility + Liquidity Premium + Future Value
This equation can give a better idea about the value of NFT. But first, we have to understand each of the four components that add up to make the NFT value.
The value attached to the NFT ownership and its history
The popularity of a person who created a particular asset adds more value to the overall value of NFT. For example, a poem written, digitally autographed and posted on Twitter by a celebrity will have a higher value then a poem written by any Tom, Dick, or Harry. Similarly, if the NFT is attached to a big company or brand, its value is significantly higher.
Even reselling NFTs can be profitable if the previous owners are famous. Therefore, an excellent way to profit via NFTs is by discovering who the owner was. It might not be easy, but you can use platforms such as Syscoin, OpenSea, and Dapp.com to find out the addresses of investors making a large amount of money while trading in NFTs. Using this data, you can find more about other NFTs these investors own. Based on that, you can buy NFTs that will provide you a higher value.
The value attached to the utility
The utility value is probably the most important when it comes to determining the price of the NFT. However, we are listing it second in the list as there are a lot of factors that can impact the value of an NFT based on utility.
For example, in a video game, NFT will enhance players’ experience by providing them more control over their digital game assets. Instead of just buying a game and the various digital assets sold by the developers, gamers will be able to sell the assets they own to other players. As a result, gaming will become a more constructive past-time because of its ability to provide you the power to earn money.
In the past, players lost their in-game digital assets (collectibles) because of hack attacks. But with the popularity of NFT games and the integration of blockchain technology, every transaction will be a lot more secure.
Many developers like EA for FIFA are currently thinking about using NFT in their games.
Value of NFT in the Future
Like the price of shares and cryptocurrencies that rise based on speculation, the future value of digital assets can increase based on assumption.
To explain how the value in the future can increase, let us cite an example from multiplayer games. For instance, if a player buys the deluxe edition of a shooter game at a higher price than the standard edition and gets a few items as extras. Later, he realizes that one particular gun is essential in a specific section of the game and will be in high demand in the future. In this case, he can sell that gun as an NFT to players for a limited time.
In the future, when other players feel that the gun is required, they can purchase it cheaply as an NFT instead of buying the complete digital edition.
When it comes to the profits earned by a developer of artwork, NFTs provides one of the best ways to earn royalties. Developers can sell their products as NFTs and then get royalties whenever their artworks are sold in the secondary market. NFTs can even be collateralized and leased to get more cash flow in the future.
Value based on the liquidity of the NFT
Liquidity means how quickly an asset can be converted into usable money. When the liquidity is high, it becomes easier to sell the NFT, which lowers the dangers of holding on to the NFT for too long. NFT standards based on RC-721 Ethereum have a higher liquidity than NFTs created on other standards.
For maintaining a high value of NFT assets, the users need to be motivated to trade in a way that enhances NFT liquidity. For example, a gaming company can create policies so that the players gain from exchanging their existing assets. As the volume of assets exchanged in a particular category rises, the liquidity also increases.
Types of NFTs
Different types of NFTs are currently popular amongst developers and buyers. Have a look:
Music piracy has been a problem for music creators for a long time as it eats into their profits. However, thanks to NFTs, it won’t be the case in the future.
Nowadays, musicians earn money via streaming platforms that take away a significant percentage of their income. But by selling music via NFTs, musicians can keep hold of all their earnings.
Currently, the most expensive NFTs come from the world of art.
Do you know that the most expensive art NFT is “Every day’s: The First 5000 Days” by Beeple?
It has been sold for US $69 million. But it is not the only one going for a high price. Even Gifs and small videos created by other artists fetched vast sums of money for developers.
Collectible NFTs such as trading cards
Collectibles are highly coveted in niche markets. If you have a unique baseball card, then the chances of you finding a buyer are really high. NFTs provide a way to sell the virtual version of a trading card to different parties. If the baseball card is in high demand, you are likely to make large sums of money without even selling the real thing.
Selling unforgettable moments as NFTs
Can you own a legendary Michael Jordan dunk?
Well, literally, you cannot own the greatness of the legend, but it is possible to own a short video of the megastar dunking over another great defender.
NFTs for legendary sports clips can sell for hundreds of thousands of dollars. But you need to make sure that you are buying from the right owner.
Video game virtual items and limited-edition content converted into NFTs
Video game revolutionized by tokenization feature in-game content such as Downloadable Content (DLC) that can be sold as NFTs. For example, a company can sell a unique limited-edition version of game assets online in NFTs. The price of these assets will increase due to their exclusivity and earn the developer and owner of the NFT an excellent profit.
What Makes NFTs so Revolutionary Within the Gaming Industry?
NFT fits the requirements of the gaming industry perfectly. As mentioned before, the decentralized nature of blockchain makes NFTs immune to hack attacks. But that is not the only revolution brought about by NFTs in the gaming industry.
The most revolutionary aspect of NFTs is making gaming profitable for both the players and the developers. Game development with non-fungibles tokens in mind can lead to unique and powerful experiences. Now, gamers can buy in-game assets and later sell them to other players for a profit.
Gaming industry with NFTs as an intrinsic part of it can gain in the following ways:
No dependency on the gaming platform
After purchasing a digital asset, a gamer might be worried about their purchase getting lost after the in-game data is lost. But with the entry of every purchase in a secure digital ledger, the owner will be assured that his investment will remain intact irrespective of the loss of gaming data or game being shut down for some reason.
More transparency in gaming
While most gamers earn or buy the in-game digital assets with their sheer hard work, some hackers access these assets through unethical means. But with the incorporation of the blockchain network, every digital asset will be reflected in the digital ledger. So, there will be complete accountability of every purchase and its ownership. The increased transparency of assets will make the gaming experience better than ever before.
Compatibility and interoperability
As all the assets bought as NFT are part of a decentralized environment, the NFT assets can be sold on different gaming platforms. For example, suppose you have purchased a game on steam and bought many digital assets for that game. In this case, you can easily use the purchased assets on EA’s Origin platform without worrying about the interoperability of both platforms.
How to Transform In-Game Assets into NFTs?
Converting in-game assets into NFTs is done by the marketplace that you have chosen. It is a simple process:
- Select a marketplace and link it with your crypto wallet
- Upload the digital asset in the NFT marketplace of your choosing
- The marketplace will mint your uploaded asset into NFT.
- The NFT will then be available to be purchased by another player.
- You can choose to sell the NFT as a fixed-price commodity or auction it.
- Once the NFT is bought, it will be stored in the crypto wallet of the buyer, and the cryptocurrency will be saved in a secured manner in the wallet of the seller.
In-Game Assets that you can Mint into NFTs
There are multiple in-game purchases that you can mint into NFTs for selling later. Have a look at some of the most common items:
- Character Skins: The skin or clothes worn by the game characters can transform into blockchain-based digital collectibles
- Weapons, Vehicles, and Powers: In RPGs (Role Playing Games) and FPS (First Person Shooters), weapons are very important for the players. With NFTs, not only you can mint the guns but also unique vehicles and powers that you obtain via progress or buy via your hard-earned money/
- Trophies and Rewards: As you play, you gain specific unlocks in the game, which can be either trophies or rewards of some sort. By minting an NFT, you can quickly sell these rewards for an attractive price and make your time playing games highly productive.
Popular NFT Marketplaces you should Purchase from
While buying an NFT, you need to be very careful about your chosen marketplace. Like other products, NFTs can also be bought from unverified sellers and marketplaces. While buying from such places, you will get high discounts and attractive offerings. If a deal looks too good to be true, do not invest in it. On the contrary, you should choose popular marketplaces such as:
It is one of the oldest marketplaces for NFTs and is known for its efficient minting process. Rarible is based on Ethereum blockchain and is very popular amongst the crypto fraternity.
This NFT marketplace’s primary focus is the gaming industry. It is trendy amongst gamers and crypto-asset aficionados.
It is based on metaverse and has an open world with almost similar functionality as the real world. It is possible to buy various metaverse assets using Decentraland. For example, you can purchase virtual real estate using the NFTs minted via this platform. Decentraland is the single most significant player that caters to the metaverse and can be regarded as a pioneering crypto meta platform.
One of the most popular NFT platforms and the one with the highest appeal. OpenSea is based on the Ethereum blockchain and has generated over $10 billion of trading volume in one year. NFT created on just about any platform can be minted at OpenSea.
Most expensive NFTs of 2021
To give you an idea about the value of NFTs in 2021, we have curated a list of the top 5 NFTs that have earned the most enormous sums of money for their developers:
- Digital Pak’s latest creation, “The Merge” has been sold for $91.8 million. This is a record.
- Everydays: The First 5000 Days created by Mike Winkelmann, also known as Beeple has earned him a staggering $69.3 million
- Another of Beeple’s creations by the name of Beeple’s Human One has fetched him $28.9 million
- The CyptoPunk #7523 has been sold for $11.75 million
- The uniqueness of CyptoPunk #3100 has been the reason for its $7.67 million selling price
Should You Buy NFTs?
NFTs provide you with an option to buy something unique. Although it does not give you the copyrights automatically (unless you buy them separately), it is a new and innovative way to purchase art, game items, collectibles, etc.
While purchasing an NFT, we advise that you keep the following things in mind:
Verify the artist or creator
As the hottest NFTs are pieces of art, you must verify the artist behind the product that you are purchasing. Check the credentials of the developer thoroughly before buying an NFT.
Understand that you do not always get the copyright and play by the terms
As mentioned before, copyright is not always inclusive in purchasing an NFT. In some cases, you can share an NFT, but you need to keep the terms and conditions in mind. So, only buy an NFT once you are convinced that you can use them exactly as you want.
Make sure that the NFT is stored in a safe place
The security of NFT is flawless, but the place where you store the NFT asset might not be failproof. Therefore, before you purchase an NFT, check the quality of the storage space. For example, ensure that the company that is providing the hosting of the NFT file is taking good care of its servers.
Currently, NFTs have become a lucrative option for everyone who wants to buy digital assets. In the future, it is likely that NFTs can be used for physical assets as well. However, before making any investment in NFTs today, one should understand that the concept behind NFTs is still evolving. So, if you are investing, always buy it from trusted marketplaces.
Pro Advice: Don’t buy NFTs just because everyone is buying them. Only buy NFTs if you understand the goods being sold and use them.