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What Are NFTs?

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NFT stands for non fungible token; if something is non-fungible it means that it cannot be replaced by another item identical to it or it is not mutually interchangeable. This is actually a legal term that represents the state of property, and that's exactly what an NFT is, digital property stored in a digital file.

The digital assets exist on a blockchain which supports its creation, trading and storage. They are always linked to a user (via a singular blockchain address such as a digital wallet) which means you can always see who owns it and who created the NFT.

Essentially, non fungible tokens (NFTs) are a tradable, online only assets - effectively making digital artwork tradable with physical money in the same way physical art is traded. They represent either a digital or non-digital property and are uncopyable, cannot be forged or stolen. The NFT market has been largely credited with starting the digital artwork wave within the metaverse, as well as holding real possible utility within trade, funding, marketing and business.

What Is the Purpose of NFTs?

The purpose of a non fungible token (NFT) is to represent an asset, whether that is online or offline. They are cryptographic tokens that are stored on the blockchain and cannot be copied, forged, or replaced.

One of the core purposes of this kind of technology is to limit fraud and forgery. Each digital asset, or NFT, has its own unique hash. A hash is a string of numbers and letters that gives an asset its unique identity. This means you could not buy a fake trading card or forged piece of art; each asset is verified and understood in its entirety.

Some secondary purposes popular within the crypto industry are:

  • Staking

  • Identity representation and verification

  • Real estate transactions

  • Supply chain management

  • NFT games

How Do NFTs Work?

Non fungible tokens (NFTs) are a representation of a digital or non-digital asset on a blockchain.

FunctionDefinition
StorageMost NFTs are on the Ethereum blockchain - this is a 'public ledger' that records transactions.
InformationEach NFT is an individual token (or digital file) with specific information stored on it. This could be represented as an image, video, audio etc.
ValueThe value of an NFT is set by market demand and ultimately how much people are willing to pay to purchase the NFT in question. Like physical art or other physical asset, this demand both increases and decreases based on cultural trends.
Security and OwnershipNFTs' unique data makes it easy to verify and validate their ownership and the transfer of tokens between owners.

Example: Ethereum Blockchain Network NFT

NFTs on the Ethereum Network are represented as an ERC-721 token. These tokens are unique in both content and value. The NFT gives the ability to assign assets to an address on the Ethereum Network or to claim ownership of them. All of this is fully trackable on the Ethereum ledger that stores the history of all transactions.

The key part of how NFTs work is their transferability. This is undertaken using smart contracts which is why only certain networks, like Ethereum, can support NFTs.

It is the initial stage of creation, or minting, that triggers the code in the smart contract and assigns ownership of the NFT asset. Once this happens it needs to be verified which then goes through much the same process as any transaction that occurs on the Ethereum Network. A block is created once verified, the transaction is confirmed and then recorded on the Ethereum distributed ledger.

Because each ERC-721 token, or NFT, is linked to one Ethereum address it can never be copied or misunderstood as an asset. Who created it and who owns it are extremely easily viewed - creating a strong layer of security and a core part of an NFT asset.

As of the beginning of 2021 over 95% of NFTs on the market were constructed using Ethereum’s ERC-721 standard. As of January 2022 this had fallen to 80%.

Why Are NFTs Important?

NFTs, and the NFT market, are important because they are a novel technology with a plethora of potential use cases. They offer a way of providing digital proof of ownership and can even contain things like rights to physical assets or access to exclusive content.

There is so much hype around NFTs for two main reasons.

Firstly: whilst somewhat superficial and is the most widely understood: people are making a lot of money minting, trading and selling non fungible tokens.

Secondly: NFTs provides a form of online verification without the need for a centralized authority (derived from the blockchain). Like their name suggests these assets are non-fungible and therefore each are completely unique.

Why Are NFTs Controversial?

There are three core reasons that NFTs remain a controversial type of asset. They are currently highly resource-consuming, they arguably disincentivize ‘true’ artists and they are often linked with scams. We have outline each in more detail below.

The resources that NFTs need to be traded is truly huge and is a common problem shared with cryptocurrencies. The issue resides in the fact that great amounts of computing power is required to support blockchain networks. All transactions that run through a network with the Proof-of-Work consensus mechanism are going to use vast amounts of computing power to create blocks, verify transactions and store data.

What Are the Different Types of NFTs?

Within the NFT market there are different types of NFTs.

TypeDefinition
Airdrop NFTsAirdrop NFTs involve directly transferring funds to random people’s wallets. So, for example, this could be for entering a prize draw or performing some kind of activity.
Collectable NFTsCollectible NFTs simply describe a collectible that is found on the blockchain. NFT collectibles are the same as regular collectibles - unique, rare, and prized products that usually come in a set. We can define these digital collectibles in three core categories - digital artwork, sports collectibles and gaming collectibles.
Dynamic NFTsDynamic NFTs are a type of NFT that uses smart contract technology to make it react and evolve with real-world events. Imagine an event happening in real life that then triggers a clause in a contract (the code in a smart contract) that then changes the makeup of an NFT or creates a new effect like a minting.
Fractional NFTsFractional NFTs allow people to purchase a small part of a larger, and more expensive, NFT. Each individual investment made by each user is proportionately converted into an ERC-20 representation of that value. So, users then technically own an ERC-20 representation of a part of that NFT but collectively have ownership of the entire asset.
Utility NFTsUtility NFTs are fast becoming the norm in the non fungible token space. This term defines an NFT that is more than a collectible and that has a specific function stored inside it. This could be a range of different things like access to content, real world products, meet ups or rights to a trademark or entity.
Whitelisted NFTsWhitelisting refers to when a select group of people is put on an exclusive list that gives them first rights to buy an NFT or cryptocurrency. Usually, this will be because someone is deeply involved in the development of a project or just a loyal supporter of it.
Metaverse NFTsA metaverse NFT is an NFT that has functionality or utility within the Metaverse. For example, maybe it represents a character you can use in a game which is now a very common trend. Also, another example of a meta-verse NFT would be digital land.

NFTs by Blockchain

NFTs are minted through the creation of smart contracts. If we take the Ethereum network as our example, an ERC-721 token is what needs to be created. The language that is used to code this is the Solidity Programming Language which can also be used on other blockchains. To create an NFT the Truffle framework, Javascript and HTML/CSS would be used alongside Solidity.

BlockchainInsight
SolanaSolana NFTs are non fungible tokens created on the Solana blockchain.
CardanoCardano NFTs, sometimes dubbed CNFTs, refer to an NFT that has been built using the Cardano Network rather than the Ethereum Network.
Shiba Inu NFTsShiba NFTs refer to the collection of NFTs created by the Shiba Inu network using the ShibanToken marketplace. The first 10,000 large collections were released in late 2021 and sold out within minutes. They are rumored to be for an upcoming game the network is creating.
Binance Smart ChainBinance Smart Chain NFTs and NFTs creation the BSC.
TezosTezos NFTs are created on the Tezos blockchain.
TronTron NFTs are created on the Tron blockchain.

What Are NFTs Used For?

NFTs in Gaming
Movie NFTs
NFTs in Music
NFTs in Sports
Picture and Digital NFT Artwork
NFT Domains

NFTs, Metaverse and DeFi

NFTs, the Metaverse and Defi are often mentioned together - but are they related?

DeFi, or decentralized finance, is the offer of financial products and services traditionally only offered by centralized banks, businesses, and financial institutions. It is decentralized and guaranteed by the combination of smart contracts (security of transaction) and liquidity pools (security of funds). Non fungible tokens are a tradable asset.

What Are The Most Popular NFTs?

The NFT market and NFT marketplaces are awash with digital assets from different non fungible token projects - many of which have different floor values and max sale prices.

Best NFTs to Buy Right Now

NFTCoinFloor Value
Bored Ape Yacht ClubApecoin$104687
Axie InfinityAxie-
CryptoPunksUPUNK-
DecentralandMANA$2228
FlyFish ClubN/A$4122

Biggest and Most Successful NFTs

NFTCoinFloor Value
WIN NFT HORSEN/A-
Bored Ape Yacht ClubApecoin$104687
Mutant Ape Yacht ClubApecoin$20414

Most Expensive NFTs Sold

NFTCoinSold for
Beeple’s Everydays: The First 5000 Days-$69.3 million
Julian Assange and Pak’s ClockAxie$52.7 million
Beeple’s Human One-$28.9 million

Rarest NFTs

NFTCoinFloor Value
Pak’s The Merge--
CryptoPunksUPUNK-
Bored Apes CollectionsApecoin$104687

Top Selling NFTs

NFTCoinFloor Value
Bored Ape Yacht ClubApecoin$104687
CryptoPunksUPUNK
The SandboxSAND$2008

How to Buy and Sell NFTs?

Are NFTs Worth Buying?

This depends on what NFT it is you’re buying; like cryptocurrencies, NFTs are extremely risky assets. It is also critical to remember that because most of these assets are collectables or pieces of art their value is highly volatile and difficult to objectively quantify. In fact, people love NFTs for this exact reason; overnight you could see the value of an NFT 10x and it could be difficult to understand why it did. If we look at some of the more extreme examples for instance, one Bored Ape NFT recently sold for close to $3million.

As is the same with art, NFTs are cultural artifacts and therefore their value to society is dictated by the conscious state of contemporary culture. What is valuable today may just as easily be worthless tomorrow. So, an NFT is worth buying if you enjoy speculating on assets and risking your money. If you prefer a more secure investment then this may not be the asset worth buying for you. But it must be at least noted that as NFTs develop we are seeing assets that perhaps could represent something more attractive to investors, whether that is a representation of a real asset or even an NFT with real world utility.

Remember, the value of any investment could decrease unexpectedly. Never invest more than you can afford to lose.

How to Know What NFTs Are Worth Buying?

It can be worth buying an NFT if it has some kind of real-world tangible value; for example, some NFTs contain prizes, rights, or products that they represent in the real world. This is the type of asset that has more of a guarantee of retaining value. Other than that, it's an asset that you see gaining traction on the market and that you think will increase in value. Once purchased either direct or through NFT marketplaces, non fungible tokens can be stored in a digital wallet until the time you wish to sell.

How to buy NFTs?

Buying NFTs is as simple as buying cryptocurrencies. First of all, you need to have tokens available that your NFT provider accepts, such as ETH, MATIC, CRO or other ERC20 altcoin. If you don't have these yet, check out our top guides on the best tokens to buy NFTs with:

  • How to buy Ethereum on an exchange

  • How to buy MATIC

Once you have these ready, follow these steps:

  1. Move your tokens over to an NFT supported wallet (for example Metamask, Binance chain wallet or Trust wallet)

  2. Sign up to the NFT marketplace of your choice from the list below.

  3. Connect your wallet with tokens to the platform

  4. Brose the marketplace and select your desired NFT

  5. Now some NFTs will require a bid while other will have Buy Now button

  6. Either place a bit or click Buy

  7. Your wallet will pop up to verify the transaction and request your digital signature

  8. Confirm the selection, pay the fees and you're done.

  9. Once the transaction goes through and your digital signature is confirmed, you will find the NFT stored in your wallet.

Where to Buy NFTs

Popular NFT MarketplacesOverview
OpenSeaOpenSea is currently the industry leader of NFT platforms and one of the largest NFT marketplaces available. It is free to sign up and browse NFT collections. OpenSea accepts over 150 different tokens for payment.
Axie InfinityThis is the native marketplace for Axie NFTs which are one of the most popular collections and possibly the most popular for NFT gaming.
Nifty GatewayNifty Gateway offers users the chance to buy NFT collections in fiat currency which is a huge bonus. Also, it is one of the most popular websites and platforms to specifically trade digital art.
RaribleRarible is one of the most popular platforms to trade rare NFTs. Specifically, it specializes in rare media and sports collections.
Binance NFTThe native NFT marketplace on the Binance platform. Fast becoming one of the most popular places to trade NFTs, Binance offers incredibly low rates, a large and secure marketplace with a good range of assets.
CoinbaseCoinbase is the largest crypto exchange and also offers the opportunity to purchase NFTs.
Crypto.comCrypto.com is the biggest crypto card provider, exchange and staking platform in the world. Using crypto.com, you can browse NFT collections and buy them using CRO (a native Cronos token).

What Coins Are Used to Buy NFTs?

The coins that are used to buy NFTs depends on which platform you use. Almost always Ether will be accepted, the native currency for the Ethereum network, because such a high percentage of NFTs are made on that network. Similarly, if you buy NFTs on the Binance platform you can use BNB and BUSD. And for SOlana you can use SOL.

Some platforms, like Nifty Gateway, also offer the chance to buy NFTs in fiat currency. So really it depends on which platform you choose.

Cheapest Way to Buy NFTs

What defines a cheap NFT probably depends on how much money you have to spend on one. It is worth noting that these assets are extremely volatile and you can incur bug losses when buying an asset like an NFT.

One asset that is definitely regarded as cheap would be the upcoming Wagmi World collection. Coming in at under $300 per NFT this new collection offers a viable option to those looking for a cheaper NFT. This collection is also designed for beginners to the space as with its purchase you will obtain a wide array of educational materials about the NFT space.

How to Sell NFTs

You can sell non fungible tokens (NFTs) on the same marketplaces that you can buy them on. However, if you buy an NFT directly from a platform that minted the NFT you may not be able to sell them there. Some of the most popular places to sell NFTs are:

NFT Selling PlatformsOverview
OpenSeaOpenSea is the most popular NFT marketplace on the market today so therefore has one of the biggest pools of active buyers. If you are looking for a place to get the best exposure then OpenSea could be it.
Binance NFT MarketplaceBinance always has notoriously cheap fees which makes it cheap for trading NFTs, and also attractive to buyers that are looking for a cheap method of transaction thereby increasing your pool of active buyers.
Nifty GatewayNifty Gateway is one of the most popular platforms doe trading NFTs, so has a good pool of buyers and sellers. Also, it accepts fiat currency as a method of payment which therefore makes it more attractive to potential buyers and makes transactions much simpler.

Further NFT exchanges could be an option for those looking to trade or get involved with a specific NFT project.

How to Make Money With NFTs?

What Are Royalties in NFTs?

NFT royalties are a new way of making money and earning royalties even after you no longer own a specific asset, this is due to the way blockchain technology works. By utilizing smart contract technology NFTs can contain code that when an NFT is sold on a marketplace it automatically sends a percentage of the proceeds to the original owner or creator. This means money can be made even when a previous holder doesn't own NFTs.

For example, when a creator designs a collection of NFTs they can dictate that 10% of all secondary sales after minting will go to the creator. This can also be applied for those who first mint a specific NFT. For example, 10% of all secondary sales of an NFT go to the person that first minted it.

Are There NFTs That Are Worth Millions?

Why NFTs are worth as much as they are is quite a complex question. Most of the collections that are worth millions were some of the first on the scene. For example, CryptoPunks was one of the original collections that generated so much hype.

Rarity also holds a massive stake in how valuable an NFT is. If there is a rare collection with a limited number of NFTs then of course it will be worth more. But a collection will need significant traction before rarity makes it worth $1,000,000.

Hype is what really drives traction. NFTs have been championed by many influencers, and as soon as high profile celebrities name the next big NFT it can soon rise in value.

NFTs are ultimately pieces of digital art which means whatever is touted as fashionable is going to sell. Additionally, collectibles offer users the unique opportunity to own something special. Some of these collections also give holders access to exclusive content and benefits which can also raise the price.

But really there is no clear cut reason as to why some NFTs are worth millions of dollars. Once a collection manages to get itself into this upper tier of assets it seems to stay there but how it gets there is down to a combination of factors.

What Are The Benefits And Risks Of Buying NFTs?

common:pros

A way to diversify your portfolio: NFTs present a brand new asset class that have many distinct differences to regular assets like stocks and bonds. They are also a collectible that has the potential to appreciate in value over time in a way that other traditional assets don’t. They do however come with substantial risk.
Fractionalization: The digital character of NFTs means it's now easy to fractionaize physical assets in real life that previously provided a challenge to do so. Some people are now even finding ways to fractionalize NFTs themselves and make the most expensive class of NFTs available to everyone irrespective of how much capital they have at their disposal.
Security of assets: One great thing about NFTs is that there aren’t any fakes. Each one has their makeup and cannot be replicated, forged or faked.
Blockchain security: Blockchain technology is an extremely secure technology that means no one person or entity controls the assets you own. Also there is a record of all transactions made so all transactions can be tracked and verified.

common:cons

Scams and fraud: One problem with NFTs is that whenever there is significant hype around something it attracts scammers. People now must be careful that what they are investing in is what is advertised. For example, some fraudulent websites trick people into purchasing something that turns out not to be an NFT. Also, some collections are just ‘rug pulls’ that leave many holders out of pocket. And finally, many artists have been known to find their art being used without their consent - a problem always under discussion.
Volatility: NFTs are an extremely volatile asset and have even been suggested to be a bubble ready to burst. Because it is so hard to determine the value of these assets, many have lost vast amounts of money on them - they are an extremely risky asset. Also, because of how much they have boomed over the past year many think a dump is incoming fast and that these prices are unsustainable.
Environmental impact: Because most NFTs are developed using the Ethereum Network, which currently operates using a Proof-of-Work consensus mechanism, it means they take up an incredible amount of resources when they are traded.
The risks of NFTs must be understood by anyone looking to get involved with them. First and foremost they are an extremely volatile and risky asset to trade. Prices fluctuate hugely and it is difficult to conduct any kind of robust analysis on how these assets will perform because of their abstract nature. There is also a risk that this market is a bubble and could crash at any given moment.

Why Are NFTs Bad for the Environment?

Currently, NFTs are very resource costly and have a huge environmental impact - in fact, blockchain technology in general is very resource heavy. Recently it was reported that one NFT called Space Cat had the same carbon footprint as an EU resident’s energy bill for two months. This is quite an incredible statistic that reveals just how truly energy consuming these assets are.

So why do NFTs use so much energy?

Ethereum, the platform most NFTs are built on, currently uses a Proof-of-Work consensus mechanism. This requires miners to solve complex mathematical problems with extensive levels of computing power to verify transactions on the network and in turn earns miners rewards. Its key features are:

  • Very energy consuming

  • Requires specialist hardware

  • Mining is ongoing and indefinite in order to solve problems and verify blocks

So, it's not that NFTs are directly bad for the environment but rather the network that they are using. Some other networks like Solana propose valid alternatives, but at the moment Ethereum is truly the dominant force in the market and will be for the foreseeable future.

Creating NFTs

What Programs Are Used to Make NFTs?

Any of the following can be used to create an NFT:

  • Adobe Photoshop

  • Illustrator

  • NFT Creator

  • Pixel Chain

  • GoArt

What Is Minting an NFT?

Minting is the applicable technical term that describes the creation of a new NFT and its merge onto the blockchain. The NTF minting process represents the transition of digital files and data being converted into tradable crypto collections or other digital assets that are stored and tracked on the blockchain.

Can Anyone Make (Mint) an NFT?

Yes, anyone can mint an NFT; however you cannot mint an NFT anywhere, you will need a specific interface to facilitate your purchase.

FAQs

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Joshua Sherrard-Bewhay

Joshua Sherrard-Bewhay

Josh is a finance and Blockchain technical writer with experience in project design, consultancy and reporting. He is well-versed in white paper design, blog construction and freelance journalism. His academic credentials are in International Relations, Environmental Regulation and International Law. In his spare time he works as a sustainability analyst for a FinTech start-up Oxari and a private English tutor.