What is NFT? What is NFT used for and what does it give the buyer? How to buy, sell and create them? Is it possible to make money on NFT? We answer these and other questions about non-convertible tokens in our text.
NFT is a topic that is breaking records of popularity in Europe and around the world. Colorful pictures with animals are literally pouring out of celebrities’ social media, and even the OCCP itself has decided to investigate the topic. We, meanwhile, decided to explain in the simplest possible way the intricacies surrounding digital works and their transformation into NFTs.
1/12 What is NFT?
NFT stands for “non-fungible token,” which translates to “non-exchangeable token.” In this case, we should understand the word “non-fungible” as “having no equivalent in other items/currencies.” This means that NFT tokens have no “rigidly” fixed value, and each token is unique, unrepeatable and should be treated as an object separate from anything.
Once we understand what NFT means, we can briefly explain what it actually is. It’s digital content combined with blockchain – the database on which cryptocurrencies are based. Unlike NFT, cryptocurrencies are fungible (like money), meaning that each bitcoin has the same value as any other bitcoin and can be freely exchanged.
2/12 What does NFT give me?
A completely unique string of zeros and ones for ownership, which is confirmed by a corresponding certificate of authenticity. This string of zeros and ones can take any form. Images, animations, Twitter posts, and even 3D models of human body parts or… emotions are sold as NFTs.
So in practice, the idea is that you own something that no one else has and that no one else can have (unless you give it away, sell it, or it is stolen from you). This can be compared to both owning an original of the Mona Lisa and a t-shirt stained with gravy – both of these things are, in practice, unmistakable. You can create imitations of them and very close fakes, but there will always be some differences. Why one of these items is priceless and the other worthless is just the result of some social contract.
3/12 How is NFT being used today?
NFT gained popularity when it proved to be a pretty good way to sell digital artwork. While in the case of photos and two-dimensional graphics, transferring them into tangible form is not problematic, with animations, 3D models, music videos, multimedia forms, etc., it is not so easy, and in many cases it becomes impossible. NFT with a unique certificate stored in the blockchain allows you to effectively buy and sell such digital works.
It quickly became apparent that NFT is also a way to create limited and closed communities. Thus, tokens appeared on the web, which are tickets of admission to a more or less narrow circle of their holders, who recognize each other by distinctive images on social media profile pictures. Such procedures are most often advertised by well-known individuals who encourage others to join “their club.” Such NFTs can cost from a few tens of zlotys to as much as many millions.
4/12 How to buy an NFT?
You can buy NFTs on exchanges suitable for this purpose. In order to buy, you need to choose which market to buy from, what kind of digital wallet is required to store it, and what kind of cryptocurrency you will use for the purchase. Currently, most NFTs are sold for Ethereum (ETH).
The buying process itself is still heavily complicated for most users who have no experience with digital wallets and cryptocurrencies, for example. Buying NFTs requires setting up several accounts, including just the digital wallet application, as well as the NFT exchange of our choice. These accounts then need to be linked together and transfer enough money to redeem a portion of Ethereum (or other cryptocurrency), for which we buy the token.
Some exchanges also charge an additional “gas fee” to compensate for the greenhouse gases emitted into the atmosphere that accompany each Ethereum operation. It can amount to as much as several hundred zlotys.
How Did NFT Bring Art and Technology Together?
5/12 Why is NFT so expensive?
There was a buzz about NFT when (seen above) the works of one of the digital artists, Beeple, were sold for more than 270 million. Colorful images of monkeys can cost from a few hundred thousand to fat millions. Why would anyone pay so much for NFT? Because it’s largely speculation and market research, with NFT creators producing certain needs and severely limited resources to meet them.
Creating a club that includes Snoop Dogg and Conan O’Brien creates a need among some people to belong to such an “elite.” The NFT being an introduction to it may not even be worth it to one person, but someone will gladly pay the value of an apartment in Warsaw to show “hey, I’m among the best.”
NFT is also being used by investment funds, but in the long run the results are proving to be different. The Metapurse fund, a digital art investment group that bought the aforementioned Beeple works for more than a quarter of a billion zlotys, did not fare well in the deal. The company issued B20 tokens that acted as shares in the works they purchased. From a maximum value of $28, today a B20 token sells for just 40 cents, which is 70 times cheaper.
6/12 How to sell NFT?
The sale of NFTs also takes place on the respective exchanges. The entire process can vary widely depending on which platform we choose. However, most will require us to upload our content to the exchange and fill in the information that will be necessary to convert it into NFT form. In most cases, we will also need to provide a description of our digital work and its suggested price. Most NFTs are purchased using Ethereum.
7/12 How to create an NFT?
The creation of NFTs is done on the side of the exchange, which converts our digital works into tokens by storing the information in the blockchain. To do this, we need an account in a digital wallet, on the chosen platform-exchange, as well as an appropriate portion of cryptocurrency (usually Ethereum) to perform the whole process.
The form of NFT can be completely arbitrary. It can be a photo, picture, sound, animation, screenshot, and, as it turns out, also a certificate of possession of our soul, emotions or love. We are limited only by our imagination.
8/12 Is NFT legal?
Yes, NFT is legal. Owning, buying and selling it is in no way a bad thing from a legal perspective.
9/12 What rights does an NFT holder have?
The issue of property rights associated with NFTs is a different pair of calicoes, and here each NFT should be approached individually and the contracts entered into should be read carefully. In the case of some NFTs, along with the token we acquire all rights, including commercial rights, to their use, reproduction, etc. This means, for example, that we can print the purchased image on t-shirts and sell them or use them in our own clips.
However, it can also be the case that we purchase the right to only one copy of some digital work and it is our property, but, for example, the elements contained in it are no longer. It’s like buying a book or a movie on blu-ray. We can still sell them, borrow them and use them, but, for example, we can’t publish the movie online, sell copies of it, or use the scenes and music contained in it in our productions (unless, for example, it’s a use under the right of quotation).
In short – the ownership of the underlying rights passes to the NFT buyer only if the author of the original work turned into an NFT transfers these rights to the NFT owner. Without this, the purchase of an NFT is comparable to the purchase of a numbered collector’s edition, where we only have the right to the object, not the contents contained therein.
10/12 Is the NFT a sure investment?
No. New NFTs entering the market can gain value in a short period of time, giving returns to investors as high as several thousand percent. On the other hand, NFTs are highly susceptible to fashion, which can change from day to day, as well as to the speculative bubble effect, which has also recently affected the retro game market. Their prices, pumped up largely by auction houses that make money on commissions, have risen thousands of percent in recent years.
It could be the same with the NFT. Belonging to a joint club with Hollywood stars can be fun until those stars contribute. After that, the value of participating in such a group is likely to drop dramatically.
11/12 How can NFT work in games?
There has been a lot of talk recently about NFT in games. For game developers, it is another method to build a micropayment system, but this time with unique items. This is because each token is unique and non-exchangeable. So it will not be just a simple skin that any other player can have, but an item with unique characteristics.
There appeared on the web strongly optimistic plans of “visionaries” who would like NFT to be transferable between games. In their dreams, a skin purchased in Call of Duty could be transferred to Halo, Battlefield, Counter-Strike, and perhaps Minecraft and Diablo.
The problem is that today it is still a problem for game developers and platform owners to create a cross-platform multiplayer game or to transfer game saves. Creating a system and getting permission to exchange goods between games seems like total science fiction at this point.
12/12 Why is the NFT being criticized?
NFT seems to have as many supporters as opponents. The biggest objection to non-exchangeable tokens is their impact on the environment. Each Ethereum operation requires a lot of calculations that need the power of processors, which in turn consume a lot of electricity. NFT exchanges are therefore powerful emitters of greenhouse gases that directly affect the climate.
Other allegations against NFT involve a financial pyramid scheme and a speculative bubble, which some NFT developers are suspected of. There have also been cases of theft of works and the creation of tokens from them without the knowledge of the creators. This happened, among others, with artists from the popular Deviant Art site, whose works were stolen and placed on exchanges.
However, the most objectionable question is whether NFT is needed for anything at all. For many Internet users, it is a “silly fad” that has no relevance whatsoever, since no meaningful use of the technology has yet been propagated in a form that cannot be replaced by long-standing solutions.
Would you like to create your own NFT project? Contact Enkronos team today.