A Guide for the Complete Newbie
If you’re reading this you have probably heard about NFTs but have no clue what the heck they are. Well, you are in the right place. In this article we’ll explain exactly what NFTs are and why they are a game changing technology in a very clear, easy to understand way.
What does NFT stand for?
NFT stands for Non-Fungible Token. Yeah, I know, not the best name they could’ve picked but it’s not as hard to understand as you might think. In fact, there are already a number of non-fungible items already in your life.
Let’s break it down…
Non-what?? Yeah it’s a mouthful but the concept is pretty simple:
Non-Fungible is just a fancy way of saying irreplaceable, one of a kind, or unable to be exchanged equally.
To better understand this, let’s first look at the word Fungible then let’s look at some things in our life that ARE fungible.
Fungible means that something can be exchanged equally.
For example, dollar bills are fungible. If you loan me a dollar and I promise to pay you back next week, you don’t expect me to return THAT EXACT BILL to you, any dollar will do. That’s because dollars have the same value and are basically all the same (let’s ignore the serial numbers for now, because technically they are non-fungible, but society treats them as fungible… okay, cool, moving on!).
Most items you buy in a store are fungible. If you’re going to buy a 12oz bag of Cool Ranch Doritos, you can’t really care which bag you grab because they’re all the exact same aka fungible.
Okay, so what about NON-fungible? Basically it‘s just a way of saying irreplaceable. In fact you probably already own things that are NON-FUNGIBLE…
One great example is your dog or cat (or iguana if that’s your thing). Let’s say you’re going out of town and you drop off your beloved little doge off at a friend’s house to dog-sit for the weekend. When you get back you expect to pick up YOUR EXACT DOGE not just any dog, that’s because your doge is non-fungible.
Same goes for works of art. If you lend a museum your original Vincent van Gogh “Starry Night” painting, when they give it back, you don’t want them to return just any van Gogh, you want your “Starry Night” back.
So now that we know what Non-Fungible means, let’s look at the next part.
A token is defined as “a thing serving as a visible or tangible representation of a fact, quality, feeling, etc.”
Some examples of tokens are your gym membership card. That’s a token. It’s a tangible item (a plastic card) that is a physical representation your membership to the fitness club. So if you lose your card, you’re still a member because you paid for your membership, it just represents your membership. Likewise, cutting up your card doesn’t cancel your membership (if only it were that easy!) because your membership is based on a contract not on just having the card.
In fact, your gym membership card is a great example of a Non-Fungible Token! It’s a token that represents your actual membership AND it cannot be equally exchanged. Don’t believe me? Next time you go to work out bring a friend’s membership card with their photo on it instead and see if they let you into the gym.
Alright, now that we know what the words NON-FUNGIBLE TOKEN mean, let’s look at what they actually are in terms of the world of crypto.
WHAT IS AN NFT, ANYWAY?
The major misconception is that an NFT is merely an overpriced jpeg (or png) file, but it’s so much more than that. Sure, at first NFTs were strictly about the art and using your NFT as a pfp (profile pic) on social media. But there is so much more potential to them than that (but we’ll get to that in a minute). Let’s start at the beginning and talk about the ART side of NFTs.
“It’s just a jpeg. Why in the hell would anyone spend that much on a file that can be copied over and over again. I can just Right Click and Save and have the same file for free!”
We’ll get to the whole “Right-click and Save” thing in a bit, but first let’s talk about why someone would buy any NFT, expensive or not, in the first place.
The main reason to buy an NFT at first was strictly for the art. Either you liked the way it looked or just wanted to show you were a member of groups like BAYC and wanted to make it your pfp or you wanted to support an artist who you’re a fan of and wanted to own one of their pieces for yourself.
“But it’s a jpeg, I can just save it to my —”
— Okay, fine. Let’s just clear this up right now…
So the main problem with being a digital artist is that since your work can be duplicated over and over and over, how can you possible bring any value to it?
That’s where NFTs and the underlying blockchain technology come into play. You see, an NFT is not just the artwork, there’s a lot more going on under the hood. To understand how the blockchain solves the “Right-click and Save” problem, let’s first look at what gives traditional artwork its value.
Let’s use the previous example and say I’m the owner of the original “Starry Night” painting by Vincent van Gogh. I own a priceless piece of art. Then there’s you, who walked into a Spencer’s at the mall and saw a poster of “Starry Night” and thought “Wow, that would look awesome on my dorm room wall!” so you bought the poster.
Now you do not own “Starry Night” you just have a poster of it. And your poster is not even worth the $20 you spent on it (after all, why would someone buy your used poster for $20 when they can get a new one for the same price? It’s depreciated like driving a new car off the lot). In a sense, you just right clicked and saved “Starry Night” in the real world.
My “Starry Night” though IS real. It’s been verified by experts and I have the Certificate of Authenticity which proves the painting I have is an ACTUAL van Gogh.
This is great if you’re an artist who makes physical pieces of art but what’s a digital artist to do?…
The key element of an NFT is the underlying blockchain technology which keeps a record on the public ledger of who created the NFT and who is the current ACTUAL owner. So you can think of an NFT’s blockchain record as being a digital Certificate of Authenticity. When you “Right Click and Save” you have no such certificate and your copy of that piece of art is worthless.
Now you can see why this was a game changer for digital artists and how they could sell their original works the same way a physical artist can sell prints of their works and retain their value and authenticity.
But that’s not all!!
The technology behind NFTs also allows digital artists to earn royalties on their work when an owner resells it. Let’s quickly look at how selling digital artwork via NFTs differs from selling a physical item like a painting or a print.
If the artist creates a painting and sells it at a show for $1,000 they make $1,000. Now if they become famous and the owner of that painting resells it at an auction for $1M. The owner gets $1M and the painter gets $0.
But with an NFT, an artist can build a royalty fee into the underlying code, let’s say 10%. So if they sell their NFT for $1,000 and become famous and the buyer later resells it for $1M, they will get 10% of that sale ($100,000) automatically sent to them. And that goes for the next sale, and the next and any sales in the future! 🤑
See how this is a groundbreaking tech for artists? We may live to see the end of the phrase, “starving artist.”
Generative Art Collections
Okay, we we what what NFT means and we see how the blockchain helps artists, now let’s put the two together and look at how these large NFT collections are created, what makes them Non-Fungible and what the tern generative art means
So you’ve probably noticed that projects like CryptoPunks or BAYC have 10,000 NFTs in their collection and they are all unique (with some being more rare than others). It’s this fact that each one is different than all the others is what makes then Non-Fungible, no two are alike and therefore not interchangeable and irreplaceable.
Now you might be wondering how the hell the artist drew 10,000 of these things, that must’ve taken FOR-EV-ER. But that’s where the concept of computer generated art comes into the mix.
No that doesn’t mean that the computer drew them (although some projects have implemented codes where the design is completely created from an algorithm when the NFT is minted — see ArtBlocks Curated who features some of these collections). The way generative art collections work is the artist(s) create a wide range of varying of assets (let’s use BAYC for example) like different facial expressions, hair color, backgrounds, clothing, and other accessories etc… All of these are exported as different layers. Those image files are run through a program that randomly combines these “trait” and creates a completely new, completely unique, NFT design (and it’s corresponding metadata). The program ensures that no two NFTs exist that contain the same traits, therefore all are one of a kind. So the art is drawn piece by piece by the artist, but cobbled together like varying Mr. Potato Heads by the computer.
When you mint an NFT, typically you do not see what your design looks like until the project does it’s reveal soon after it sells out. There are then third party sites, like Rarity Tools, that read the metadata and through a bunch of complicated math, calculate each NFTs rarity based on how many other NFTs in the collection share those traits. (For the uber nerds, here’s an article explaining the math behind it).
Here’s a quick comparison of what some of the “blue chip” NFT projects originally sold for and what they’re valued at today (late Dec 2021)
Now do you see how NFTs are more than just mere jpegs? As I mentioned, only a few months ago, most NFT projects were just about the art and using that art as a pfp on social media. Some had private communities as well, but by and large they were mainly used as a status symbol (and believe me, they still are) but there is so much more potential with an NFT than just mere pfps.
As the NFT community exploded and pfp projects began to oversaturate the market, people began to demand more from a project than just having cool art, they want UTILITY. So next we’ll take a look at how NFTs can be used to take a project to the next level and unlock the true potential that blockchain technology has to offer.
What does it mean for an NFT project to have utility?
It just means that the NFT has uses either in the digital or real world. Think of Batman’s utility belt, that thing does EVERYTHING!!
We’re constantly looking for utility in our lives. For example, when you go to buy a new car. You’re going to compare a few different models to see which ones have qualities that interest you; Does it have four wheel drive? Built-in touch screen? Seat warmers? Apple Car Play? …Cup holders? 👀
People are just as interested in what their NFTs can do for them as well. Some allow you access to video game or movie/series only if you own their NFT. Some allow you access to private club chats via Discord channels. Some allow you to vote on community issues. Or in the case of the Midnite Movie Club, all of the above!
Let’s take look at each of these utilities…
PRIVATE CLUB MEMBERSHIPS
The most basic utility NFT projects have in addition to the art is a thriving community and access to private parts of either the project’s Discord server or website. These act the same way belonging to a private county club or other exclusive organizations work. It’s about finding your people, hanging out (albeit online), and discussing whatever you’d like. Most projects have a public area as well. These chat channels allow non-members to feel out the community and see if they’d like to buy an NFT and join.
VOTING IN COMMUNITY DAOs
A Decentralized Autonomous Organization or DAO (pronounced “dow”) is:
“A decentralized autonomous organization (DAO) is an entity with no central leadership. Decisions get made from the bottom-up, governed by a community organized around a specific set of rules enforced on a blockchain.”
DAOs allow any member of a community who holds an NFT to vote on community issues. Each NFT equates to 1 vote. This allows for everyone who is a part of a project’s community to have a say in certain aspects of the project as laid out by the project’s team.
A great example is for donations to charity. Quite a few projects these days donate tens of thousands of dollars in ETH to charities which the community selects via DAO voting. So the Team will list say 3–10 charities and whichever gets the most votes from the community receives the donation. It’s pretty amazing. Some projects even divide up the donation to the Top 3 selected.
There are so many things a project can do with a DAO, it’s a very exciting utility to have and almost every legit NFT project these days needs to have one if they want to thrive.
Read more about DAOs here:
EXCLUSIVE GAME/MEDIA/METAVERSE ACCESS
Some projects that are game or media based only allow access to these assets if you hold the NFT. These sites and games are built using the latest technology and are commonly referred to a Web3 (more on that later).
This can also include a private section of various Metaverses that the project has purchased and built out for the community to enjoy. A number of famous musical artists have already hosted full concerts in the Metaverse and most notable Snoop Dogg has a very large piece of digital real estate in The Sandbox metaverse for just such purposes.
REAL WORLD UTILITY
And obviously some people want to have their NFTs have some sort of offline use. The possibilities for such utility are endless. Everything from early access to exclusive sales like special edition sneakers, entry into private events (like the Bored Ape Yacht Club private party that was on an ACTUAL yacht during NFT.NYC). As NFTs become more mainstream we’re going to see a lot more real world events being based on NFT technology.
Take concerts for example. We already buy tickets digitally and scan barcodes to gain entry. But now thanks to blockchain, you would be able to check and see if the tickets that guy out front is scalping for double face value are real or fake before you hand over your money (or cryptocurrency) for them.
STAKING & CUSTOM CRYPTOCURRENCY
A lot of projects are launching their own cryptocurrency for NFT staking. Staking is basically the process of locking up your NFT in the project’s vault, which takes it off the market, thus lowering the available supply (and in theory raising the demand and price of the NFT collection as a whole). As a reward for staking you can earn a custom cryptocurrency unique for the project and whatever utility they’ve assigned for it.
*NOTE: Most NFT projects’ cryptocurrency is only used in their own ecosystem and has no monetary value. This is because if they were to give it monetary value it is then classified as a security and the SEC gets involved. So for example, if say the MMC made their own currency, let’s call it $STUB, then 1 $STUB = 1 $STUB and nothing more.
AND MUCH MUCH MORE
People are finding more and more uses for NFTs everyday. The technology is still in its infancy and we’re just seeing the tip of the iceberg.
There’s no doubt that the NFT space is rapidly growing and gearing up for mainstream adoption. After reading all the stories about BAYC, CryptoPunks, Cool Cats etc… you might feel like you missed the boat, but fear not, the boat is still being built and there’s plenty of time to hop on board.
Just look at this chart from Google analytics showing that the Google search for “NFT” has surpassed that of searches for “crypto.” 2022 will no doubt be the year of NFTs. (Just also be prepared for a big bull run, oversaturation and an inevitable pullback similar to what crypto did in 2017/2018 when mass adoption first happened).
Global search interest for 'NFT' surpasses 'crypto' for the first time ever
For the week ending on Christmas, global searches for the term "NFT," which refers to nonfungible tokens, have…
OpenSea is the #1 Marketplace for NFTs on the Ethereum blockchain and their growth has been skyrocketing lately. The chart below shows the user growth on the OS platform:
The Stats on the left show the amount of transactions and money flowing through OS in the last 30 DAYS!! On the right you can see the chart for the All Time stats.
There are also other NFT marketplaces like Rarible, Mintable, and NiftyGateway. What’s most exciting is the companies that have announced they are entering the NFT space with their own marketplaces:
Coinbase's NFT market could surpass crypto business, says CEO
Coinbase has received more than 2.5 million emails seeking to sign up for the marketplace since it was first announced…
Coinbase is one of the top mainstream apps/sites for mainstream cryptocurrency purchases and they announced in Oct 2021 that they’ll be launching their own NFT platform very soon (Q1 of 2022 most likely).
This would be a huge step as it would remove the barrier of entry for normies to get into the NFT space and would help launch NFTs the way it did for making cryptocurrency easy to buy and cultivate more mainstream adoption. As I like to think of it, all my aunts and uncles back in the Midwest who heard rumblings about “those NFT things” will now easily be able to buy them.
Join the Coinbase NFT waitlist here:
Gamestop Set to Announce Its NFT Marketplace Release Date By BTC Peers
Dogecoin Foundation works with Ethereum co-founder on DOGE staking By Cointelegraph The Dogecoin Foundation, a…
GameStop has been in the news a lot during the pandemic as the #1 meme stock $GME and the investment of choice for r/wallstreetbets subreddit users. It too announced that it was getting into the NFT space.
Reddit may be preparing to launch its own NFT platform
Social media platform Reddit appears to be hiring workers to support the design, build and maintenance of a nonfungible…
Reddit too has announced its foray into NFTs which would be huge because of the sheer number of users on Reddit. People are speculating that Reddit will also have its own cryptocurrency which you can earn by using Reddit, this could be your in for all that internet money you’ve been waiting for!
SushiSwap unveils website for its yet-to-launch Shoyu NFT platform
After unveiling a development and management proposal for the project last month, the shoyunft.com is now live.
SushiSwap is a major player in the token swap game and they too have announced plans to launch an NFT marketplace.
On top of that, there are also NFT marketplaces for other blockchains, like Solana, which offer lower gas fees (but more on gas fees and Ethereum 2.0 in our upcoming MMC Guide to Buying NFTs).
THE FUTURE OF THE INTERNET IS DECNTRALIZED
Like it or not, blockchain technology, cryptocurrency, and NFTs are here to stay and will be the future of what is being called Web 3 or the next iteration of the internet.
To better understand the evolution the internet has taken so far, see the below image to show versions 1.0 and 2.0 of the internet:
The above image is from this video which also explains where we’re heading with all of this much better than I can:
Hopefully this guide has brought you up to speed on a basic understanding of what you need to know about NFTs to get you started. As always in the crypto/NFT space, DYOR (do your own research) and decide for yourself. This is merely the first step on your journey into the Wonderful World of NFTs!