Non-fungible tokens (NFTs) are the latest craze in the crypto and digital asset world. There’s nothing like an explosion of digital artwork on the blockchain news to leave you thinking: “Um … what’s going on here?”
So let’s start with the basics.
NFT stands for ‘non-fungible token’. The name is the most intimidating and confusing thing about NFTs, and so a little explanation is needed.
‘Fungibility’ is a simple concept that basically refers to items that you use every day. You can think of these items as being physical money or even bitcoin. For example, since bitcoin is fungible (or identical to) you can trade one for another bitcoin, and you’ll have exactly the same thing.
‘Non-fungible’ (the opposite of fungible) means that it’s unique and can’t be replaced with something else. A one-of-a-kind trading card is non-fungible, as is the Mona Lisa painting. If you traded either the card or the painting you’d receive something completely different in return.
Though there are some convincing copies out there, there is only one original Mona Lisa painting by Leonardo da Vinci.
Now, NFTs are ‘one of a kind’ assets in the digital world that can be bought and sold like any other piece of property, but they have no tangible form of their own.
How do NFTs work?
Traditional works of art such as paintings are valuable because they are one of a kind. But digital files can be easily and endlessly duplicated.
With NFTs, artwork can be ‘tokenised’ to create a digital certificate of ownership that can be bought and sold.
As with cryptocurrency, a record of who owns what is stored on a shared ledger known as the blockchain. The records cannot be forged because the ledger is maintained by thousands of computers around the world.
How to Buy NFTs
Purchase EthereumSince most NFTs are Ethereum-based tokens, most marketplaces for these collectibles accept only Eth tokens as payment. If you already have an account with a cryptocurrency exchange, you can purchase Ethereum on it and send your crypto to your MetaMask wallet.
If you don’t already have a crypto exchange account, Coinbase and eToro are good options for beginners.
Connect your MetaMask to OpenSea or another NFT MarketplaceThere are many marketplaces to buy and sell NFTs. Depending on which marketplace you choose, you’ll be able to purchase different types of art or collectibles. A lot of these websites have secondary marketplaces with a variety of NFTs, but each platform operates slightly differently.
• MetaMask is an Ethereum wallet available via chrome extension and mobile app. To sign on to OpenSea (and other NFT platforms) you’ll need an Ethereum wallet. Simply download MetaMask, set up a wallet and send over the ETH you just purchased from Coinbase. If this is your first time interacting with crypto wallets, check out the free Crypto & DeFi 101 guide for an in-depth video walk through.
• OpenSea is a marketplace for NFTs that operates on Ethereum. Users can interact with the network to exchange non-fungible tokens for cryptocurrency. It hosts a variety of digital collectibles, from video game items to digital artwork. To use the platform, you need a web3 cryptocurrency wallet such as MetaMask. Your Ethereum wallet address acts as a username and password and lets you interact with certain platforms like OpenSea. Once you’ve connected your wallet, you’re ready to start browsing the market and placing bids!
Here are some of the other most popular NFT marketplaces:
• SuperRare is a social network for NFTs. Each piece on the platform is unique, and users can buy and sell these original pieces on its website. The platform operates with Ethereum’s network, so you’ll need to fund your account with Eth tokens to make your purchase.
• Nifty Gateway is an NFT marketplace owned by the popular cryptocurrency exchange Gemini. The platform works with popular artists such as Steve Aoki, Grimes, 3LAU and many others to release artwork on the primary marketplace. The company also has a secondary marketplace that allows collectors to resell artwork. You can fund your Nifty account with Ethereum, or you can connect a credit card directly on its website.
• NBA Top Shot is a marketplace for licensed NBA collectibles. These digital items are a new take on basketball cards; these digital cards are more interactive than traditional trading cards. For example, the cards have in-game highlights of the featured players. The highest sold card on NBA Top Shot was a Lebron James Dunk card: the card featured a clip of James dunking on the Houston Rockets and sold for over $200,000.
Buy Your NFTIt’s an easy process to buy an NFT once you’ve funded your account. Most marketplaces are in an auction format, so you’ll need to submit a bid for the NFT you want to purchase. Some marketplaces operate more like an exchange, using highest bid and lowest ask for NFTs that have several prints.
A benefit of purchasing an NFT from the primary marketplace is the potential resale value directly after the product goes on sale. Some NFTs that are in high demand will sell for 5 to 10 times their initial price right after the release. The downside to buying NFTs on the primary marketplace is it’s hard to estimate the demand for the art. On the secondary marketplace, you can compare your purchase to previous sales.