Just when people were starting to grasp the world of cryptocurrencies, NFTs sprang up and took the center stage as the latest crypto craze. You may have seen the term NFT on the headlines in your social media feeds and wondered what it’s about.
Take solace in the fact that you are not the only one who has no idea of NFTs means or what they are used for, as many people are also scrambling to wrap their heads around NFTs. This guide explains all you need to know about NFTs, including how they work, how to buy and sell them, the marketplaces to trade them, and more.
Read on to find out more
History of physical collectibles
Before we get into the details of what NFTs mean, which are digital collectibles, it’s vital to first know the history of physical collectibles. Collectibles simply refer to items that are valued and are of interest to a collector. They are usually worth far more than they were originally sold for because of their rarity and/or popularity.
The urge to collect items that are perceived to be fascinating and valuable is primeval and almost as old as civilization itself. Scientists believe that collecting first started when humans began to collect firewood and make some decorations. In the process, they collected stones, shells, and various trophies from hunting, but they did all this without the consciousness of collecting valuable items.
As time progressed, collecting became more popular during ancient Egypt and Greece as a collection of arts took root. The motivation was the sudden realization of the potential of art both as a means of storytelling and as a symbol of luxury.
In light of this mindset, the lapis lazuli encrusted gold work was buried with the Egyptian King Tut and the bronze idols became a common sight in Greek temples. Both cultures saw collecting as a way of showcasing their wealth and status. As the Romans conquered the world, they also collected many Greek sculptures to reflect their erudition.
It was common for Roman Emperors to return from wars with massive spoils and bring the finest of these foreign objects to signify their victory. Rome still bears a significant number of valuable Egyptian items as a reminder of collecting ancient art.
Over time, the practice of collecting items increased in popularity, and this led to the Victorian era aristocracy keeping the items they were able to collect in special rooms called ‘cabinet of curiosities.’
These cabinets contributed to the establishment of the first museums in Europe.The widespread knowledge of the cabinet of curiosities fuelled the drive all over the world for physical collectibles as people became curators of varied objects such as baseball cards, photographs, and stamps.
Beyond simply liking the various items, many savvy collectors see their individual collections as a symbol of status or a means to demonstrate their interest in the past or connection to a historical period or a potential of fetching more money than they were originally worth. The rarer a collectible, the more expensive it becomes.
What gives a collectible value?
Generally, the value of a collectible is determined by five major factors:
- What someone is willing to pay and demand: In simple words, an item is only worth as much as someone is willing to pay for it.
- Condition of the item: For a collectible to hold its value or appreciate, it must be kept in a mint condition.
- Age of the item: An older item is considered to be more valuable than a newer item in most cases.
- Authenticity: An original item certified to be owned, used, or created by someone will be valued astronomically than one made by a copycat.
- The rarity of the item: Expectedly, an item will be valued by how rare it is. The more difficult it is to find, the higher its value will be.
What are digital collectibles (NFT)?
NFT stands for Non-fungible token. It is a type of digital asset, which holds value as a form of cryptocurrency. However, it cannot be exchanged with another of equal value or broken down to smaller values like most currencies.
The idea behind NFT is to provide explicit proof that you own something like an art piece. The ownership of the digital asset is recorded on a blockchain – a digital ledger similar to the networks that underpin Bitcoin and other cryptocurrencies. To further break down what NFT is, think of a piece of art that can be created, and that exists on a screen, be it your phone, tablet, or computer.
Although that art piece can be seen by many people and even downloaded multiple times by anyone, NFT helps to establish its value and provides certification that you own it.
For instance, anyone can search for the painting of Mona Lisa, download it, print it out, and hang it in their room, but that doesn’t mean they own it as there’s only one original piece of the artwork.
Similarly, NFTs are a form of unique digital assets with no substitutes and whose ownership is recorded on a blockchain.
There are different NFT use cases as they could take the form of a piece of digital art, music album, game, or anything that could be stored digitally. Each NFT is unique and acts as a collector’s item. NFTs are connected to the Ethereum blockchain.
What are fungible and non-fungible tokens?
Fungible tokens refer to digital assets that can be replaced by an identical item. Fiat money and cryptocurrencies are fungible tokens in that their units are the same and equal. For example, a $1 currency or 1 Bitcoin can be easily replaced by another without losing value.
Non-fungible tokens are the exact opposite –digital assets that cannot be replaced because they are unique. It is impossible to exchange one NFT for another in the same way you would with dollars or gold bars since the token is unique and there’s generally only one available.
Furthermore, the uniqueness of one NFT means that there is no defined value to it all. While the value of Bitcoin or a dollar is fixed, the value of one NFT can easily change and will always be priced based on the value of existing currencies. In other words, the value of one NFT can continue to appreciate over time, and it cannot be divided into smaller denominations like Bitcoin and dollars.
Think of NFTs as festival tickets. Each ticket carries specific information that includes your name, the event's date, and the venue. The data attached to the ticket makes it unique and impossible for festival tickets to be traded with another. Similarly, the proof of ownership is stored on the blockchain via smart contracts, making it impossible to destroy, remove or replicate that token.
The purpose of NFT is to own property online, and if you have proof of ownership, you have the right to license or resell it.
History of NFT's
NFTs have recently become the rage of the moment, but they have been around for some time. Now that we have explained what NFTs are let’s dive into the history of these assets.
The origin of NFTs can be traced to 2013 when experiments began with the emergence of colored coins on the Bitcoin network; some sold on eBay. These assets had multiple use cases, including:
- Ability to issue own currencies
- Issue shares of a company
- Access tokens
- Digital collectibles
However, the first-Ethereum experiment was CryptoPunks, built by Larva Labs and consisted of 10,000 unique collectible punks. Released in June 2017, these punks could originally be claimed for free by anybody with an Ethereum wallet, but all 10,000 were quickly claimed.
Shortly after, in late 2017, CryptoKitties was launched, and this project shot NFTs into the limelight. CyrptoKitties featured a blockchain game that allowed users to breed digital cats to produce new virtual cats of varying rarity. Although some in the gaming community later remarked that CryptoKitties was not a real game, the project has been widely commended because it is one of the earliest attempts to deploy blockchain technology for leisure.
After the turn of events with CryptoKitties, many teams went back to the building, and 2018-2019 saw an explosive growth within the NFT ecosystem with thousands of projects within the space and more still being developed.
NFT shot to mainstream popularity recently, which can be attributed to the endorsement by Jack Dorsey, CEO of Twitter Inc., and Tesla’s Elon Musk.
Who’s been using NFTs?
NFTs are having a moment as they have soared in popularity and have quickly become a game of numbers among celebrities, crypto millionaires, tech moguls, NBA fans, and more. Jack Dorsey, Rob Gronkowski, Ja Rule, Mark Cuban, and Lindsay Lohan are some of the big names that have jumped on board.
Weeks ago, Twitter’s Chief, Jack Dorsey, sold his very first tweet from 2006 for 1,630.50 Ethereum currency (which is worth $2.9 million at the time of sale) and donated the amount to charity. The tweet, which said “just setting up my twttr,” was published on March 21, 2006.
Elon Musk also announced his decision to sell a techno song as an NFT but later changed his mind, saying it didn’t feel right. Bidding for the song reached $1.2 million (or 625.6 ether).
“Shark Tank” star Mark Cuban also got in on the gold rush by selling a motivational quote that read, “Nobody ever changed the world by doing what everyone else was doing – Mark Cuban” for $1,700 worth of ether.
Artist Mike Winkelmann, also known as Beeple, also sold an NFT piece “EVERYDAY: THE FIRST 5000 DAYS” for a whopping $69.3 million, making it the most expensive digital art sale ever made. An earlier NFT sale by Beeple fetched $66,666 originally, but the collector sold it a few months later for $6.6 million.
Actress Lindsay Lohan also got in on the action when she sold an NFT of a digital portrait of herself for $50,000 worth of ether.
Last summer, Paris Hilton auctioned off a digital painting of her cat for 40 ether, which was worth $17,000 at the time of sale.
Last month, Logan Paul sold $5 million worth of NFTs in his first launch in the crypto space, including video clips and Pokémon cards of his image. Around the same time, Chris Torres, the artist who first created Nyan Cat, sold $690,000 worth of ether.
Sports collectors are not left out of the trend as the NBA launched its Top Shot marketplace based on the U.S. basketball league, which lets users buy and sell short clips showing match highlights from star players. NBA Top Shot has so far facilitated over $280 million in sales to date, with LeBron James's clips going for about $200,000 each.
Marketplaces where you can buy or sell NFT arts
You can buy or sell NFT art on a variety of marketplaces, and they include:
- Nifty Gateway
- Axie Marketplace
- NFT ShowRoom etc.
The rise of the internet meant that anyone could use a piece of digital art for free, which can be discouraging for creators. NFTs offer creators the opportunity to create a scarcity in the abundance that characterizes the internet.
Now, creators can get value for their pieces of art by selling them as NFTs, and the collector’s proof of ownership is recorded on the blockchain.