Many people find the term NFT (Non Fungible Tokens) confusing at first. They struggle to see what could give these digital tokens value or utility. NFTs are a disruptive technology with massive potential but they can be challenging to understand.
Emerging markets like NFTs bring great opportunity with them, but the lack of regulation also increases the risk of schemes and scams as opportunists exploit peoples’ ignorance and curiosity.
Some will want to use the technology to create valuable NFTs that offer genuine utility to buyers. Less-scrupulous creators will attempt to ‘pump and dump’, selling mass-produced sets of JPEGs that offer little enduring use or value to buyers.
Eventually, equilibrium will be reached when collective understanding grows, and more people feel ready to get involved. For now, the entire NFT industry is in its infancy.
So far NFTs have been used for selling art, tokenising goods or services and for managing access to exclusive groups and events. Further uses are emerging daily.
The future of NFTs promises to be even more exciting than it is today – the key to success is to enter the market now, but responsibly and with curiosity.
Allow me to share the ‘ABCs’ of NFTs.
1. The Technology behind NFTs
NFTs are built on a technology known as blockchains. These are a distributed networks of decentralised computers that maintain a secure and impenetrable ledger that cannot be altered or broken.
Blockchain networks guarantee the security and immutability of NFTs minted upon the ledger. Each and every token for a digital asset is unique (non-fungible) since it exists once and only once on a blockchain and can never be duplicated or removed, only added to.
The uses of blockchain are almost limitless. For example, the buying and selling of property could be conducted on the blockchain in future, rather than via the chains of lawyers and banks we use today. Property-deeds could be stored as NFTs and the exchange of contracts and transfer of money from buyer to seller could be processed on the blockchain, using smart contracts executed by computers.
NFTs are minted onto a blockchain using platforms like OpenSea. This is a marketplace for minting and trading NFTs. Gas fees (equivalent to listing fees) are incurred when minting and selling NFTs – do your research up front, as fees can be significant.
2. The Asset
Early NFTs have tended to be limited series’ of unique digital images and artworks. Some are sceptical over what could make such artwork worth 6-figure sums.
The same is actually true of paintings on canvasses too. A canvas costs £50 and can easily be photographed too, just as a JPEG can be copied or screen-grabbed.
What gives any art value is the story behind it. Value is driven by the status its owner gets from claiming ownership of the original item.
Limited supply also drives value. Mass-produced works are cheaper than one-off originals or limited-edition series’. Scarcity drives up demand, which increases value.
An NFT denotes that its owner possesses the original version of the digital asset, regardless of how many other copies exist.
3. The Art of NFTs
The images and artwork used in an NFT series are representative of the character and personality of the creator. Bored Apes and CryptoPunks – two of the best known NFT projects – feature art with distinctive aesthetics. Good NFTs need unique imagery. When Bored Apes launched their NFT business they were considered unique, but have since been imitated by other projects.
My NFT series (which you can preview here) will feature just 43 NFTs. Their price will be determined by demand which I expect to be high given the size of my following. I’ve created them using digital photographs of physical characters. Buyers will receive the physical character too, included with the NFT. It’s another way of making my NFTs unique.
I’ve heard many say they love my NFTs, while others say they hate them – good art is said to polarise public opinion!
4. The Attributes
Attributes are what make individual NFTs unique.
In the case of my own creations, each character holds a different weapon or tool and features a different colour – some are rarer than others and will give their holder additional benefits and greater utility.
The more unique the combination of attributes an NFT possesses, the more desirable and valuable it is to buyers.
5. The Utility
NFT projects can go wrong if they sell art for large sums of money but don’t have lasting utility other than the aesthetic appeal of the artwork. The same happens when the artist loses social appeal or credibility.
‘Pump and dump’ schemes are unfortunately common. This is when co-ordinated buyers inflate the price of new NFTs from launch, encouraging new investors to buy the NFTs. When prices plateau, those same buyers dump their NFTs, selling for quick profit. Prices drop rapidly and those left holding theirs may lose money. Such NFTs will likely lack true utility.
Whether you’re investing in NFTs, want to make your own, or are simply exploring new technology, consider the lasting utility that NFTs give to holders.
As well as looking appealing, the NFT could guarantee the holder entry to exclusive events, communities and courses, or give them status, bragging-rights or other value. Utility gives an NFT appeal beyond the actual artwork.
Have a question or wish to find out more? Then simply get in touch with me today!