What Is an NFT?

Non-fungible tokens have recently boomed in the common vernacular, and three letters that, before 2018, had most of us shrugging our shoulders now have real significance. 

That significance is most vividly suggested in our imagination by the stunning reports of millions of dollars being dropped on internet marketplaces for, for example, the GIF of Nyan cat.

In this guide, we’re going to discuss exactly what an NFT is, how to buy one, and how to make one for yourself. Let’s get into it!

What Is an NFT?

NFT stands for non-fungible token. They’re a huge deal now for all those interested in blockchain technology, the future of fine art, and global warming, and NFTs are also hot topics for people interested in making money quickly or in investing their unused millions. 

Okay, let’s back up for a second. What does non-fungible even mean? According to the Cambridge Dictionary, something is fungible if it’s easily exchangeable for something of equal value. In other words, anything that has a copy worth the exact same is fungible. 

For the most part, non-fungible tokens today are being spoken about in comparison to real-life paintings, and this is likely the easiest path to begin to understand them. 

A non-fungible token has no peer. It is a one-of-a-kind digital item with an owner (with proof of ownership), and that can be bought or sold much like art (paintings, sculptures) be bought or sold, and the physical item then changes hands. 

NFTs, like paintings, can have limitless reproductions, but there is only ever one original. NFTs, unlike paintings, are digital assets.

An NFT, much like a modern piece of art, can be anything, whether it’s a gif or a digital file, or a trading card. 

What has raised many an eyebrow and quickened many a money-loving heart is how much NFTs have been selling for and what the owner is getting from the transaction. 

Just to give a few examples: 

• Grimes sold a short video clip set to music for $389,000 (which can be watched and downloaded for free right here).
• Digital artist Beeple sold Everydays: The First 5000 Days for $69.3 Million at Christie’s Auction in March 2021 (for reference, this is about double the price that this famous painting sold for).
• CryptoPunks sold this .png for about $11 million at an auction house.
• Jack Dorsey sold the first tweet in May for 2.9 million dollars.

Now, let us remind you. All of these things listed above can be found very easily for free on the internet. Are people really paying $2.9 million for bragging rights? (“I own the first tweet”). Are digital collectibles like an incredibly lo-fi Crypto Punk really worth 11 million dollars?

Now, for digital artists, this might seem too crazy to be true. Long story short, it essentially is. On the one hand, if you’re a digital artist interested in making an NFT, you have plenty of got-rich-quick predecessors to look to as examples. But there are unpublished stories, the 99%, whose losses don’t make headlines as clickable.

As Kim Parker points out eloquently and persuasively on Medium, the vast majority of digital artists who have bought into the NFT craze lose more money from trying to create NFTs than they actually earn from selling their digital artwork.

How could that be, you might ask? The NFT platforms dealing in NFTs have massive fees that they charge to artists, whether the artist made $1 or $10,000. In fact, Parker found that in cases when NFT digital artwork is sold for less than $100, the average fees amount to 100.5% of the profit (a net loss of at least $.50).

Indeed, like all “gold rushes” before it, the world of NFTs is not a world where panhandlers get rich. It’s a world where the people selling the shovels get rich.

Our efforts to dissuade you notwithstanding, if you’re still interested in creating an NFT, it’s relatively straightforward on most platforms.

How Are NFTs Unique?

We won’t get into the hardcore computer science here, but NFTs are unique because they are part of the blockchain.

You can read more here about the blockchain, but the blockchain is a kind of database at its most basic level. Unlike most databases, however, the blockchain is a database stored across a network (that is, many computers), making it decentralized and immutable (data entered into the blockchain cannot be changed or removed).

The blockchain has many functions, but the most important function for us in discussing NFTs is its ability to store information. Transactions can be recorded on the blockchain, for example, allowing each item on the blockchain to reflect a complete history of its transactions.

Are NFTs Only Digital?

One of the ways that NFTs differ from modern art is that they have some utility that can extend beyond an “art for arts’ sake” mentality as digital assets with real-world applicability.

NFTs originated from Colored Coins, bitcoin tokens that represented real-world assets like real estate. This worked because colored coins could provide a certificate of authenticity utilizing blockchain. The same is possible with NFTs. 

For example, most smart contracts surrounding NFT transactions give the new owner some right to the digital artwork they’ve purchased. Their proof of ownership gives them the ability to, for example, make that image their profile picture. 

Beyond that, however, NFTs representing, for example, special weapons or characters in certain video games can allow users a real sense of utility rendered by their NFT.

NFTs can also be collectibles tied to real-world items like baseball cards. At the same time, many NFT collectibles aren’t tied to any real-world items: 

Finally, NFT ownership can be tied to real-world impact and opportunities. For example, in April, the Maple Leafs’ Matthew Auston sold his collection of digital art. While having access to the digital art, the new owner of the NFT also “unlocked” the ability to meet the hockey player in person.

How Is an NFT Different from Cryptocurrency?

Now, wait, you may be saying. NFTs are stored on the blockchain, and so are some cryptocurrencies like Bitcoin. But NFTs are different from cryptocurrency for one significant reason: fungibility.

Look at it this way: Bitcoin, Dogecoin, Ether, and every other cryptocurrency functions just like dollars, yen, and pounds. That is to say, 1 dollar will always be equal to 1 dollar. You could trade dollars with someone and still come out with exactly 1 dollar. Bitcoin and all other cryptocurrencies work exactly the same way.

NFTs, on the other hand, are unique items.

Then again, bitcoin and other cryptocurrencies are in some sense non-fungible because they also offer a record of unique transactions and are registered to unique individuals. 

As Rene Char once said, “every action is virgin, even repeated ones.” Bitcoin may be unique in some sense in that it is tied to one unique individual. In the same sense, however, two distinct dollar bills are, in fact, different, but the cryptocurrency ecosystem doesn’t treat them as such. Money works because we consider it fungible, and this applies to cryptocurrency.

NFTs are non-fungible; we think of them as unique, a digital Mona Lisa, and it’s a Cartesian world we live in even today.

How Does an NFT Work?

NFTs transactions are registered in a digital ledger called the blockchain.

Because NFTs are part of the blockchain, their ownership is documented. Anyone who owns an NFT, meanwhile, can transfer ownership to another person. The blockchain is updated after such a transaction, and a new owner is listed under the most recent transaction. 

The blockchain has enabled digital files, memes, images, screenshots of newspaper articles, and even tweets to have owners. 

This latest development in the ever-expanding world of the internet is another nail in the coffin for the dream of cyber-utopianism and reveals new depth in the well-trodden Henry Ford quote, “An imitation may be quite successful in its own way, but imitation can never be Success. Success is a first-hand creation.”

Where Can I Buy NFT Tokens?

To buy NFT, you’ll have to have a digital wallet from any one of the blockchain-enabled digital wallets on the internet (Coinberry is good for Canadians, but Coinbase is probably the most popular). Once you have a digital wallet, you’ll need to get your hands on some Ether.

Ether?

Ether (or Ethereum) is a cryptocurrency standard that, like Bitcoin, is tradable between internet users and makes transactions for things like NFTs possible. 

While there are several Ethereum currencies, the standard is set by ERC-20, the currency whereby most smart contracts are arranged. This might be a bit above your head, but you can read a little more about ERC here.

What makes Ether different from Bitcoin, however, is Ethereum’s platform. Unlike Bitcoin, Ether is tied to the Ethereum platform, an internet portal owned by no one that developers can create apps for, create games for, and on which artists can sell their NFTs. 

NFTs only exist on Ethereum, which means users must have a digital wallet that can support Ether and must have purchased ether.

Most Popular Marketplaces

NFTs can be bought at NFT marketplaces, all of which exist on the Ethereum network. The oldest and largest NFT marketplace is OpenSea, with a wide variety and diversity of NFTs available for sale. 

Other marketplaces include CyberPunk’s Larva Labs, NBA Top Shot’s marketplace of virtual NBA trading cards, NiftyGateway, where artists like Grimes and Beeple have sold their work, Rarible, and many more.

How to Buy an NFT

Buying an NFT is typically a simple process, though the requirements for buying an NFT differ from marketplace to marketplace. In the larger, more mainstream marketplaces like OpenSea, buying an NFT is as simple as connecting your digital wallet and getting spending.

With other NFTs, the process is more complicated. You should read about the individual marketplace you’re interested in to better understand how to buy NFTs via that marketplace.

How to Make an NFT

Making an NFT depends a lot on the marketplace on which you want to create the NFT. Let’s take OpenSea, the most common place where NFT creators go to sell their work. The whole process is outlined here, but essentially all you have to do is connect your ETH-enabled digital wallet, go to your profile, and click “create.” All sorts of file types are accepted, from PNG and JPG to WAV, MP3, and BLB (whatever that is).

Final Thoughts

NFTs have excited the art world and the big spenders that keep it going. Though some speculate that NFTs are a bubble that will soon pop, optimists claim that NFTs represent the future for art whereby anyone in the world can create and sell their art for high prices. 

The biggest concern about NFTs right now, beyond the unreasonable expectation of quick riches that can blind even those with the best of intentions, is its environmental impact. Right now, Bitcoin uses more electricity than Washington State, The Philippines, and many other countries.

One NFT transaction, meanwhile, uses as much energy as a household uses in a day-and-a-half, leading activists to worry about NFTs’ long-term impact on the environment. 

On the bright side, Ethereum 2.0 is expected to launch as early as next year, whose various updates include a change in transaction method that Ethereum claims will reduce NFT transaction energy usage by 99.9%.

As far as the future of NFTs go, we can only speculate. The only thing for sure is that while some people have spent crazy amounts of money on NFTs, I think we can all agree that this $1.7 NFT digital-only Pringles flavor, CryptoCrisp, is well worth it.