Introduction
Non-fungible tokens or NFTs are growing from popularity among cryptocurrency communities to mainstream prominence with celebrities and big brands getting involved. Investopedia defines NFTs as “unique cryptographic tokens that exist on a blockchain and cannot be replicated” and they are different to cryptocurrencies because “they cannot be traded or exchanged at equivalency”.
While many non-crypto people know a little about what NFTs are there is still a lack of knowledge around how individuals can get involved and what are the key things to understand about the space,
In this article, we will cover some of the main things you should know about how NFTs work, who the main players in the ecosystem are and where you can dive deeper to grow your knowledge.
According to this recent article on Morning Brew, NFT sales almost equaled all global art sales in 2021. They describe how digital asset sales totaled nearly $41 billion. To put this in perspective, global art world sales for the same period were around $50 billion.
The article goes on to highlight what is interesting about the dynamics of NFT sales: “The vast majority (75%) of NFT transactions were sales under $10,000, but the wealthiest 9% of NFT wallets held ~80% of the market’s value.”
Some Key NFT Terms You Should Know
Some of the tech terms used when talking about NFTs, transactions and how they operate may be quite alien to non-tech people. Here we look at some of the things you will read and hear that might not be easy to understand to people new to the world.
NFT Wallets
As is described in this article 5 Best NFT Wallets on The Motley Fool, first of all, you will need a wallet to begin collecting or investing in NFTs. The article goes on to describe how NFT wallets do not directly store the NFTs but give the private key access to the asset stored on blockchain. The wallet address is a collection of numbers and letters needed to make transactions using the wallet.
The article describes these as the 5 best wallets for use with NFTs:
- Metamask
- Math Wallet
- AlphaWallet
- Trust Wallet
- Coinbase Wallet
Wallets do not hold your cryptocurrency or NFTs like a digital version of a physical wallet. They instead store the private and public key addresses you need to make transactions.
There are both hardware and software wallets options for storing access to your NFTs. You can find out the pros and cons of these two types of wallets in this Medium post from 2019 What’s In A (Crypto) Wallet? Hardware Wallets vs Software Wallets vs Online Wallets.
Hardware wallets are described as “physical devices that are used to store private keys”. The pros of using them are that they are more secure offering protection against malware and hacking. The disadvantage is that they need to be attached to a physical computer to work and they also tend to be expensive.
Software wallets are “locally stored inside your desktop or laptop hard drive” and the main pro is said to be that they are a great fit for small value trades. The negative side of using a software wallet is that they are more susceptible to being hacked which means you could suffer losses if there was a successful attack.
A recent article on the Allied Market Research site claims that the hardware wallet market was valued at $0.22 billion in 2020, and could reach over $1 billion by 2028.
Ledgers and NFTs
The Merriam-Webster dictionary definition of a ledger is:
- “a book containing accounts to which debits and credits are posted from books of original entry”
- “a digital record that is used similarly to an accounting ledger (as for maintaining a list of transactions)”
In the area of blockchain (also known as DLT or distributed ledger technology) and NFTs, the use case is described as “NFTs use blockchain, the technology ledger backing cryptocurrencies …, which are databases of linked information to record ownership or transactions of a product.”.
NFTs and Blockchain
Blockchain is described here by the Blockchain Research Institute as: “a distributed software network that functions both as a digital ledger and a mechanism enabling the secure transfer of assets without an intermediary.” According to a recent report by PwC, the technology has the potential to add $1.76 trillion to the global economy by 2030.
The second-biggest cryptocurrency by market cap after Bitcoin is Ethereum. According to this Financial Times article: the total trading of NFTs on the Ethereum blockchain reached $5.9bn in the third quarter of 2021– up more than six-fold from $782m from earlier in the year.
Minting NFTs
Minting is described as: “Turning digital files into tradable blockchain-based assets” in the article called Beginner’s Guide to NFTs: How To Mint a Non-Fungible Token on Ethereum. You can discover here the full process to follow for minting using OpenSea on the Ethereum blockchain.
The basic steps for minting an NFT are as follows:
- Get a cryptocurrency exchange account – such as Coinbase or Kraken so you can buy crypto
- Buy Ethereum – this is the native currency of the blockchain used for most NFT transactions
- Get a crypto wallet – this is to store your crypto and NFT keys safely
- Send Ethereum to your crypto wallet
- Sign up for OpenSea using your crypto wallet – this gives you access to the main NFT marketplace
- Create your NFT – you are now able to create (mint) your first NFT and can upload your file of choice
Meaning of Utility in NFTs
In the Medium article What Does Utility Mean In Our NFTs? The author outlines the need for longevity in the NFT market needing to have utility beyond trading cartoon pictures within the community. The article described one type of utility being from gamification such as with Mad Cat Militia where the 10,000 programmatically generated cats do battle in war games.
Unlockable Content
You can find out more about what this means in NFTs in this Mintable article Unlockable content in NFTs: What is it? The basic idea is that it allows creators to add things like extra files of images and videos to NFTs.
Here are some of the suggested types of unlockable content being offered by creators of NFTs: “high-res images, full-length videos, a physical copy or print of the artwork, or an off-chain link to a google drive, dropbox, etc.” This shows that the scope is very wide to give extra value to people who purchase your NFTs and the opportunity to be creative outside of the virtual world too.
The Percentage On Sales (Perpetuity)
You find some great information on NFT Royalties in this article on the Cyber Scrilla website. The good thing for content creators is that royalty payments are perpetual and executed by smart contracts and so continue for not just the first sale of your artwork but for all others that might follow.
5-10% is considered a standard royalty on most NFT markets. ‘Beeple” or Mike Winkelmann who created the most valuable NFT sold at auction; has programmed his NFT to issue 10% royalty from each subsequent sale for example.
You can read more about smart contracts (executable automated code that enables NFT transactions on the blockchain) here in another Cyber Scrilla article. The ERC 721 Standard is used for smart contracts on Ethereum and requires:
- Address of Smart Contract
- ID of the Token
The smart contract’s code is basically created when you mint an NFT. Smart contracts are used for the governance of a number of things around NFTs, primarily:
- Verifying the ownership
- Handling the transferability
NFTs for Profile Pictures
A profile picture or PFP is something associated with NFTs. This is a useful article discussing the topic. It describes how a PFP is “the first thing people upload when they start using Facebook, TikTok, Instagram, Twitter, Snapchat or whatever social media website out there.”
Take a look at this article The Future of NFTs: How PFP-Based Projects Took Over the Marketwhere you can get a great overview of some of the most well-known PFPs such as by CryptoPunks (24×24 image pixels that were limited to 10,000 collectibles on the Ethereum blockchain) created by Larva Labs.
Here are some CryptoPunks that went for genuinely huge sums – #3100, sold for $7.58 million, in March 2021, Cryptopunk #7252, generated 100% profit for the seller in August of $5.3 million and #7523, sold for $11.75 million, during a Sotheby’s auction. Visa Inc. bought a digital avatar via the purchase of CryptoPunk #7610 for $150,000.
Understanding the NFT World
In this section, we will look at some of the technology that is part of how NFTs work and where community discussions are taking place online.
NFT Ecosystems
In this article, NFT Ecosystems: Top 5 of 2021 According to BeInCrypto Staff you can find a helpful list of the ranked top 5 NFT ecosystems according to beincrypto.com. By some distance, the biggest and most important is that of Ethereum: “the original NFT ecosystem and the undisputed leader in the cryptosphere”. Other NFT ecosystems to be aware of include; Ronin, Flow, Solana and Wax
According to the article, ERC-721 tokens account for over 90% of the digital assets on the Ethereum network. This includes Axie Infinity, the Ethereum sidechain, whose recent uptick helped OpenSea hit $3 billion worth of trading volume in December, read more about this on the decrypt.co website here.
ERC-721 is defined here in this QuickNode post as “an open standard that describes how to build Non-Fungible tokens on EVM (Ethereum Virtual Machine) compatible blockchains; it is a standard interface for Non-Fungible tokens; it has a set of rules which make it easy to work with NFTs.”
Ethereum Name Service, .eth, Reverse Record and Etherscan
The post, What is ENS (Ethereum Name Service) and how does it work? On forkast.news states the purpose of ENS as being to simplify the naming of public addresses and decentralized websites by allowing users to create universal nicknames. ENS usernames are portable across dApps and blockchains. This all helps the general user to avoid the complication of a long complicated address made up of random letters and numbers.
The process to find an ENS name is quite straightforward and similar to looking for an available name for a new website. First, you must search on the ENS app for a suitable available name then follow the registration process (which includes verifying 2 transitions from your wallet) and finally pay the yearly fee. Once done, your new ENS name can be linked to your wallet for use.
It is claimed in this BTCMANAGER article that the ENS user base grew by 30X from February to June 2021. .eth is the native name suffix for ENS, you can dive deeper into this topic here.
ENS Reverse Records are well explained in this post called ENS Reverse Records: What They Are & How to Create Them published on the Alpharithms website. On the Ethereum network, a unique numeric value is allocated for user accounts and the ENS provides users with the ability to look up their hexadecimal address via a human-readable value.
On the other hand, the ENS reverse records do the opposite and enable users to look up the human-readable address using the full hexadecimal address. You can discover much more about Ethereum’s data and analytics on the Etherscan website.
Here are the steps given in the article for creating a reverse record:
- Have an ENS Name Registered
- Connect Wallet to ENS Domain App
- Select ENS Domain to Set Reverse Record
- Confirm Record
The Polygon Protocol
Polygon is a protocol and a framework for building and connecting Ethereum-compatible blockchain networks. On the company’s blog post Polygon’s Breakthrough Year: 2021 in Review you can learn about their performance last year including adoption reaching over 120 million unique addresses.
This article on Crypto Academy states that there are more than 3,000 decentralized applications (DApps) on the Polygon ecosystem with a potential reach of almost $4 billion in locked-in value.
A DApp is a decentralized application that operates autonomously, typically via smart contracts. To find out more about developing dApps for NFTs you can review this article NFT Minter Tutorial: How to Create a Full Stack DApp published on Alchemy Distribution.
NFTs and Community Building
You can discover more about this important part of the NFT world in the article NFT Communities Are the Beating Heart of Successful Initiatives, published on Beincrypto.com.
These communities are run alongside crypto communities and are a place where like-minded people collaborate on interesting projects. The article describes communities as a “vital and exemplary aspect of all NFT projects”.
Platforms, where you find out more about NFT communities, include Discord and Twitter, Discord is the VoIP (Voice over Internet Protocol) and video, voice and text platform for NFT and other tech communities. According to this November 2021 TechCrunch article, Discord founder and CEO Jason Citron has said that the company is not moving its business to integrate NFTs directly at the moment. This followed a tweet where Citron shared an image of the crypto wallet MetaMask integrated into Discord’s user interface.
The 15 Biggest NFT Influencers of 2021article is a great source for suggestions of NFT Twitter accounts to follow. Two of the biggest are @6529 with almost 200K followers and @alexisohanian with 460K followers. punk6259 is the place to “read epic threads about the potential of NFTs and the metaverse” and Reddit co-founder Alexis Ohanian is a well-known member of the NFT community.
Buying NFTs
If you want to get involved in the buying and selling of NFTs, here are a few key areas that you should be aware of.
NFT Roadmaps
You can take a look at this Mintable article What is an NFT Roadmap? to find out some good information about the area. Roadmaps are: “a document that maps out the goals and strategies of an NFT project to communicate its long-term value.” They also include other important information for example around development milestones and release dates.
NFT Whitelists
Being part of an NFT whitelist gives you some advantages over other members of the community, for example, early access to buy new NFTs. You can take a look at the Laptop Mag NFT article primer to find out a lot more about whitelists.
The article describes the real-world example, Mutant Mingos, an NFT art project that features mutant type flamingos. The price to whitelist members was 0.035 ETH around $140, the public purchase price a few days later was much higher at 0.07 ETH or $280.
NFT Floor Prices
To help understand ‘floor price’ in NFTs you can refer to data available from Statista.
The term floor price refers to the lowest price at which an NFT can be bought. It originates from commodity trading. According to Statista, “at its peak in September 2021, the floor price of any type of NFT trading was around 10 times higher than it was in early June 2021. Around 1.1 ETH.”
The Top NFT Collections
If you visit finder.com you can keep an eye on the movement of the top 50 NFT collections. You will be able to see information regarding the rank position, daily trades and volume over 24 hours measured in ETH. At the time of writing Mutant Ape Yacht Club is the rank number 1 collection.
Some NFT collections become sold out extremely quickly. In October 2021, According to this article on Yahoo Finance, the Red Panda Squad NFT sold out in a record-breaking time of just 10 minutes with a total of $3M in sales
NFT Drops
To understand the importance of an NFT drop you can read the post What Is An NFT Drop? NFT Drops Explained on the Cyber Scrilla website. The definition of an NFT drop here is where the release’s exact date, time and generally the price are revealed.
The article goes on to outline that some drops have limits on how many NFTs you can purchase per transaction and that buying at the right time can save you some money too. If you want to be up to date on when NFT drops are due to happen you can check out this calendar of release dates on the NFT Calendar website.
One term some people who are new to NFTs may be confused about is sweep the floors. This jargon-buster post on Real Money defines it as “buying all the NFTs listed at the current floor price, which can range from one to 100+”. Floor weeps are said to occur normally because of momentum or project news.
NFT Gas Fees
It is important to understand the meaning of gas fees when looking to start trading NFTs. The article NFT Gas Fees Explained on the Cyber Scrilla site gives a good definition to get you started: “the fee that most NFT trading platforms charge. This is incurred to conduct the transaction or execute a contract on their blockchain platform.”
As the article explains, gas prices are increasing and are expensive. Gwei is the term used to describe the unit of gas (energy) required for the computation of an NFT transaction. Investopedia defines Gwei as: “a denomination of the cryptocurrency ether (ETH), used on the Ethereum network to buy and sell goods and services.”
As an example, Statista states that OpenSea was the site with the most daily transaction or gas fees at the time of writing this is 2,618.44 ETH.
Important NFT Platforms And Companies
MetaMask
You may have heard about MetaMask, a very well known cryptocurrency wallet. According to this article, the platform has over 21 million monthly active users accessing Decentralized Finance (DeFi), NFTs and more. Investopedia defines DeFi as gaining momentum in moving potential future models of money away from centralized banking institutions by eliminating the fees companies choose borrowers.
In December we learned from the article on Crypto News that MetaMask was adding a feature to their product where users could access an in-app NFT browser extension.
OpenSea
OpenSea is the largest NFT marketplace founded in 2017. In this recent New Your Times article you can read about how OpenSea has grown rapidly over recent months. The article describes how over 26 months they have grown from 4,000 active users doing $1.1 million in transactions a month to now around $2 billion a month with 1.8 million active users.
Some Other Influential NFT Companies:
Solana – a high-performance blockchain that enables developers to create crypto apps that scale.
Rarible – is a marketplace where you can create and sell digital collectibles secured by blockchain
Foundation – this community-focused marketplace launched in 2021, it aims to build a new creative economy where creators can work together with others.
What’s Next For NFTs?
NFT is part of an even bigger cultural movement that is gathering pace around Web3. There is some controversy around exactly what Web3 is and how transformative its potential will be.
You can read this article to discover some of the conflicting opinions being expressed about it on the CBS News website. It involves cryptocurrencies, decentralized hardware infrastructure, NFTs, DeFi, the Metaverse (digital in-game virtual environments) and DAOs (decentralized autonomous organizations). PleaserDAO is an example of an interesting DAO involved in NFTs.
This recent article on Coinbase.com gives us some predictions about what will happen with Web3 and at the forefront is the expansion and popularity of NFTs for creators and fans.
The article claims that the logical next step will be for NFTs to extend their utility into digital identification and more in the metaverse to provide competition with the commercial physical world.
Coinbase, of course, is a very influential platform in the cryptocurrency world and they are preparing to venture into the NFT sphere soon too.
According to this article on the Business of Apps website, Coinbase has 43 million users worldwide and over 2.8 million people actively exchange every month. At the moment you can join their waiting list for their marketplace by registering here.
NFTs are available worldwide from anywhere with an internet connection. However, there are undoubtedly hubs of activity in certain geographic regions where digital penetration and embracing of cryptocurrency is more advanced. Canada is quite open to the use of crypto as you can read about in this post What you need to know about NFTs in Canadapublished on the Hardbacon website.
Shakepay is a cryptocurrency platform that has just recently raised $35 million to help Canadians buy and sell cryptocurrency according to this CoinDesk article which shows that this is one part of the world to look to for innovation. If you want to check out some of the NFT platforms available in Canada, you can review this list of the best on Sourceforge.net,
Sources and further reading:
What is a non-fungible token (NFT)?, Coinbase
https://www.coinbase.com/learn/crypto-basics/plp-what-is-nft
Non-Fungible Token (NFT) Definition, Investopedia
https://www.investopedia.com/non-fungible-tokens-nft-5115211
NFT sales almost equalled all global art sales in 2021, Morning Brew
5 Best NFT wallets, Motley Fool
What’s In A (Crypto) Wallet? Hardware Wallets vs Software Wallets vs Online Wallets, Hackernoon
https://hackernoon.com/an-overview-of-the-cryptocurrency-wallet-options-available-in-2019-69o44eh
Allied Market Research
https://www.alliedmarketresearch.com/hardware-wallet-market-A11658#
Beginner’s Guide to NFTs: How To Mint a Non-Fungible Token on Ethereum, Decrypt
https://decrypt.co/resources/beginners-guide-to-nfts-how-to-mint-a-non-fungible-token-on-ethereum
Blockchain Research Institute
Time for trust: How blockchain will transform business and the economy report, PwC
What are non-fungible tokens and how do they work?”, Financial Times
https://www.ft.com/content/852b7961-51ee-43a3-8caf-f39bb479655c
What Does Utility Mean In Our NFTs?, Medium
https://medium.com/nf3media/what-does-utility-mean-in-our-nfts-a64deb45896d
Unlockable content in NFTs: What is it? Mintable
https://editorial.mintable.app/2021/09/05/unlockable-content-in-nfts-what-is-it/
NFT Royalties: What Are They and How Do They Work?, Cyber Scrilla
What do pfp mean? Role of NFTs in PFP, Medium
https://medium.com/geekculture/what-do-pfp-mean-role-of-nfts-in-pfp-768aa57e1746
The Future of NFTs: How PFP-Based Projects Took Over the Market, ARTnews
https://www.artnews.com/art-news/news/pfp-nfts-future-market-1234602384/
Visa Buys NFT of Digital Avatar With Mohawk for $150,000, Bloomberg Wealth
NFT Communities Are the Beating Heart of Successful Initiatives
https://beincrypto.com/nft-communities-are-the-beating-heart-of-successful-initiatives/
NFT Ecosystems: Top 5 of 2021 According to BeInCrypto Staff
https://beincrypto.com/nft-ecosystems-top-5-of-2021-according-to-beincrypto-staff
Ethereum NFT Market Soars in First Days of 2022 After OpenSea Marks Another $3B Month
https://decrypt.co/89653/ethereum-nft-market-soars-first-days-2022-opensea-3b
How to create and deploy an ERC-721 (NFT)
https://www.quicknode.com/guides/solidity/how-to-create-and-deploy-an-erc-721-nft
What is ENS (Ethereum Name Service) and how does it work?
Ethereum Name Service (ENS) Accounts Grew 30x in 4 Months, Data Shows
https://btcmanager.com/ethereum-name-service-ens-4-months-data/
ENS Reverse Records: What They Are & How to Create Them
Polygon’s Breakthrough Year: 2021 in Review
https://blog.polygon.technology/polygons-breakthrough-year-2021-in-review/
As NFT Sales Hit New Highs, Polygon Network Activity Thrives
Discord pushes pause on exploring crypto and NFTs amidst user backlash
15 Biggest NFT Influencers of 2021
https://decrypt.co/89158/15-biggest-nft-influencers-of-2021
What is an NFT Roadmap?
https://editorial.mintable.app/2021/12/21/what-is-an-nft-roadmap/
The truth about NFTs — the hoops people jump through to get JPEGs will shock you
https://www.laptopmag.com/features/the-truth-about-nfts
Average floor price for all NFTs up until January 10, 2022
https://www.statista.com/statistics/1265565/nft-floor-rate/
The top 50 NFT collections you should know about
https://www.finder.com/cryptocurrency/nft-collections
This NFT Collection SOLD OUT in a Record Breaking 10 Minutes With Over $3M in Sales
https://finance.yahoo.com/news/nft-collection-sold-record-breaking-084000663.html
What Is An NFT Drop? NFT Drops Explained.
Welcome to the World of NFTs, I’ll Be Your Translator Today
MetaMask to Add Support for NFTs
https://cryptonews.com/news/metamask-add-support-for-nfts.htm
https://www.investopedia.com/decentralized-finance-defi-5113835
MetaMask Surpasses 21 Million MAUs as ConsenSys Raises $200 Million to Make Web3 Universally Easy to Use, Access, and Build On
OpenSea is valued at $13.3 billion in new round of venture funding.
https://www.nytimes.com/2022/01/04/business/opensea-13-billion-valuation-venture-funding.html
What Every Crypto Buyer Should Know About OpenSea, The King Of The NFT Market
NFT Gas Fees Explained.
Top 10 addresses on the Ethereum blockchain with the most in daily transaction fees (“gas”) in the last 24 hours as of January 11, 2022
https://www.statista.com/statistics/1265958/most-used-addresses-on-ethereum-blockchain/
Explaining Web3: From the blockchain and crypto to NFTs and the metaverse
https://www.cbsnews.com/news/web3-blockchain-crypto-nft-metaverse-explainer/
10 Predictions for Web3 and the Cryptoeconomy for 2022
https://blog.coinbase.com/10-predictions-for-web3-and-the-cryptoeconomy-for-2022-745a20a60cd0
https://www.coinbase.com/nft/announce
Coinbase Revenue and Usage Statistics (2022)
Shakepay Raises $35M to Help Canadians Buy, Sell and Earn Bitcoin
NFT Platforms in Canada
