How to Create, Sell, and Buy Non-Fungible Tokens
A crash course in the latest crypto craze.
You've gotten used to cryptocurrencies over the last decade and a half. You may have purchased and sold one of the dozens of digital currencies.
But then another crypto mania emerged: NFTs, or ""on-fungible tokens.""
What is it all about? Are people spending hundreds of thousands of dollars for images you can easily download to your computer?
Well, yes. However, the situation is slightly more complicated than a complex review; we'll examine how, what, and why NFTs work, the problems they're supposed to solve, and the opportunities they provide for collectors and investors.
Along the road, you will learn.
How Blockchain Technology Helps Solve Online Piracy;
Why is a dollar bill fungible, yet the Mon Lisa is not?
Learn how to buy, make, and sell NFTs.
1. A Question of Ownership
Our voyage begins in Paris at the Louvre, the wworld'smostworld'semost um.
Many people are drawn to the mysterious portrait of Leonardo da Vinci's Lisa, around 1500, in oil on white poplar wood.
Currently, insurers value the work at more than $800 million.
Where did that figure originate from, and why is this 30-by-20-inch picture valuable? newsbreak Let's break seemingly basic questifundamental
The first point to emphasize is that there is only one Mona Lisa. Yes, we can copy the painting as a poster, however even the best reproduction is incomplete.
In the art world, this is referred to as "ura.""A one-of-a-kind piece has a unique quality. It exists uniquely at its current location; it is the only one of its kind. When we put reproductions of iconic paintings on our walls, they don't have the same impact as seeing the originals in museums.
One explanation for this is that reproductions do not share the exact provenance. A long line of ownership paperwork traces the Mona Lisa back to the early 16th century. We know it's the world's Nardo da Vinci, one of the most influential personalities in Western art history. That information elevates the original painting's cultural relevance.
One-offs are referred to differently in the tech field. That term has no fungible properties.
The term "fungible" refers to something printable. A $1 bill is an excellent illustration. Nothing will happen if you and I have dollar bills and decide to trade them. Both bills have the same purchasing power; no one who accepts dollars for goods sold bothers which bill they get.
The Mona Lisa is at the opposite end of the spectrum: entirely non-fungible. If you own the painting, you will not trade it for a poster. Even a high-end fake is not worth much because it lacks the original's provenance, which is well-documented and rich in history.
The main takeaway here is that provenance establishes distinctiveness. Unique objects are inherently rare or scarce. Fundamental economics tells us that solid demand combined with scarcity increases value.
So, that shows we arrive at the $800 million valuation. Everyone wants to own a culturally significant piece that has altered how we perceive the world, yet there is only one Mona Lisa. If you can demonstrate that you own the genuine article you made. This is a market.
But what does all this have to do with NFTs? In the analog world, establishing ownership and provenance - tracing who owns what and who made it - is far easier than in the digital age. That is the problem NFTs solve.
2. The Blockchain Revolution
Music used to be offered on vinyl LPs, cassettes, and CDs. To own music, you need a tangible thing. Of course, there were bootlegs and illegal marketplaces, but replicating music was complex.
The internet altered everything. Music became infinitely copyable when it was digitized into MP3 files. With just a few clicks, you could have infinite copies of tunes that were indistinguishable from the original. With the desire to share, music became almost free overnight.
It was the same narrative for all items, including movies, photography, and artwork.
The problem for producers and artists was as straightforward as it was challenging: how do you verify ownership of easily copied digital assets such as electronic files?
Legal restrictions on file-sharing services like Napster are one solution. Streaming services such as Spotify offer another model. However, the most innovative solution is blockchain.
Blockchain is the technology behind Bitcoin, the world's first primary digital currency.
Like all digital currencies, Bitcoin poses a significant potential risk known as double-spending.
When you spend a dollar bill, it is gone. Two people both spend the same money. You could try to counterfeit $1 bills, but the challenges are tremendous. Copying digital cash and spending it twice is like copying and transferring MP3s: press ""control""+. """"
Simply ." plained, a blockchain is a global network of hundreds, if not millions, of computers, known as ""odes.""Each node in the network tracks and records every Bitcoin transaction. The transaction is recorded in a shared ledger every time you purchase or sell Bitcoin. Before a ""lock"" of encrypted data can be added to the ledger, most computers must solve challenging mathematical challenges to ensure the data is accurate. Once that is done, the block is ""chained"" to previous blocks that record earlier transactions all the way back to the original transaction.
Because of the extensive computing work required to validate transactions, no individual or group can add fake transactions to the blockchain. TThat'show Bitcoin addressed the double-spend issue.
The result is money that cannot be manipulated. This makes it intrinsically trustworthy.
However, blockchain technology has additional applications. Assume you want to determine who owns which media. You could keep track of who created a unique digital work and any subsequent changes in ownership. In other words, you may build an inherently trustworthy - and unfalsifiable - record of origins. That is the Blockchain Revolution. Suddenly, it is feasible to generate scarce and precious digital assets. And this is what makes NFTs possible.
3. Collecting Stamps Online
Let's recap: You don't have the Louvre to see the Mona Lisa; just buy a poster and hang it on your wall. However, there is only one authentic artwork with that name: at the Louvre. In the improbable unlikely the French government decided to sell it, bidding would begin at around $800 million.
LLeonardo'smasterwork is exceedingly non-fungible, which accounts for its high price. It's A one-of-a-kind item, and reliable documentation confirms its authenticity.
Until recently, verifying the ownership and provenance of digital objects was challenging. Digital assets are difficult to regulate due to their easy copying, making them highly fungible.
However, as we have seen, blockchain has transformed all of that. This leads us to the initial definition of NFTs. A non-fungible token is a record of digital asset ownership on a decentralized database that is extremely difficult to fake. That is the theory. What about reality? How do NFTs work in the actual world?
Critics argue that NFTs are only ownership certificates with no tangible assets. When a digital artist sells an NFT of her work, the buyer pays for a token that indicates they own it. That is it. The photograph stays online. Anyone can download, print, and hang it on their wall. So, why would you pay a reasonable price for an NFT?
Another approach to defining NFTs as unique is to describe them as digital valuables secured by the blockchain. So, we're looking at the psychology of collecting here.
People collect many items, including stamps, sneakers, Pokémon cards, and mid-century chairs. Various motivations motivate people to collect. Some people perceive collections as investments, while others experience FOMO (fear of missing out). Scarcity, however, is at the heart of all collections. The scarcity of a desirable good increases its value. Just ask the collector who spent $900,000 for an ultra-rare Pokémon card from 1998, a vintage Pikachu card with a limited run of 39.
It is documented ownership of the actual thing that is valuable. So, to answer the skeptics' point, why would someone pay good money for an NFT when they can get digital art with a mouse? People want to possess rare artifacts, and blockchain technology guarantees ownership as strong as any contract written up by traditional auction houses.
In other words, NFTs enable online collection. But the desire to own NFTs stems from a much older, pre-digital human instinct: the drive to accumulate rare, status-enhancing things.
4. Digital Mona Lisas.
So, what kinds of distinctive digital assets are people accumulating? The answer is that almost everything can be an NFT, but let us begin with digital art.
The best-known works of the NFT era do not resemble Renaissance paintings, but they have sold for prices comparable to old-school canvases. Take the digital artist Mike Winkelmann, also known as Beeple.
Everyday is a project that Beeple launched in 2007. The idea was to make fresh digital artwork every day and improve his talents along the way. He gradually established the signature style for which he is now known: surreal collages of presidents, celebrities, and pop-culture icons like Buzz Lightyear. Other creations, such as his portrayal of a pixelated Mona Lisa, play on his lack of traditional artistic expertise.
Beeple made history in 2019 by becoming the first artist to sell an NFT through CChristie's a British auction house, that has long been a hub for the worldwide art market. BBeeple'spiece, which included photos from the first 5,000 days of the Everydays project, went for $69 million.
His are not the only digital artworks that are in high demand. CryptoPunks, a limited edition run of 10,000 randomly produced pixelated punks, are frequently sold for hundreds of thousands of dollars. The Bored Ape Yacht Club, a collection of 10,000 cartoon apes, sells for the same price. Famous ape collectors include Eminem, Gwyneth Paltrow, Paris Hilton, and Serena Williams.
However, blockchain-based sales are not limited to digital art. Online culture is a gold mine of potential collectibles. An NFT of one of the first Vine videos ever created sold for over $16,000. So is music. When the rock band Kings of Leon released an album as an NFT, it made more than $2 million in sales. Video is another popular format. Collectors of highlight videos featuring iconic moments in American basketball history have spent more than $500 million on NBA Top Shots NFTs.
NFTs are also transforming how digital work is funded. Selling ownership tokens for essays, newsletters, or even tweets allows creators to monetize their work without putting it behind a paywall.
Another emerging trend is to combine NFTs with ""social social tokens buyers exclusive benefits. When you buy a Bored Ape, for example, you get access to a members-only community – think So—think, but online. Other brands’'NFTbrands' NFTscess exclusive merchandise no one else can buy.
Add all that together, and it is easy to see why the NFT market is booming.
5. Buying NFTs
Let's shift gears and talk practicalities. How can you enter the NFT market? There are two options. You can buy and sell NFTs that already exist, or you can make and sell your own NFTs. We'll come back to making and selling in a bit. For now, let's look at the buying side of things.
To buy NFTs, you'll need cryptocurrency. The cryptocurrency you use depends on the marketplace you're using, but the most popular marketplace—OpenSea—uses Ethereum for most transactions.
That means you'll need a cryptocurrency wallet. A secure option that is often recommended for folks new to crypto is the Coinbase Wallet. Once you've set up your purse, ideally with two-step verification, you can exchange your local currency for Ethereum.
Now, you can go to OpenSea and create your account. This part of the process should be familiar to users of online marketplaces like eBay, except you connect your crypto wallet rather than entering your credit card or PayPal details.
And that's pretty much it – yyou'renow ready to browse listings and buy NFTs. Not all sales are alike, though. Some NFTs are sold for a set price. In that case, you'll give a “"buy now”" option. Other sales are auctions, which means you'll be bidding for NFTs against other prospective buyers. Some vendors prefer to take individual offers, in which case you just need to enter the amount you want to pay and the expiration date of your offer. Once the exchange is complete, the NFT will appear in your wallet. Note that OpenSea charges a 2.5 percent fee for each transaction.
That's the simple part. Deciding which NFTs to buy is a bit trickier.
The author's rule of thumb is only collecting NFTs that speak to you. Some NFTs just aren't going to explode, so pick projects you like, even if they don't make you any money. It's also an excellent idea to curate a diverse collection. NFTs are like any other investment: It is best not to put all your eggs in one basket. Make many small bets on up-and-coming ventures rather than going all in on one mega project.
Remember, there are not a few days when browsing marketplaces and seeing what people are talking about on NFT forums. If you're interested, reach out to the creators—they'll often be happy to share their vision. Conversations with other collectors will also give you a better feel for the market. Most important of all, only invest what you can afford to lose!
6. Making NFTs
NFTs are "inted.”" Don't let the terminology put you off, though—all it means is that the NFT must be added to the blockchain. If you're using OpenSea, you'll be adding your NFT to the Ethereum blockchain.
Here to do it.
Head to the OpenSea platform and look for the “"create”" menu in the top right corner. When you click on that, you are asked to connect your cryptocurrency wallet and verify ownership of the wallet.
Next, click “"y Collections.”"Before minting an NFT, you have to create a collection. That's basically a folder for your NFT. You can also choose a name and an image to represent the collection at this stage.
Once you've done that, you'll need to click “" dd New Item”" and verify your wallet a second time. The next step is to upload the file you want to turn into an NFT. Now, you only need to name the NFT and add a description. Finally, hit “"create”" to begin the minting process. After confirming this step, the NFT will appear in your wallet. And that's it – you've just made your first NFT!
As wwe'veseen,wwe've seenake an NFT out of pretty much anything – a tweet,—GIF, a video, a picture, or a digital artwork. The only limitation is copyright: you have to own the material or have a right to use it.
When choosing the content of your first NFT, keep it simple. For example, you can use a photograph or video you've shot. Or you can be creative and create an image. If you're using materials, you'll need to scan them and upload the file directly. Images should be as high resolution as possible, but they can't exceed OOpenSea's maximum of 100 MB. That limit also means your video content can't can not be
Getting the name of your NFT right is vital: the name, after all, is the first thing potential buyers will see. Think of it as your chance to stand out in a crowded marketplace. There are a couple of routes you can take here. You can take a leaf from conceptual artist Sarah MMeyohas's book and pick something attention-grabbing like her project's name – Bitchcoin. Or you can use the file name to emphasize your NNFT'suniqueness by adding descriptors like “"one of a kind”" or adding series numbers like “" of 1”"or “" of 50.”"
So far, so simple. So what happens next? LLet'swrap Let's wrap up by taking a look at NFTs.
7. Selling NFTs
There are three ways to sell an NFT on OpenSea. You can set a price, wait for potential buyers to send you an offer, or start an auction. Let's go through the options.
Setting a price bypasses one of the risks of auctions—selling NFT for less than you think it's worth. It's worth it, but that's valuable. Is your NFT anyway?
When you want to know how much something is worth, you look at the sale price of similar goods. If a three-bedroom house in the same neighborhood as your three-bedroom house sells for X dollars, you have a pretty good idea of how much your home is worth.
That approach also works with certain kinds of NFTs. For example, if your NFT is part of a series like CryptoPunks, recent sales of similar CryptoPunks will help you set a realistic price for your NFT.
But say you've created a single-edition NFT – how much— is that worth? Well, really, iit'swoWirksworthth it. People say it's worth it. It's worth it. It's all. How well-known are you? How excited are people about what you're making? Are you promoting your product?
If you're generating a good amount of demand, set your price. The authors recommend optimism here. Set it a little higher than you think reasonable, and see if anyone bites. You can always lower it later.
Can't put, can't put your NFT? No problem – you ddon—ave don't haverice. Instead, you can put your NFT onto the moon and wait for people to send you offers, which you're to or decline.
That said, acting fast if you like an offer is wise. On OpenSea, an offer typically expires after ten days, and the individual placing it can cancel it anytime. You don't need to worry about missing offers, either—OpenSea will send you an email reminder every time you receive one.
If you're out of the demand for your NFT, you might not mind taking a risk. A Dutch Auction could be the best way to go in that situation. Optionuctions start at a high price that gradually decreases over time. The first person to accept theOptionuctionsBecauseat possibility of missing out is significant, participants tend to have itchy trigger fingers. Of course, the risk for you, the seller, is if the price sinks too far.
And that's your NFT toolset. Now, you know how to buy, create, and sell NFTs. What comes next? That's foride. Happy hunting!
Final Summary
The human drive to collect is fundamental. Paintings, footwear, Pokémon cards — you name, ssomeone'sbsomeone's biddingtra-rare piece which complthattheir collection. NFTs exist online, but they are also collectible. The dynamic driving digital collection is the same as in the analog world. The rarer something is, the higher the demand for it. Scarcity plus demand means increased value, whether we're talking about paintings or blockchain coins.