This article explains the basics of NFTs, how they work, what they are and what they are used for. We will go through every term and explain non-fungible tokens to you like you, like you are dummies.
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Digital assets have seen much traction in recent years on the global market due to the cryptocurrency and blockchain technology explosion.
There are various NFTs; the most common type of NFT is a drawing, an art, an image or a video. The most popular NFTs are usually art, and different art styles are usually available.
FURTHER READING: Types of NFTs – Everything you need to know
What is a non-fungible token (NFT)?
NFT acronym means Non-fungible tokens. Similar to cryptocurrencies like Bitcoin, NFTs are digital assets with unique digital identifiers that cannot be replaced or substituted. This means you genuinely own your assets at any given time on the Blockchain.
When an asset is tokenized, it is attached to a digital certificate proving ownership – like all tokenized assets on the blockchain. NFTs are tokenized, and at any point, there is usually only one version of the asset that the NFT is based on, making proof of ownership easy and possible with NFTs. One token is not interchangeable with another, and a token cannot be further divided.
Before discussing what “non-fungible” means, we need to discuss fungible. When an asset is fungible, it can be replaced with another identical item – mutually interchangeable.
Fungible assets include cryptocurrencies and physical money. One dollar will always equal one dollar, and one bitcoin will always be equal to one bitcoin.
On the other hand, non-fungibility means that an asset has no equivalent and is one of a kind. Some valuable assets referred to as non-fungible include diamonds and some art masterpieces like Mona Lisa.
Some examples include NFT collections like Mutant Ape. Each ape is unique and has different characteristics from other apes – unique properties that make them irreplaceable.
NFTs and the Blockchain
Blockchain technology is the technology that powers NFTs. A blockchain is a decentralised database used to store digital information in chronological order. These pieces are referred to as blocks.
Decentralized means that the control isn’t given to one person or a group; instead, everyone retains specific control of their assets.
The decentralized nature of blockchains means there is no middleman when you are trading this unique asset; instead, buyers and sellers deal directly.
When you buy an NFT, you won’t get a physical asset to hold like if you bought more traditional assets. Instead, your purchase is recorded in a public blockchain ledger accessible by millions of computers worldwide.
Top Use Cases of NFTs for dummies
There are a lot of good use cases for NFTs. The most currently used use case is for tracking digital collectables. There are other utilizations by artists and the gaming industry.
Artists are using NFTs to create unique digital assets and prove ownership of their created art. Artists have been selling arts and digital arts for decades, but with blockchains and NFTs, the difference now is that the digital assets are assigned to a unique identifier and stored on a blockchain. This has provided better results when tracking and proving ownership of your art whenever it matters.
Digital Gaming Assets
Some games now allow you to purchase an NFT to own an in-game digital asset with a futuristic monetary goal like a weapon and trading card. The in-game assets can be absolutely anything and offer value and unique digital art ownership.
Also, NFTs have created a second-hand market for digital games and items. It might also be possible to sell items and earn a percentage from future sales of that digital item.
Tickets in the form of NFTs can act as passes that will be used for any live or virtual event – providing a more convenient and secure solution to traditional ticketing. This could provide a digital answer to the current problems with ticketing systems.
For example, music artists can create NFTs to sell directly to their fans for a particular event. Buying directly from the artist removes the middleman and improves transparency and authenticity verification.
Some NFTs already utilize this by creating events for their NFT holders. One is BAYC; BAYC holders have regularly been invited to private events and parties.
Food and Drink.
Big brands like Mcdonald’s have played around with NFT/Mcdonald’s and created their first ever non-fungible token in honour of the McRibs 40th anniversary. With the McRib NFT, you can always get a McRib and never have to wait for a particular season to buy the tasty McRib. Another positive
Virtual Real estate
Real estate has been around for a long time, and the same concept has now been moved to the metaverse. Virtual land is sold as NFTs, with some plots selling for millions.
In the virtual world or the metaverse, non-fungible tokens are being used to prove the right of ownership. With the advent of non-fungible tokens, buying lands in virtual worlds has become more accessible. Some platforms that offer these classes of digital assets include The Decentraland and The Sandbox.
FURTHER READING: Most Expensive Metaverse Lands
NFT market for dummies
An NFT marketplace is where you buy and sell your digital assets and non-fungible tokens. There are two types of marketplaces – the primary marketplace and the secondary marketplace.
The primary NFT market is where you usually buy the NFT directly from digital artists (creators). This could be the creator’s website, and the process is usually referred to as minting.
The benefit of minting is that there is a low cost of entry, and you save on transaction fees. There is also a chance that you get a rare, valuable item from the collection. Rare non-fungible tokens usually can go for about 10 times the normal collector price.
NFT collections are exactly what they sound like: a collection of art that contains many NFTs. These collections are made up of base layers like hair, mouth, fur, clothes, eyes, and accessories. These base layers are combined to make a unique NFT with unique properties.
Some of these collections are precious collectables representing different things to different people. People sometimes spend a lot of money to get one piece of art in these valuable collectables. One example is BAYC, with each digital asset going for up to 100 ETH.
The secondary NFT market is where most people buy their NFTs from. The most popular platforms that sell digital goods or unique NFTs include Opensea marketplace for the Ethereum blockchain network, Magic Eden for the Solana blockchain network and Jpg.store for the Cardano blockchain network.
It would be best if you had a digital wallet to buy NFTs on the secondary market. A digital wallet or crypto wallet is where you buy and store your cryptocurrencies and NFTs.
It is also incredibly easy to create your own NFT. We have reviewed the best tools to create your own NFTs without any programming knowledge required.
How NFTs Work for dummies
Now that you’ve taken the first steps in understanding an NFT, you should continue learning how an NFT works.
NFT exists on the blockchain, a publicly distributed ledger that records transactions. Proof of ownership is one of the advantages of blockchain technology, which is also a characteristic of non-fungible tokens.
Essentially NFTs are like collector’s items, the only difference is that they are digital, and you also get exclusive ownership rights to the NFTs. It is also very easy to prove ownership of your nfts.
NFTs also use smart contracts. NFTs are minted through smart contracts that assign ownership to a user and reassign it when transferred or resold.
Digital assets need digital wallets. Tokens, cryptocurrencies, and NFTs are all stored in a digital wallet. You can set up your digital wallet for free and easily. Some of the most popular digital wallets are Metamask and Trust wallet.
If you are buying your cryptocurrencies like BTC or ETH from an exchange, you usually get a digital wallet on signup, and you can 21transfer it to your wallet.
Buying and Selling NFTs for dummies
Buying NFTs is easy. After you create your digital wallet, you buy the digital assets (cryptocurrencies) of your choice, and then you go to the NFT marketplace that you prefer.
The next step is to bid on any of the NFTs you like. The cost of an NFT depends on the creator, network, hype and many other factors. After your bid is accepted, the NFT is transferred into your wallet.
NFTs selling is also just as easy as the process of buying. You put up your NFT on a secondary market, wait for a bid and then accept if the terms favour you.
Best NFT Examples This Year
In this section, we take a look at the best NFT examples this year. Some of the best NFTs you can buy are in this list, although you need to know this is not a definitive list of all the NFTs you can buy. There are thousands of other NFTs that you can spend money on.
The uncharted collection consists of 21,000 NFTs, with each art image representing a unique space voyage. With this NFT, you can participate in various activities such as mining, trading and skating. Also, Uncharted is a non-fungible token, meaning each NFT is unique and cannot be replicated.
Silks is a derivative gaming platform that uses a blockchain-enabled metaverse to parallel the real world of race horsing. You can experience the thrill of owning racehorses and farm farms while reaping valuable rewards. You can collect, trade and acquire digital assets representing actual thoroughbred racehorses in the real world. These unique assets are valuable digital collectibles and allow you to experience race horsing in the metaverse.
FURTHER READING: Silks Genesis Avatars NFTs Explained: The Ultimate Review
Bored Ape Yacht Club
The BAYC NFT needs no introduction. The collection consists of valuable collectibles. BAYC represent absolutely a social status in the NFT space. The collection has 10,000 apes created with 170 unique traits and stored on the Ethereum blockchain as ERC-721 tokens.
The tokenized assets have had ridiculous sales over the years. One of the digital assets in BAYC has gone for up to (852.39 ETH) which is $3.4 million.
FURTHER READING: BAYC NFTs Explained: The Ultimate Review
Moonbirds is a collection of 10,000 PFPs which grant holders access to the moon birds community. The moon bird collection is entirely in-chain, meaning the images are outputted from the smart contract without needing IPFS storage. The average price of MoonBird is currently 7.39 ETH.
DeGods is a digital art collection and community of people – entrepreneurs, athletes, artists, experimenters, creators and more. With DeGods, you can mine DUST. The deflationary Solana NFT collections consist of 10,000 virtual gods with unique colourful accessories. The unique assets were minted for 3 SOL in Oct 2021 and has a current floor price of about 500 SOL at the time of writing.
Doodles have one of the most colourful digital images in the NFT space. The Doodles collection has colourful line-drawn characters and is one of the most common and loved PFP (profile picture).
Doodles also developed many interesting high-level partnerships since its creation on October 17. The primary aim of doodles is to become a comprehensive Web 3 entertainment company. Read our Ultimate Review on Doodles NFT.
FURTHER READING: Doodles NFTs Explained: The Ultimate Review
Pudgy Penguins consist of 8,888 NFTs. The project was first launched in July 2021 and has since created an inclusive community in the NFT space. The community has had several benefits, including event access, merchandise, and an online store. One example of a particular event was the exclusive F1 yacht party in Miami.
Veefriends is a Gary Vaynerchuk NFT project trying to create an extraordinary intellectual community. The NFt project has created a partnership with one of the most famous toy brands – Macy’s Toys “R” Us. The NFT collection comprises 10,255 VeeFriends and has raised over $240 million in sales via the OpenSea marketplace.
There is also a physical collection of Veefriends which goes from $9.99 to $29.99. There will also be a backstory which will reveal each character’s backstory.
NFTs are unique tokens that have a lot of value. There are already a lot of use cases of NFTs, and it is only a matter of time before these use cases are fully developed and optimally utilised. We hope our guide has given you a better understanding of NFTs and how to get started.