NFT Explained for Dummies

1. Introduction

As a trader utilizing more traditional trading instrumentals – like stocks, commodities, options, or futures – for making profits, you will surely have your mind blown when you find out about the newly promising crypto world with NFTs and cryptocurrencies. In the recent couple of years, it is not too hard to find some colorful picture with a tag called ‘NFT’ and an unimaginable price reaching up to $1,000,000. This value surely makes not only you but the entire trading industry completely speechless, leaving you with countless questions such as ‘what is exactly this NFT thing ? .

By the end of 2020 and the beginning of 2021, a miraculous surge in both demand and supply of products in the crypto-industry, making 2021 the year of the crypto-world. Alongside modern technology devices making it so much easier for ordinary people to approach trading, the booming growth and increasing popularity of cryptocurrencies and NFTs also help the number of traders looking for new chances in the newly found promising land. 

Since NFT involves some highly technical-driven knowledge, a fresher may find it hard to understand without proper approaches. But worry not, our guide regarding NFT explained for dummies will clear out all the confusion and give you nothing but the vital essentials so that you are qualified to continue the journey on your own right after this article.

2. NFT Explained

2.1. What is an NFT?

Broadly speaking, Non-Fungible Tokens (or NFTs for short) is unique chunks of cryptographic data that connect to an object (usually digital) and make it trading instruments containing unique identification codes and metadata that differentiate them from the others – in terms of identifications and financial values. Thanks to the varying display possibilities on the internet, NFTs can be distributed in a wide variety of forms that can be digitized, including artworks, music, videos, in-game assets , and the like.

Due to the ‘unique identification codes’, there have not been and will not be two identical NFTs regarding all the relevant aspects. To understand this further, let’s say we have a picture and its copy with pretty much everything looking the same to one another. If these objects are turned into NFTs, they will be distributed with unique identification codes, thus, now considered unique apart from the other. From this moment, the object that was once just a copy gained its own determined proof of existence, separating from its source. Although the two NFTs now have an identical visual appearance, they cannot be treated as one thing and can have different financial values, hence the name ‘non-fungible’.

As long as your assets are digital, they will have a great chance of being converted into NFTs with financial values.

The underlying process behind this involves distributing assets as NFTs to a series of decentralized networks empowered by blockchain technology. This system can be regarded as a big online ledger where every NFT and cryptocurrency in existence as well as their activities within the networks are recorded. As a result, traders have practical means to check a certain trade record even if it is from their own actions and no one can purposely make counterfeit or double-spend transactions.

2.2. The History of NFT

Like cryptocurrencies, NFTs are products of innovative technology which clearly did not just randomly appear out of nowhere and reach fame overnight. So, when exactly did NFT start?

This takes us way back to 2014 – the 2nd of May, 2014 for more specific – when Kevin McCoy minted the ‘Quantum’ on the Namecoin blockchain and holds the record of being the first rightful owner of an NFT. The act marks a milestone in the history of the crypto-world. Since then, countless numbers of NFT projects have been created and distributed to millions of users all over the world, achieving values and records that have never been seen before in more traditional financial markets.

2.3. Why Should We Own an NFT

When we are talking about NFT, we not only talk about the assets themselves but also their defined uniqueness and financial potential for making profits. NFTs connect with the display of both tangible and intangible items, including artwork, music, collectibles, NFT game items, financial services, and the like.

For digital subjects such as artwork and music, NFTs help them to boost the potential profitability of their creators by powering a community where their creations are distributed as NFTs can be traded between fans and supporters. The buyers then become the rightful owners of the products, then, in turn, continue to make profits if the assets are rare in demand and sought after by a considerable number of passionate followers.

NFTs enhance the item ownership of users in NFT games. In traditional games, all the data and assets you gain when playing the game will be cleared out if the producer decides to discontinue and stop all services related to the game. Thanks to NFTs, such a situation will not occur as the players can recoup their spent money and swap them into some other tokens to use in another game or other services when they stop playing.

NFTs also enable a brand-new service called ‘lending with NFT’. This is made possible by the fact that the infrastructure for both NFT and DeFi (Decentralized Finance) is greatly identical. The process involves using NFTs as collaterals for you to borrow a certain amount of money according to the values of these NFTs recorded at the time requesting the service.

2.4. Popular Examples of NFT

If you are not someone working in the information technology industry or a just trader, there is a high chance that you know NFT via the names like Cryptokitties and Bored Ape Yacht Club. These are the best examples of NFTs as they have made great breakthroughs to appear outside their original platforms or communities.

The Cryptokitties are introduced back in 2017 and powered by the Ethereum blockchain. They display as cats with distinctive identifiers and can be combined to ‘reproduce’, creating new offspring as fresh NFTs that share characteristics and features with their parents. This concept later is utilized by many different platforms, especially NFT games as it allows one to get new assets without spending too much.

The Cryptokitties introduces a fresh concept for creating new NFTs.

Credit: Cryptokitties

Not so long after their initial launch, the kitties have attracted a fan base that is said to be willing to spend more than $20 million to get their hands on owning these products. Among these, some are alleged to have spent over $100,000 on the project – a shocking number if we consider the operation time of the project.

Bored Ape Yacht Club is another significant example of NFT, maybe even more popular than the Cryptokitties thanks to their notoriety and controversy sparked in recent times. Bored Ape Yacht Club has more than 10,000 pieces in its collection with the most expensive artwork reaching more than $3,400,000 – Bored Ape #8817. It was auctioned off and bid at 852.39 ETH (roughly more than $3.4 million at the time). One of the reasons why the Bored Ape Yacht Club manages to achieve such high values is because they manage to get support from celebrities.

The Bored Ape #8817 has reached the highest value ever recorded as an NFT.

Credit: OpenSea

Celebrities are no outsiders under the influence of NFT. They are also passionate NFT supporters. Some of the most well-known such as Snoop Dogg, DJ Khaled, and Madonna has publicly expressed interest as an investor. Even a large association like the NBA took their chances on this opportunity by using the existing base of famous basketball players and creating a huge collection of memorable moments throughout their careers, called NBA Top Shot. The collection stars top-tier players like Lebron James, Stephen Curry, Kyrie Irving, Kevin Durant, James Harden, and so many more.

NBA Top Shot possesses an incredible potential for NFT thanks to their basketball player base.

Credit: NBA Top Shot

3. The Differences Between NFT and Cryptocurrency

In general, NFTs and cryptocurrencies share the process of being built and distributed into a series of decentralized networks empowered by blockchain technology such as Bitcoin or Ethereum. But that is where the similarities stop.

The interchangeability is the most significant distinction. Cryptocurrencies, like real-world money, are intended for trading and must thus be interchangeable for others based on their current values, which are not fixed to their uniqueness. In short, 1 Bitcoin can still be exchanged for another 1 Bitcoin without issue, whereas two visually identical NFTs cannot be exchanged equally due to their unique identifications, as stated above.

4. How Can You Get an NFT and Make One for Your Own

4.1. How to Make an NFT?

Creating an NFT is usually referred to as minting an NFT and can be done by anyone at any level as long as they carefully follow the instruction. The process involves importing your desired item and going through several steps on a certain crypto-marketplace platform that allows the item format and connects to your crypto-wallet – where your NFTs will now be stored as items with identification codes and ready for trading.

4.2. How to Get an NFT?

Although the process of embarking on the NFT market and getting one for yourself seems fairly easy as it can be summarized into one sentence: ‘follow the instructions', it can also be intimidating to some people with little prior experience of how these sites work. Below is an overview of getting started with NFTs. Let’s dive in!

a. Getting a Crypto-wallet

Generally speaking, a crypto-wallet can either be a computer application or a physical device – the two basic types of crypto-wallets: software or hardware – that allows you to store and transfer your crypto-assets, including NFTs and cryptocurrencies. 

A ‘hot wallet’ – another name for a software wallet – is a computer application that can be installed on your device of choice as your crypto-asset storage. When it comes to mobility, a hot wallet just simply outshines the other as it is obviously more convenient and can be accessed anywhere anytime as long as you provide the right secure information and connect to the internet. Crypto-assets must be stored on hot wallets before being transferred for mining or trades because most crypto-wallets are directly linked to certain platforms – the opposite of a hardware wallet. However, as a result, these wallets are much more vulnerable to hack attempts while depending on your actions to be well-protected.

A ‘cold wallet’ – also known as a hardware wallet – is a physical wallet that has a general design looking like a USB stick and allows you to import your crypto-assets for storing. This wallet is independent of other devices such as your PC or laptop. If you want to transfer items between them, you need to have them all available. This type of wallet is also isolated from the internet connection, no hacker can touch or even track any of your stored assets. However, this also poses a lurking risk that if you somehow lose your wallet stick, there will be no way for you to locate it, let alone restore what has been lost.

Some of the most recognized crypto-wallets in 2022 include Coinbase, Trust, Electrum, and Exodus.

When creating your own wallet, you are always provided with a series of random words that are meant for restoring your account. Secure it carefully if you plan to go further and develop yourself in this industry.

b. Buy Your First NFT

If you carefully follow the instructions, you should have your wallet and some money in your account by this time. Then, let’s head to the next step: buying your first crypto.

First, choose your desired online exchanges (often referred to as NFT marketplaces). Remember to find the ones that support your wallet to make sure that your attempt will not be pointless. Then again, just follow the instructions provided by the platforms. These instructions are usually intuitive with step-by-step breakdowns. Some of the most common NFT exchanges are:

  • Foundation : an exclusive marketplace that requires creators to be invited by other creators who are already on the platform
  • OpenSea : one of the largest platforms, pioneering the NFT marketplace concepts and providing a wide array of NFT collectibles
  • Nifty Gateway : a marketplace for art that collaborates with well-known brands, athletes, and creators.

Not all leading NFT brands are available on all marketplaces. Make sure you do your research to choose the right one.

Credit: OpenSea

5. The Future of NFT

NFTs have been doing a good job changing the perspective of leading consumer brands to find more ways to engage with their loyal fans. For instance, a rare set of NFT collectibles was distributed for an auction among the community of a famous brand. The highest bidder received not only the aforementioned set but also a real-life exclusive product in advance before it actually got released later that year.

With NFT, artists and musicians are open to many more opportunities. They now can engage with their supporters more easily and have their creations available for trading via NFT marketplaces with easy management while requiring no intermediary or a third-party service.

Despite the fact that it has already made a significant impact on the world, NFT right now is still in its development stage. It is just impossible to make a clear prediction of how further NFT will go from now.

Everyone interested in the crypto-market is getting their eyes on the next attraction of the crypto-world – Metaverse. NFT will, without a doubt, be an important part and play a major role in the upcoming phases. NFT will enable items such as avatars or in-game properties to be transferred seamlessly between smaller possible sectors or partners in one certain Metaverse.

6. Is NFT Safe?

NFTs are distributed and operated by using blockchain technology in the same way that cryptocurrency does, which makes it greatly safe. NFTs are tested and proved to be extremely difficult to be hacked due to the nature of the blockchain. However, it is not entirely impossible. For example, owning NFTs in specific or using a crypto-platform in general usually involves you making multiple in-between steps and actions or even third-party applications, such as creating a crypto-wallet, minting NFTs, trading with your wallets, and so on. So, should the hackers manage to track your information and manage to get their hands on your personal password in just one place, the possibility of the rest being taken over is just a matter of time.

As NFT owners, you are also exposed to the possibility of losing access to your assets if the platform that hosts your NFTs ceases to exist. Furthermore, if the host fails to understand the equilibrium of demand and supply. They somehow keep the amount of NFTs increasing without providing an actual use for them, thus making them lose potential values and eliminating all the trading chances.

One of the most common scams in the NFT market is phishing. This usually involves fake advertisements, NFT giveaways, or some other forms of information interaction where the scammers will indirectly ask you for your personal information, including the private wallet key or the secure phrase.

The NFT market is filled with both opportunities and scams. And there is a better way to avoid scamming rather than getting more knowledge and experience.

Blockchain is decentralized and its users are mostly anonymous. In most countries, even the developed ones, there is still no official regulation that requires participants to submit proof of identity for authentication. So, even if you somehow manage to find out that a hacker took your property, there is still no way for you to recover them and even do something about that scammer.

Phishing scams come in countless forms, making them really hard to be spotted. Just remember that no big name or official platform will ask for sensitive information. Never share seed phrases or your private key with anyone, even your close friends or relatives. They will not be legally bound to your actions should some unfortunate events happen.

7. Conclusion

Above is our guide of NFT explained for dummies so that even a fresher with no prior knowledge regarding the crypto-world will understand. NFT is still a fresh concept in most parts of the world. Despite its young stage of development, it has surely influenced the views of everyone on the markets and changed them for the better. It is still too early to say whether the impact will last. Getting yourself familiar with this hot trend early will open nothing but more opportunities for potential profits. So, be quick and take your chance!  

Felix Pham
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