NFT explained: purchasing and reasons for its significance
As the crypto world gains prominence, more and more market players are getting involved in a wide range of innovative technology. One of them is NFTs or none fungible tokens. Ever since their emergence Interest in them has grown exponentially and that is why we are going to take a closer look at them.
Understanding NFT
An NFT is a digital asset that represents the right to possess a digital property such as a piece of art or music work, GIFs, collectibles, video snippets, and so on. NFTs, as well as cryptocurrencies, are linked to a blockchain (most operate on Etherium). What distinguishes an NFT from a cryptocurrency is that it is non-fungible, therefore irreplaceable and unique. For instance, one Ether is always equal to another Ether and can be interchangeable, whereas a non-fungible token is one of a kind, has a digital signature, and cannot be exchanged for another.
To put it simply, an NFT is a piece of data, owned by a contract address, and whoever purchases a password to it, is the owner. NFTs are built on a blockchain, which has the whole history of transactions they have been a part of and provides information about the current ownership. So the next question that may occur is — where to buy a non-fungible token?
NFT marketplaces
For those, who are willing to keep up with the crypto world trends, there are marketplaces specialized in purchasing NFTs. The most commonly used ones are Rarible, Nifty Gateway, Opensea and Superrare. Let’s get more clued up on how the transactions are carried out and the inner processes of this market.
First off, do you know how an auction house functions? NFT marketplaces work likewise: you place a bid for an NFT you are attempting to buy and if you win as a top bidder, the NFT will be added to your account and stored in your wallet. Though some websites may offer you to pay a fixed price without an auction.
Shopping for NFTs requires several steps to make:
- Choose a preferable marketplace you are going to use and create an account there.
- Add funds to the wallet on the marketplace platform either by buying cryptocurrency or transferring it from another wallet you have. Keep in mind that most NFT marketplaces work with Ether, so you may need to use an exchange for that crypto.
- When you are all set with the wallet, start searching for NFTs. Once you’ve chosen one, a “Bid” or to “Buy now” option will be presented.
- Proceed with the payment by confirming the transaction and the NFT will be stored in your Etherium address. Be wary of “gas” fees or any other kinds of fees that you can be charged when closing the deal.
What makes an NFT valuable?
“Non-fungible token”, “one of a kind”, “the right for ownership”. Sounds fascinating, doesn’t it? But what is the outcome and why bother buying an NFT? What is the motive for those who actually create them? We decided to look at these questions from different perspectives.
Incentives for buyers
Future value. Just like Bitcoin became popular as the first cryptocurrency, in the same way, the first NFTs of famous creators will have value in the future. For example, a Barbie doll, well-known all over the world, now costs approximately 50$, but do you know the price of the Original Barbie doll 1959? It was sold for $27,450. Imagine you have the first American NFT, you can make a fortune simply by being the first to buy this token as it is likely to become prominent over time.
Utility: real-world benefits. The reason for buying NFTs is that they have great potential. Given the fact that owners do not earn interest from having a non-fungible token, there must be something else to make NFTs appealing to market players. That is why creators came up with the idea of offering some perks to consumers. For instance, if you buy NFTs from the collection Bored Ape Yacht Club, which is comprised of unique digital collectibles, you will get access to exclusive members-only games, digital merch, and even VIP parties.
Ownership history. As previously mentioned, every NFT has a history of its transactions, therefore you can see who the previous owner was. Let’s say, a market player is a huge fan of Elon Musk, surely, if he finds out that an NFT was owned by his idol at some point, he will probably be willing to pay much more for that specific token. Thus, the NFT becomes valuable and can be resold on favorable terms. For example, Ellen DeGeneres’ first NFT collection, which included a digital picture of a cat, was sold on a marketplace for $33,495.
Incentives for creators
For artists. One of the greatest benefits for artists is that the market is more efficient because there are no intermediaries. Selling their digital artworks on the NFT market, they avoid the necessity of cooperating with art galleries or auction houses. Moreover, while making a deal directly with a customer, artists can gain more profit by programming royalties, which will be charged each time their art is sold to a new owner. For instance, Nyan Cat, a famous GIF that has been on the Internet for more than 10 years, was recently turned into an NFT and rewarded its creator Chris Torres with $600,000 as it was sold at auction in 2021.
For companies and celebrities. With all the buzz around non-fungible tokens, no wonder businesses couldn’t stand aside and decided to implement them in marketing strategies. By means of utility NFTs, companies are able to offer various benefits to loyal and potential customers. This strategy is widely used in the gaming industry as a way of promoting their platforms and creating interest in their new products and latest updates. Thus, gamers get access to VIP communities or unique in-game collectibles, gamer developers on the other hand increase income and gain in popularity.
Along with companies, celebrities, especially musicians, aiming to boost their popularity, utilize NFTs likewise to promote their new albums or concerts. In fact, this is one more way for them to earn money using their household names to sell NFTs. Among those, who dip their toes into the NFT market, are Snoop Dogg, Kings of Leon, The Weekend, Grimes, and Shakira.
Summary
Some inventions that we couldn’t have imagined being real years ago are becoming feasible and available right now. The emergence of a non-fungible token is a great example of how our world is gradually evolving. The NFT market attracts consumers because of its innovative approach to buying and selling collectibles, as well as giving them perks. This is still something people need time to adjust to, but we hope that the article will shed some light on the way NFTs work and the reasons why this topic is so high-profile nowadays. Though NFTs are relatively new on the market, it may be worth investing at least a small amount of money in them, because they will soon become something more than just the right to own an image.
