Jan 06, 2023
We’ve specially prepared an ultimate guide for you, so you can learn everything you need to understand about NFT in one topic. If you are a beginner in the field of crypto and want to learn a lot more about NFT work, this stuff is for you.
The demand for NFTs remains at a high level, even though the emergence of the NFT bubble causes controversy among crypto enthusiasts. Many people are attracted by low commissions, the speed of transactions, and anonymity, which guarantees safe transfers. NFTs also provide a great opportunity to make money from passive income.
So, in this field, it is impossible not to remember tokens, NFT, and blockchain technology features. Concepts of cryptocurrencies and NFTs often go in the same area, and novice crypto users can get confused about them. NFT is a digital asset that is valuable nowadays and we will talk about it in more detail. Now we go deep into non-fungible tokens topic. So, we will explain why they are considered so valuable. Before you learn something drastically new about NFT, let’s start with the basics.
In the last year and a half, NFTs have not only become a popular topic of discussion in the community but have also allowed people to make significant money, giving a second wind to digital art, which we will talk more about next.
So, NFT assigns the property of a digital object to a single user and confirms the uniqueness of such a right of property. The definition of such tokens comes from the cryptocurrency world. NFTs are created on a special technology that records data in digital blocks in a certain order. This technology is called blockchain and it has several features we need to explain:
In other words, NFT is digital property: a picture, an audio recording, a video, a text file, or another piece of art. We can embed a digital code inside this object, which will indicate its uniqueness. Of course, it is digital art that most often applies this technology. NFTs are collectible things, so many crypto enthusiasts invest in them with the expectation of getting a good money return in the future.
Even if other people download your file, they will have a different, unoriginal token. This provides a unique opportunity for creators to post their art digitally and make big money. That is, with the help of NFT technology it is easy to distinguish the original from the fake. So, let’s recap:
NFT technology is not perfect, there are many little-known features and pitfalls. For example, the purchase of a token does not always mean a full transfer of rights. These rights are prescribed directly in the token – it can be a transfer of copyright, or the right only to use, without the possibility of profit or resale.
Once you learn the basic definition of NFT, we should elaborate on the meaning of the acronym. If you are a beginner and didn’t learn sooner, the NFT acronym meaning is a non-fungible token, then we will explain. A token is a code that contains information about an object. To put it very simply and summarize all the previous information, NFT stands as a token issued in a single copy. In the case of non-fungible tokens, it might work like this:
To further increase the security and integrity of transactions, special smart contracts are used when selling non-fungible tokens. This is a computer protocol in the system that allows the contract terms between the parties to be enforced automatically. The contract spells out certain conditions that one party to the contract must meet, and only then will it receive the asset. For example, the non-fungible token is automatically transferred to the buyer after the payment for it reaches the seller’s account.
Probably the most important advantage of NFT is the inalienability of ownership of the digital object. No matter how many times people download your picture, it will be yours until you decide to sell ownership of it. Even the opposite, the more users want to get your token for their purposes, the more valuable it becomes as its recognition and demand for it increase. This is especially evident in digital art.
Let’s talk about the meaning of high demand and popularity. Popularity has the greatest impact on the ability to sell a digital product. For example, an influencer can sell anything and it will sell out of stock instantly. But a beginning crypto enthusiast has to promote an NFT product to sell it and successfully trade out of stock, and that’s a real problem.
In crypto games, for example, there’s no guarantee that after making and pumping your character, you can sell it, as well as there is no guarantee that the developer will not release a more popular character, or even close the project. The meaning and use of NFTs are very broad, but to invest successfully, you have to take into account many features, about this we will talk next.
This guide wouldn’t be complete if we didn’t talk in detail about how NFT works. There are many platforms and marketplaces where you can place your tokens. Some specialize in a particular area, like art or audio files.
If you are interested in creating NFT marketplaces, then you may check dedicated to this topic article in our blog. This is a great chance to learn all the intricacies of the process, to assess the costs and risks. Be sure to check out the following articles on our blog!
The same marketplaces are used to make and trade such tokens. The owner uploads the content to the platform and puts a price. The NFT is created in one of the blockchain formats that platforms offer: ERC-721, ERC-1155, ERC-998, EIP-2309, and others. Here are also a few examples of the largest NFT marketplaces that are used to place, create and trade such tokens:
The NFT author has the right to limit the number of copies and receive income from each trade (sometimes this happens automatically). To make an NFT, you need a crypto wallet and a digital content file, we will describe in more detail below and give an example of how it works:
Anyone who wishes to buy an online NFT claims it from the author and receives a special certificate with unique data after the funds have been transferred. Users can store the asset on a device – a smartphone or computer. The owner has the right to give public keys to other users when copying to confirm the authenticity of the object. The token remains in perpetual storage. All users besides the buyer can view and download it, but only the buyer has the certificate.
For example, digital art tokens work as collector items. They are bought by people who want to invest in the field of crypto, make money on resale or gain passive income, which we will talk more about today. Many NFT projects have built communities of artists, musicians, and just creatives or crypto enthusiasts who want to collect NFT and invest in it.
Now almost everything is sold in the form of NFTs, from personal photos to articles. Now we’ll give you a few popular examples, and then we’ll talk about them in a little more detail:
If you are interested in the CryptoKitties story, in the first stage, about 100 cats were put into this game, and they started the whole genealogical chain. New kittens appear as a result of interbreeding and are registered as NFTs, confirming the exclusivity of each one.
For painters, NFT is a handy tool to confirm the authenticity of a work of art digitally. After all, the concept of forgery in digital art is just beginning to take shape, and previously there was no way to confirm the originality of a copy. Now, if there is only one NFT, it means that all other copies can be considered fakes.
For collectors, it is of interest to buy a certificate of property of the original content and be able to resell it for even more if the price of the work increases over time. Original meme images have also begun to be sold in the form of NFTs. As we said before, notable examples of collecting in this area include images from a collection of rare memes featuring Pepe the Frog.
You can also go to one of the best marketplaces yourself and just browse NFT collections. We assure you, you will find a lot of interesting examples of how unusual art becomes expensive NFTs. The most expensive and popular collections once started with little startups, so some owners of such tokens are very lucky to have once found a hidden gem.
There are many uses for tokens and assuming the demand for NFTs increases, this list will only expand. How NFTs are used and applied is becoming more and more innovative. Here are a few common options today:
Regardless of the many variations in the use of NFT, most people view this technology as an investment or collector’s item, let’s take a closer look.
You can make money on NFT as an investor by trading and staking. Trading works very simply: buy cheaper and sell dearer. Stacking works on the principle of contribution – pledged tokens bring a small but stable passive income.
There is also the concept of yield farming, which implies placing crypto assets to generate high rewards or income in additional cryptocurrency. You might also consider investing in NFT stocks. You can buy stock in companies that are involved in the NFT field. You can read more about yield farming in this article in our blog.
Any benefits of investing in NFTs? Some tokens increase in value over time and can be resold at a better price. Also, NFT items are easy to store and impossible to forge. Nevertheless, to work with NFT you need to know how to see trends – you can incorrectly predict the price movement and lose a lot of money.
When people talk about NFT, they often mean digital art. Technically, anyone can take a photograph or record a video and try to sell it as an NFT collectible. However, not all objects have real value. It works just like in the real world.
It’s important to understand what you’re going to collect. You shouldn’t buy up everything in the hope that it will work for your best income. It is better to buy something from a collection created with the support of an influencer. For example, an artist with a large audience. Also increase in value could be a collection produced in collaboration with a well-known artist.
There are also utility NFTs that significantly expand the vision of digital collectible things, as token owners can receive real-world privileges. These utility tokens offer multiple use cases beyond their cost and the digital world. For example, access to a closed community or club, the ability to unlock bonus content, or premium real-world merch. As you can see, NFTs work not only virtually and with digital art, but also in the physical environment. In this way, NFTs can represent anything.
One of the most relevant applications of such tokens is electronic versions of tickets that give access to exclusive events. Already, some projects are using their service tokens to offer their holders exclusive entry to closed activities.
Of course, you have to decide which file you will use to create the NFT. Beginning crypto enthusiasts most often start with images, that’s the easiest way to create a unique work of art. The image mustn’t be plagiarized, otherwise, it will not pass the verification on the platform. You can read more about NFT creation in our blog, just follow this link.
Various software can be used to create an NFT image, including Photoshop. There is also special software on the type of NFT Creator, you can try for yourself a few options and choose the best. If you decide to create a whole project, you also have to take care of the roadmap – a list of goals and strategies of the project and justify its prospective value. This is a must if you want to attract as many people as possible.
Are you just starting and want to try to build your first NFT? Then you need to choose a marketplace. There will be an opportunity to create one or more NFTs, if you want, for example, to sell a lot of photos or create an entire collection. Let’s take a closer look at the sequence of actions for OpenSea:
If you add information about properties, levels, statistics, and the number of available duplicates, the system will optimize the search for your token. The marketplace also gives you the ability to add exclusive content, which will be available for viewing only for you.
As for your file, its uniqueness is ensured by the combination of the object to which it is attached and your identifier in the system or a unique key that signs any token that passes through your account. In fact, it is because of this individual signature that any user can trace the entire path that NFT has taken since its inception and all owners of that certificate.
NFTs require strong marketing and promotion so that target consumers are aware of their presence and usefulness. Here are some effective ways to do this:
If you create an NFT, you definitely expect to benefit financially from it, and that is impossible without the right marketing and promotion strategy.
When it comes to how much it costs to set up an NFT, it’s critical to remember that choosing a different platform can make a huge amount of cost variance. The main expenses associated with NFTs are gas, account, and listing charges. Some platforms allow you to issue NFTs for no payments but may have a charge for listing tokens for sale. If you want to know how much does it cost to create NFT, just read this article in our blog.
Charges also depend on supply and demand in the network. When demand increases, the charge rises sharply. In addition, NFT creators must take into account the volatility of cryptocurrency prices, which also affects the costs associated with NFT. So how much does it cost to create such a token? NFT minting prices range from $2 to $400, and higher.
For example, here’s how the value can change depending on the blockchain chosen:
However, these costs do not include the commission you will pay to the marketplace. So don’t forget to add a fee of between 2.5% and 5%. Also, keep in mind that the ETH option will cost significantly more because of the need of paying for gas.
At the same time, you can create and post your NFTs for free if you choose the Polygon network, there is no upfront cost. However, the platform does charge service payments, which are deducted from the sale price of the token.
Storing information about the owner and transactions involving NFTs in chains makes these tokens similar to other cryptocurrencies. They also pass from one user to another, and access to them is secured. But there are some differences. What is the best way to explain such a distinction?
Imagine that you borrowed a bill from an acquaintance. When you pay back the debt you will give back a completely different bill, with a different identifier, but it doesn’t matter because they are all of equal value. Now imagine that you rented a car and returned a different car, the same model but in a different color. You would have a problem because a vehicle is an object of value with a unique identifier, and it is non-fungible. This is one of the best ways to explain the difference between such tokens. So, let’s summarize:
Both NFTs and cryptocurrencies are tokens issued on a database with transactions consisting of a successive chain of digital blocks. The difference is that all units of one cryptocurrency are equivalent to each other in properties and value, that is, they are interchangeable. But two NFTs from the same collection are not.
Once an NFT is released, it is impossible to create a second one exactly like it. Even if someone decides to forge an NFT and copies the picture, it will be seen that the forger was created later and from a different address. But it is quite possible to issue multiple tokens tied to the same object or copies of it. For example, an artist might issue multiple tokens to one of his paintings and sell them to different buyers.
Of course, the main factor that makes NFT especially valuable is its irreplaceability and originality. Since NFT cannot be copied in its entirety, it can be used to digitally authenticate an asset and verify its authenticity.
Before NFT, the problem of digital art authenticity was very acute: it was much easier to create a copy of a file than a copy of a physical painting. And there was no way to know which of those files was the original. But now NFT technology allows us to check the origin of the assets: it is possible to trace when the asset was first created and to see the whole history of purchases. We should also highlight other factors that determine the value of NFT:
Many people are attracted to such NFTs because of their intrinsic worth as well as proof of property rights. This gives a meaning of exclusivity and determines the worth of an NFT.
To start purchasing NFTs, you must first top up your crypto balance. All popular NFT platforms work in the ETH network, so you need the same wallet. As you may have already guessed, some tokens are only accessible on certain sites.
Some of the marketplaces are public, anyone can build any collection, including fakes of other projects. For example, OpenSea allows this. However, the site moderates content and popular collections that have been verified have a special mark that you should definitely pay attention to. Decide for yourself which investment method suits you best:
Want to get NFT for free? Surprisingly, there is such an option, because every day on social networks there are giveaways of tokens for free. If you are not ready to risk money, but you really want to try – this is a great option. There are also a few tips for beginners in the NFT field:
Buying NFTs to make money always involves risks. Be prepared to win, but don’t despair if you can’t make money on the first try. Also, do not invest all the money in one project, only one collection out of hundreds may become popular.
Of course, you should buy these tokens only through trusted exchanges. This is still a young market sphere, so there are not many reputable and safe platforms. It is better to trust only them and not to be tempted to work through little-known platforms.
To sell your NFTs on the platform (OpenSea, for example), you need to find your tokens on the site, click on them, and then click the Sell button. It will take you to the next page where you can set terms of sale, including the question of whether to bid or sell at a set value. ETH is the most common currency for which you can sell your tokens, but some tokens only support the token on which they were constructed.
By clicking the Edit button, you can program license payments and choose which token you would like to receive for the sale. Authors can receive an income every time a token is sold to a new person. This can create lifetime earnings of passive income for content creators.
The issue of taxation and NFT remains one of the most pressing today. NFT is a new kind of digital cryptographic asset. That is why in most countries there is no official guidance on the official taxation of such tokens. In fact, there are virtually no formal tax guidelines that would drastically distinguish NFT from other types of digital assets.
Because each such token is unique and unlike others, NFTs have some qualities similar to real-world collectibles. For this reason, the NFT in terms of taxation may balance somewhere between cryptocurrencies and objects from collections. Also, the tax treatment may differ during the purchase and creation stages of such a token.
For example, at the point of purchase tax will not be taken from the token, it may be due when NFT buys for crypto, in this case, it is ETH. So why does this happen? Very simple, because crypto is not a common fiat currency. Such payments using cryptocurrency can be compared to selling shares to get funds to buy a piece of art. The sale of such tokens can have various tax consequences. It will matter whether the token was a capital or non-capital asset. Let’s summarize this point:
You will likely have to pay tax when selling your token. If you are the author, this may be taxed as ordinary income. Also, you may have to pay tax when acquiring such a token because of the sale of the cryptocurrency. Again, it is best to consult with a specialist additionally.
As for the copyright for NFT owners, it usually happens this way: when selling on, it remains with the creator of the token, but buyers can use the NFT (for example, as a personal avatar). Buyers can also resell tokens or rent them out.
Most countries do not have legislation to regulate cryptocurrencies and digital assets. However, there are no bans on the use of NFTs in the majority of countries. These days, it all depends on the circumstances. If we consider NFT in the legal and juridical field, it is a special kind of crypto-assets. The regulatory and legal status of such a crypto-asset depends on its characteristics and, therefore, what category it belongs to.
In most countries, there is no regulatory framework for the regulation of crypto assets, and the relevant regulation is carried out only if the characteristics of such an asset are comparable to the specified areas of other financial activities.
As for the issues of the legality of creating screenshots and copying NFTs, it all depends on whether you expect to benefit financially from it. For more information on this topic, visit our blog at this link.
Many users and newcomers to crypto mistakenly underestimate NFT. Claims that the NFT bubble burst much sooner than investors expected can certainly be called groundless.Certainly, the first wave of interest in non-interchangeable tokens has waned, but at the same time, interest in primary and secondary sales of NFT is growing. Everyone can sell their creativity and NFT marketplaces are interested in making content creators more famous and earning more.
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