Key takeaways

• Non-fungible tokens (NFTs) are unique digital assets on a blockchain that represent ownership of various items, such as art, music and virtual goods.
• Blockchain technology provides a verifiable record of NFT ownership, preventing unauthorized use and ensuring authenticity.
• Some NFTs offer additional benefits, like access to exclusive events or in-game assets, enhancing their value beyond mere ownership.
• The concept of NFTs has evolved significantly, with key milestones including CryptoPunks, CryptoKitties and recent developments like Bitcoin Runes.
• Minting an NFT involves creating a digital asset, setting up a digital wallet, choosing a marketplace and paying transaction fees.
• To safely purchase NFTs, conduct thorough research, verify authenticity, evaluate utility, and use trusted marketplaces.

Non-fungible tokens (NFTs) are unique digital assets stored on a blockchain. They represent ownership of a specific item or piece of content, such as art, music, videos or virtual goods. 

Much like art in the traditional sense, NFTs are worth whatever the community will pay for them. For example, the NFT below was sold for $3.4 million back in 2021. 

The one below, on the other hand, can be bought for around $15. 

Some NFTs come with added benefits. For example, many NBA Top Shot NFTs come with VIP tickets to NBA games, meet-and-greets with players and exclusive merchandise. 

Owning a Flyfish Club NFT, for example, grants the holder access to exclusive dining experiences, including secret menus, special events and unique culinary offerings curated by top chefs.

Then there’s gaming. In Axie Infinity, NFTs are used to represent and manage in-game assets, primarily the “Axies,” which are digital pets that players can collect, breed, raise, battle and trade. 

So, while these digital pictures might seem like just “personalized number plates,” their value in the rapidly evolving future of Web3 is undeniably significant. Let’s explore further.

Did you know? One famous painter who has ventured into the world of NFTs is Damien Hirst. Known for his contemporary art and provocative pieces, Hirst launched an NFT project called “The Currency” in 2021. This project involved creating 10,000 unique dot paintings, each paired with an NFT. 

What is an NFT? 

You might recognize NFT as an acronym for “non-fungible token,” but understanding it involves more than just a bit of crypto trivia. 

Let’s break it down, starting with the “token” part.

Tokens vs. cryptocurrencies 

Tokens are similar to cryptocurrencies like Bitcoin and Ethereum in that they can be used as a medium of exchange and operate on blockchains. However, unlike cryptocurrencies, tokens are not native to the blockchains they function on. 

For instance, Ether (ETH) is a native cryptocurrency of the Ethereum blockchain, used to pay transaction fees and created through mining.

In contrast, tokens can be created (or minted) in any quantity on top of an existing blockchain, such as Ethereum. These tokens must adhere to specific standards, like ERC-20 on Ethereum.

The ERC-20 standard defines essential functions for tokens, such as “totalSupply,” “balanceOf,” “transfer,” “approve” and “transferFrom,” which facilitate transactions and interactions. These functions allow for a total supply of tokens and the ability to transfer and approve transactions. 

Tokens like Tether (USDT), which operate on multiple blockchains, including Ethereum, Tron and BNB Chain, are examples of this versatility.

Fungibility vs. non-fungibility

Understanding NFTs requires distinguishing between fungible and non-fungible tokens. Fungible tokens, like USDT or Bitcoin (BTC), are interchangeable; one unit is equivalent to another. 

This interchangeability is akin to commodities like crude oil, where one barrel is equivalent to another of the same quality.

NFTs, however, are unique and not interchangeable. Each NFT has distinct attributes that make it one-of-a-kind. On the Ethereum blockchain, NFTs are created using the ERC-721 standard, which includes functions like “ownerOf” and “tokenURI” to manage the ownership and metadata of these unique tokens.

Indeed, the idea of a “non-fungible token” makes more sense now — it’s a unique kind of token on the blockchain. 

Their uniqueness has enabled their use in various domains, most notably in digital art. Artists can create, sell and authenticate digital artworks as NFTs, ensuring their creations are verifiable, scarce assets that can be owned and traded. This mechanism provides artists with new revenue streams and a way to maintain control over their intellectual property.

The history of NFTs 

The concept of NFTs has evolved significantly since their inception, with various milestones marking the progression from initial ideas to a thriving market of digital collectibles. Let’s take a look at some key milestones. 

1. Colored Coins (2012–2013)

Colored Coins were among the earliest attempts to represent real-world assets on the blockchain, using the Bitcoin network. This project introduced the idea of tokenizing assets, although it faced technical limitations.

2. Quantum (2014)

The first-ever NFT, “Quantum,” created by Kevin McCoy and Anil Dash in 2014, laid the groundwork for NFTs by demonstrating the potential of blockchain technology to authenticate and prove ownership of digital art​.

3. Ethereum and the ERC-721 Standard (2017–2018)

Ethereum played a crucial role in the development of NFTs by introducing the ERC-721 standard in 2017. This standard provided a framework for creating non-fungible tokens, distinguishing them from fungible tokens like ERC-20. 

4. CryptoPunks (2017)

Created by Larva Labs, CryptoPunks is one of the earliest and most influential NFT collections. Launched in 2017, it features 10,000 unique 24x24 pixel art characters. Each CryptoPunk is distinct, and the collection has achieved significant popularity and value in the NFT market​.

5. CryptoKitties (2017)

Launched by Dapper Labs, CryptoKitties demonstrated how NFTs could be used in gaming and entertainment. The game aimed to give some utility to each NFT, allowing players to buy, breed and trade virtual cats. 

6. Decentraland (2018)

With metaverses came increased NFT use cases. Decentraland introduced a virtual world where users could purchase, develop and trade parcels of virtual land, each represented by an NFT. 

7. Bored Ape Yacht Club (BAYC) (2021)

One of the most prominent NFT collections, BAYC features 10,000 unique hand-drawn cartoon apes with different traits and accessories. Owners of Bored Apes receive exclusive benefits, such as access to private events and intellectual property rights for their ape images. The Bored Ape Yacht Club (BAYC) has been cited as the project that brought NFTs into the mainstream.

8. Ordinals (2023)

Ordinals introduced the concept of “inscriptions” on the Bitcoin blockchain, allowing users to assign unique identifiers to individual satoshis (the smallest unit of Bitcoin). This development extended the idea of NFTs to the Bitcoin network.

9. Runes (2023)

Building on the concept of Ordinals, Runes further expanded the capabilities of the Bitcoin blockchain to support complex digital assets. Runes allow for the creation of more sophisticated NFTs, including those with embedded functionality and interactive elements.

So, as you can see, the NFT saga has been long in the making, with brand-new industry-shaking developments taking place as recently as last year. As a broader result of the long development cycle of the industry we know today, the process of minting (or creating) an NFT has never been simpler. Let’s explore that next.

How to mint an NFT from scratch

NFTs don’t have to be pictures, as explored. They can represent virtual real estate, music or virtual in-game goods. Regardless of whether you’re a game developer looking to add a little Web3 spice or a budding digital artist looking to list a digital art collection for sale, it’s important to know how to mint an NFT simply.

Step 1: Set up a digital wallet

To interact with the blockchain, you need a digital wallet. Here’s how to set it up:

• Select a wallet provider: Popular choices include MetaMask, Trust Wallet and Coinbase Wallet.
• Install the wallet: Install the wallet as a browser extension or mobile app.
• Create an account: Follow the prompts to create your wallet account. Ensure you securely store your seed phrase, as it’s crucial for account recovery.
• Add funds: Purchase cryptocurrency (typically Ether) from an exchange like Coinbase or Binance and transfer it to your wallet. You’ll need this to pay for gas fees associated with minting NFTs.

Step 2: Choose an NFT marketplace

NFT marketplaces are platforms where you can create, sell and trade NFTs. Some of the most popular marketplaces include:

• OpenSea: A user-friendly platform that supports various types of NFTs.
• Rarible: A decentralized marketplace that allows users to mint and sell NFTs.
• Mintable: Offers a straightforward minting process with both free and paid options.

Step 3: Create your digital asset

Your digital asset can be anything from a piece of art to a music file or a 3D model. Ensure the file is in a supported format — e.g., PNG, JPEG, GIF for images, MP3 for audio, MP4 for video.

Step 4: Mint your NFT

Depending on the platform, you’ll find a slightly different interface. As it’s the most popular, let’s take a look at the process of minting an NFT on OpenSea:

1. Connect Your wallet: Go to the OpenSea website and connect your digital wallet.
2. Create a new item:
   - Navigate to the “Create” button on OpenSea.
   - Upload your digital file (artwork, audio, etc.).
   - Fill in details such as name, description and properties.
3. Choose blockchain: At this point, you’ll also have the option to choose the network on which you wish to mint. OpenSea primarily supports Ethereum and Polygon.
4. Mint the NFT:
   - Click on “Create” to mint the NFT. Your wallet will prompt you to approve a transaction and pay the gas fees.
   - Confirm the transaction. Once processed, your NFT will be created and available on OpenSea.

Depending on the reason for minting, you might wish to list the NFT for sale at some point. Usually, you’ll be able to do this through the NFT’s profile via your chosen marketplace. Follow the instructions by setting a price for your NFT, choosing the duration for which the listing will be active, and paying any gas fees associated with the listing itself.

If you’re looking to get the most for your NFT, you’ll need to promote it to potential buyers, likely through social media.

Did You Know? The youngest NFT millionaire, Benyamin Ahmed, launched his “Weird Whales” collection at the age of 12 in June 2021 and quickly amassed over $1 million worth of cryptocurrency. This collection, featuring pixelated whale images, became a viral sensation, with some pieces selling for as much as $20,000 each. 

Tips for buying an NFT

While the NFT hype has settled, with supernormal interest now circling the artificial intelligence realm, there are still plenty of rug-pulls and outright scams to be aware of. Whether you’re looking to acquire a piece of digital art as an investment or you’re simply interested in playing to earn on a popular GameFi platform, here’s what you need to know.

1. Do your research

Before diving into the purchase of an NFT, thorough research is crucial. Understanding the project, the creator and the community behind an NFT can significantly impact your buying decision. Investigate the artist’s background and their reputation within the NFT community. 

Check for the project roadmap and long-term vision, which can provide insight into the future value and utility of the NFT. Engage with the community on platforms such as Discord and X to gather valuable information and updates. This due diligence can help you avoid potential pitfalls and make informed decisions.

2. Verify authenticity

Ensuring the authenticity of the NFT you intend to buy is crucial to avoid scams and duplicates. Use official links provided by the project’s website or verified social media accounts to access the NFT marketplace. 

Verify the smart contract address to ensure it matches the official project details. Many marketplaces have verification systems — e.g., blue checkmarks — to indicate authentic collections. 

3. Evaluate utility and perks

NFTs often come with additional benefits beyond mere ownership of digital art. These can include access to exclusive content, events or communities. 

For instance, some NFTs grant access to special virtual experiences or airdrops of new tokens. Evaluating these additional utilities can help you determine the potential long-term value of the NFT. 

4. Use trusted marketplaces

Purchasing NFTs from reputable and well-known marketplaces can minimize risks. Some of the most reliable marketplaces include OpenSea, Rarible, Foundation and SuperRare. These platforms have robust security measures and a large user base, providing a safer environment for buying NFTs. 

The future of NFTs

Ever heard of “Tulip Mania?” In the early 17th century, tulip bulbs reached extraordinarily high prices before the market dramatically collapsed, becoming a symbol of speculative bubbles.

Much like Dutch tulip futures, the NFT market saw an incredible surge followed by a significant downturn, with deal values plummeting by 89% between December 2021 and December 2022 and newer NFT incarnations like Bitcoin Runes experiencing an 84% decrease in transaction share since their peak. 

Did you know? Digital artist Beeple, whose real name is Mike Winkelmann, famously called NFTs a “100% bubble” and warned buyers to be careful about their investments in this space. This was despite his success with NFTs, including selling a piece for $69.3 million.

Naturally, institutional investors have gradually shifted their focus to AI, with a 40.6% increase in AI startup funding in 2023 compared to 2022.

A question, therefore, arises: What’s next for NFTs? 

Collections like Bored Ape Yacht Club, despite a 90% drop in their floor price, remain stable, while the continued success of GameFi projects like Axie Infinity demonstrates NFTs’ continued relevance in crafting sustainable virtual economies.

NFTs are increasingly being integrated into diverse sectors such as virtual real estate, digital identity and intellectual property, ensuring their ongoing relevance and expanding their use cases beyond art and collectibles. Just as tulips have sustained their place in the economic spectrum due to their aesthetic and symbolic value, NFTs are carving out a lasting role in the digital economy.

Underneath the hype, therefore, the underlying technology of NFTs is, without a doubt, becoming increasingly integral to the development of Web3, impacting areas such as GameFi, digital art and community engagement.

Written by Bradley Peak