We’ll start with the basics here. What on earth is an NFT? Non-Fungible Tokens are essentially digital collectibles that can be purchased and traded in an online marketplace using Blockchain technology. ‘Non-Fungible’ means that it is not interchangeable or, in other words, is one of a kind. With the emergence and recent rise of Blockchain across all industries, creatives and investors have begun to find ways to use it to change the way art and other valuables are purchased and traded. Rather than going to a physical store or gallery, or even bidding at auction on physical items, NFT users can claim ownership of digital property in exchange for cryptocurrency.
Okay, but how do you “claim” digital property? And why would you even want to? Let’s dig a little deeper into why this trading system has become such a major player in the Blockchain world.
What’s All the Hype?
Analysts have found several reasons why NFT enthusiasts see this as a viable way to trade and invest. In recent times, there has been widespread mistrust of traditional currencies. While in a standard art market, physical currency is used to purchase high-valued pieces of work, in the NFT market, cryptocurrency — an alternative, non-government-regulated form of payment which has been greatly rising in value — is used to buy and exchange through digital space. In a generation where people are leaning towards saving digital copies of their files and important documents rather than keeping everything in physical storage, it simply makes sense as a next step for collectors to look to digital methods as well.
On a base level, NFTs operate pretty similarly to traditional collector’s items. The buyer purchases the NFT, and is now known to be in possession of a valuable work of art. Although they own the piece, they do not hold copyright of, or licenses to, the material and cannot typically reproduce its content without consent from the owner. Purchasing digital art is a new way to show support to your favourite artist or to the art community in general. Many digital artists who have previously found it difficult to receive any meaningful compensation for their work are now experiencing renewed belief in their ability to monetize and survive off of art. This is the digital renaissance of culture in our time.
According to software entrepreneur and internet personality GaryVee, we humans communicate through our purchases. The brands we buy say something about our sense of style or choice of quality. The causes we donate to speak to our interests, values and beliefs. In the same way, even though these items may not be physical, being able to show you spent a significant amount of currency on a specific NFT from an artist you support is a way to show your preferences and personality to the world.
All that said, there have been discussions about the downside to the NFT boom. Blockchain technology requires high energy input and as a result, maintaining NFT platforms — which run on Blockchain — can burn large amounts of fossil fuels. In addition, the ‘gas fees’ that must be paid to run these platforms can really add up for burgeoning artists. On a whole, the NFT market can generally be pretty exclusionary. From the perspective of a creator, the high fees and cost of creating an NFT product can be a significant barrier to entry. If you want to collect, most marketplaces are supported through Crypto wallets, and only 1% of the world’s population today owns one of those (again, not all that different from the traditional fine art market). Crypto and NFTs are still a highly speculative market. Their value is extremely volatile and many believe they currently exist as a bubble that may soon bust. Any participant should recognize the risk of entering the market. Lastly, and probably where the biggest push for improvement currently stands, is the fact that there is no way to prove that tokenized items have not been copyrighted from someone else’s work. Creators need to be vigilant in order to avoid being taken advantage of in this space.
How Does it Work?
NFT has several key features that allow it to function as it does. Here’s the overview.
- The product is assigned a token with a unique ID which is tagged with metadata that cannot be replicated by any other token.
- The token is then minted on a Blockchain network (Ethereum is the current standard). This can be likened to how physical coins are minted and placed into circulation.
- Using their public key, the owner creates a transaction through a smart contract. This is how you can prove the NFT you own is an original. Only the version created by the original creator will have that specific public key cryptography encoded into it.
- The smart contract is executed or signed with a private key.
- The transaction can now be run, deploying the NFT to the market, where interested fans can purchase it.
So, Why Create an NFT?
We briefly discussed this earlier in the article, but let’s revisit before getting into the details.
If you are a creator, especially of digital content, NFTs can be a good way to get solid buy-in from your fans and followers. It allows them to interact with you and your work on a new level, and gives them a sense of pride for doing so.
NFTs also provide you with an outlet for selling work that may not have much of a market elsewhere.
Much more than just art can be traded on the NFT market. Real-life collectibles, videos, car titles, event tickets and many other miscellaneous items have been tokenized and minted. Get creative!
There is an option to activate a feature on your NFTs where you receive a percentage every time it is sold or changes ownership — similarly to royalties on music or films. This can greatly increase your ROI.
Speaking of investments, creating an NFT can be a good way to drive up the value of your work. NFTs thrive off of the rule of supply and demand, where essentially any item that is perceived to be in limited supply (a one-of-a-kind piece of content), will be considered valuable in the market, and there will be people willing to pay for it.
If for no other reason, you might as well create an NFT to get in on the hot market that exists for it right now — before the bubble bursts.
Now You’re Ready. So How Do You Create An NFT?
- Identify the product or item (physical or digital) that you want to have minted. Remember, this is a new and potentially lucrative market, so put your best foot forward and get creative!
- You will need to create a non-custodial crypto wallet on the Ethereum Blockchain. This ensures that you have a location to collect payments once your NFT is on the market. The non-custodial wallet gives you access to a “seed phrase” which allows you to back up the wallet across multiple platforms and devices. The seed phrase is a randomly generated 12-word code and, if it’s forgotten, you can permanently lose all access to your funds. It is very important to safely store this phrase.
- Purchase Ether and transfer it to your wallet. You may be wondering how much ETH you’ll need. By the end of the article you’ll come to have a better understanding of the full costs that can go into creating NFT. For now, keep in mind that there are gas fees involved and it can cost up to US$70 of gas to create the transaction that adds your NFT to the blockchain ledger.
- Select your NFT marketplace. The most popular ones today are Rarible and OpenSea, both of which are pretty easy to use. Note that each platform has its own fees and regulations, so you will want to review your options to make the best choice for your sales. Creating through a marketplace completes a number of steps for you, like creating the instance for your transaction on the blockchain ledger, assigning a unique ID and metadata, and executing the smart contract to complete your transaction.
- Once your shiny new NFT has been deployed, it will be accessible on that marketplace for interested buyers to bid on and purchase, and you just need to manage the funds coming into your crypto wallet.
How Much Does Creating NFT Cost?
Currently, NFTs have been known to cost anywhere from $70 to $700 to create an initial NFT collection. This price usually includes the gas fees, network transaction fees for each transaction that has to be created, plus various commissions that may be charged by the marketplace you’re selling on.
In summary, creating an NFT product can be a relatively simple endeavour, provided you own some valuable content, have access to some ETH and have the risk tolerance to enter the volatile market. If that sounds like you, there’s nothing left to do but to get started.
Looking to get into the Blockchain space by minting NFTs, starting a DAO or launching your own tokens? Unpluggd Digital provides services in on-chain software development including dApp creation, protocol implementation and integration and more.
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