Search Result for: What are NFTs?

Non-fungible tokens — or NFTs — are causing a paradigm shift across nearly every sector of society.  They’re transforming everything from finance to art, and there’s good reason to suspect that almost no corner of society will be left untouched.

If that sounds like a bit of an overstatement, know that it’s really not.  

Over the last few years, NFTs have proven to be one of the most significant contemporary innovations in tech, finance, fashion, sports, and the arts. Since going mainstream in 2021, NFTs have been the source of hype, confusion, and drama (yes, drama!) as they have taken their place as the latest cultural phenomenon.

If you’re new to cryptocurrencies and digital assets, it can be difficult to wrap your head around NFTs and everything that’s happening in the space. But don’t fret. We’re here to solve all your NFT woes. Here, we give you a crash course in everything non-fungible. We cover what NFTs are, how they’re made, the various benefits and drawbacks, and how you can determine whether NFTs are right for you. 

And if you’ve finished reading and there’s something you’re still confused about, you can always shoot us a message. Let’s get started.

What’s an NFT?

A non-fungible token (NFT) is a unique unit of data on a blockchain that can be linked to digital and physical objects to provide an immutable proof of ownership. 

The data an NFT contains can be tied to digital images, songs, videos, avatars, and more. However, they can also be used to give an NFT owner access to exclusive merchandise, tickets to live or digital events, or be linked to physical assets like cars, yachts, and much more. 

In this respect, NFTs allow individuals to create, buy, and sell items in an easily verifiable way using blockchain technology. But bear in mind that, unless otherwise stated, you’re not buying the copyright, intellectual property rights, or commercial rights to any underlying assets when you buy an NFT. However, all the legal details can get pretty complicated, so we’ll dive into this more in subsequent sections.

When it comes to creating and selling NFTs, the process is really rather simple. It works like this:

An individual (or company) selects a unique asset to sell as an NFT. They add the object to a blockchain that supports NFTs through a process called “minting,” which creates the NFT.The NFT now represents that item on the blockchain, verifying proof of ownership in an immutable record. The NFT can be kept as part of a private collection, or it can be bought, sold, and traded using NFT marketplaces and auctions.

As you might imagine, the technical definition is a bit more convoluted. If you’re interested in that kind of breakdown, our NFT dictionary gives you a comprehensive overview of all the technology and infrastructure in the NFT ecosystem. 

How are NFTs different from cryptocurrency?

Just like the money in your bank account, cryptocurrency is what you use for any and all transactions on the blockchain.  Cryptocurrency can be purchased or converted into fiat currencies (dollars, euros, yen, etc.) via crypto exchanges. By contrast, an NFT is a unique and irreplaceable asset that is purchased using cryptocurrency. It can gain or lose value independent of the currency used to buy it, just like a popular trading card or a unique piece of art. 

In this respect, NFTs are non-fungible and cryptocurrencies are fungible. 

To better understand this, it makes sense to think of traditional fiat currencies. If we asked you to let us borrow a dollar, you wouldn’t open your wallet and say, “Which dollar bill do you want?” Doing so would be silly, as each $1 bill represents the same thing and can be exchanged for any other $1 bill. That’s because the U.S. dollar is fungible. Cryptocurrencies are also fungible. They’re not unique and can easily be traded and replaced.

NFTs, on the other hand, are non-fungible in the sense that no two are the same. Each NFT is a unique unit of data that cannot be replaced by an identical version because there is no identical version.

When it comes to NFTs, uniqueness and scarcity increase their appeal and desirability. And as is true of all rare items, this scarcity allows individuals to sell their NFTs for premium prices.

Why own NFTs?

The demand for NFT art has exploded recently. However, there is still a lot of skepticism. After all, NFTs are generally tied to digital files. How is owning such an NFT different from a screenshot of a photo?  Does “proof of ownership” mean anything? To help you decide, here are some of the main reasons why people own NFTs.

1) It empowers artists

Publishers, producers, and auction houses often strong-arm creators into contracts that don’t serve their interests. With NFTs, artists can mint and sell their work independently, allowing them to retain the IP and creative control. Artists can also earn royalties from all secondary sales of their work. 

In this respect, NFTs have the potential to create fairer models by bypassing the gatekeepers that currently control creative industries, and many individuals buy NFTs because it’s a way of empowering and financially supporting the creators that they love.

2) Collectibility

Despite costing less than 5 cents to make, a 1952 Mickey Mantle rookie card sold for $5.2 million. This happened because of the history, rarity, and cultural relevance of the card. NFTs are, in many ways, the digital version of this. For individuals who want to build a collection of digital assets, NFTs offer a unique opportunity that hasn’t existed outside of traditional collectibles and art markets ever before.

3) Investment 

Some NFT owners simply want an asset that will increase in value. In this respect, some collectors treat NFTs as an investment — much like traditional art. Want proof? Mike Winkelmann, a prominent American digital artist known professionally as Beeple, sold his Everydays: The First 5000 Days composite at Christie’s for $69 million in March of 2021. 

This may seem strange to some, as everyone can see and interact with the image. However, as noted, there can only be one NFT owner. For some, this is enough. Yet, market volatility makes NFT investment a high risk, with the potential for major losses.

4) Community

NFT Ownership also comes with social benefits, as many creators have turned their NFT projects into vibrant communities. The Bored Ape Yacht Club is, perhaps, the best example of community building in relation to an NFT project. Collectors get access to a members-only discord, exclusive merchandise, a vote in the future of the project, tickets to virtual meetups, and more. As such, for many collectors, owning an NFT how they socialize with friends and a matter of identity.

Creating, buying, and selling NFTs

Unfortunately, wading into the NFT market isn’t as simple as it might sound. After all, you can’t exactly buy an NFT with a dollar and then carry it home with you. You’ll need cryptocurrency to fund your NFT transactions and a crypto wallet to safely store the data when you purchase (or mint) your own NFTs. And that’s just the beginning. In this section, we’ll talk about how NFTs are created, traded, stored, and managed.

So, if you’re wondering how you can get started with NFTs, this is the section for you.

Credit: nft now

Step 1 – Get a crypto wallet

In short, a crypto wallet is a physical device or computer program that allows you to store and transfer digital assets. There are two basic types of crypto wallets: software and hardware wallets. When it comes to minting and shorter-term trades, a hot wallet is the way to go. But for safety reasons, you should use a hardware wallet to store your most valuable assets.

A software wallet (also known as a “hot wallet”): This is an application that can be downloaded and installed on your device. Software wallets are more convenient and can be accessed more easily than hardware wallets, as they are always connected to the internet. However, these wallets are more open to attacks and easier to hack. As a result, they are typically seen as being less secure. 

A hardware wallet (also known as a “cold wallet”): This is a physical device that is generally pretty similar to a USB stick that you might use to store files from your computer. Except that, in this case, you are storing your crypto and NFTs. Because these wallets can be completely isolated from the network, assets stored in hardware wallets are often considered to be far more secure than software wallets.

FURTHER READING: Everything You Need to Know About Crypto and NFT Wallets

Step 2 – Buy crypto

Some NFT marketplaces, like Nifty Gateway and MakersPlace, let you trade NFTs using traditional payment methods. Others, like SuperRare and OpenSea, only let people use cryptocurrency. When it comes to which crypto you should get, Ether (ETH) is the leading one used for NFT transactions. It’s the native currency of the Ethereum blockchain, and it can be purchased in a few different ways, including via major trading platforms like Coinbase and Gemini, which allow users to buy ETH with a bank account or credit card.

However, considering the high transaction costs and environmental impact associated with ETH, some want to use cryptos from other blockchains to trade NFTs. Alternatives like Solana (SOL), Tezos (XTZ), Flow (FLOW), and Binance Smart Chain (BSC) also support NFT transactions. But if you’re a beginner, it may be best to stick to ETH and the Ethereum blockchain, as it has a lot more marketplaces and users.

FURTHER READING: How to Buy and Sell Cryptocurrency in 5 Simple Steps

Step 3 – Find a marketplace

One thing to consider when choosing a marketplace is whether or not you intend to mint one NFT at a time and place it up for auction or mint a collection or batch of NFTs that are each individually priced. For the latter, consider a few of the world’s largest NFT marketplaces. OpenSea is the most popular NFT marketplace, with over 1 million active user wallets on the platform. LooksRare and Rarible are two of the most formidable OpenSea competitors.

If you intend to mint 1/1 NFTs, on the other hand, platforms like SuperRare, Foundation, and Zora are your best bet.

And do be prepared, minting comes with an initial cost. Most of the time, you’ll only need to pay a gas fee (transaction fee) to mint, but sometimes marketplaces will tack on extra costs. Similarly, make sure you do your due diligence when researching royalty splits. You are not guaranteed to have cross-platform royalties when you mint on a platform like OpenSea or Rarible. Though there are smart-contract and minting tools like CXIP that help tackle this problem and 0xSplits that help with automated royalty splits to ensure you receive secondary sales royalties no matter where your NFTs are resold.

Step 4A – Mint an NFT

New NFTs are created via a process called “minting.”  This is the procedure of associating a specific set of data — the NFT — with a specific asset or object. When picking a unique asset, keep in mind that you must own the copyright and intellectual property rights for the item you want to mint. Take care with this process. If you create NFTs using assets you don’t own, you could easily end up in legal trouble.

Once you select a marketplace and create an account, you can begin the minting process. This process will be slightly different for each marketplace, but you’ll typically need to upload the file you intend to associate with your NFT and fund the transaction using ETH or another cryptocurrency, depending on what blockchain you’re using. It’s also possible to mint a physical, real-world object, but the process is more complex than what we’ll cover here.

Once the minting process is complete, you’ll have all the relevant information regarding your new NFT, and that NFT will be registered to your digital wallet. Now you can keep it, sell it, or trade it at your leisure.

Step 4B – Buy or sell NFTs

Keep in mind that some NFTs may not be available on the open marketplace or may only be purchased through specific vendors. For example, CryptoPunks have historically been sold through the Larva Labs website rather than through a public marketplace.

Once you’ve found an NFT that you’d like to purchase, you may have the opportunity to buy it outright. In other cases, you’ll need to bid on the NFT of your choice and wait until the auction closes. If you’re the top bidder after the auction closes (or if the seller accepts your bid), the transaction will complete and ownership of the NFT will transfer to your wallet.  

At that point, you now own the NFT and can buy, sell, or display it as you see fit.

READ MORE: How to Display NFT Art: A Guide to NFT Displays

Selling your NFT follows a similar process as outlined above.  You’ll need to set up the auction on the marketplace of your choice. Take the time to understand all the fees and different kinds of auction methods available to you before initiating the sale. Once the auction is complete, the NFT will be automatically transferred from your possession and the proceeds from the transaction will be transferred to you.

The environmental impact of NFTs

Of course, the NFT boom isn’t without its downsides. Among the most frequent criticisms relates to the energy needs for operating blockchains that use proof-of-work consensus systems to validate transactions. Before the Ethereum merge to proof-of-stake consensus, a validation mechanism with energy needs that are orders of magnitude lower, Ethereum’s energy consumption rivaled that of entire countries when paired with the Bitcoin blockchain.

However, since the merge, Ethereum’s energy needs have fallen by a staggering 99.5 percent. In the past, many argued that NFTs contributed to blockchain’s overall carbon footprint because they promoted the use of the technology.

Unfortunately, many of the arguments critics used to denigrate proof-of-work blockchain were largely based on misinformation. Many appeared in articles that claimed to calculate the amount of energy needed to conduct a single NFT transaction, but these claims omitted the fact that proof-of-work consensus mechanisms mine blocks, not transactions, and many transactions can fit inside a single block. It’s also not easy to calculate how much energy a single NFT transaction uses.

Even if this weren’t the case, it’s important to keep perspective in mind when commenting on a technology’s energy needs. Numerous other technologies have obscene energy requirements. In fact, YouTube and Ethereum used to have roughly the same carbon footprint. That’s not an excuse regarding blockchains and the carbon footprint they leave behind, but it’s crucial to understand the issue in its proper context. No technology’s existence is as environmentally friendly as its absence, and deciding which technologies we deem valuable enough to continue to use is an ongoing conversation.

What’s more, some blockchains are already moving to solve the blockchain energy problem. For example, Solana uses a unique combination of proof-of-history (PoH), and several chains use a version of proof-of-stake mechanisms to substantially manage their energy use. The Liquid Proof-of-Stake (LPoS) mechanism employed by Tezos, for example, uses roughly two million times less energy than Ethereum did pre-merge.

There are plenty of valid criticisms to consider regarding blockchain technology, but perhaps a better question to ask is whether or not publications covering the NFT space will do a better job of analyzing the facts before maligning it.

READ MORE: NFTs and the Environment: Why the Anger Is Unjustified

NFT usage and ownership rights

NFTs have a nuanced relationship with the assets tied to them.  While an NFT is designed to represent the original asset on the blockchain, the NFT itself is seen as a separate entity from any content it contains. Throughout this article, we’ve often compared NFTs to trading cards, and that analogy holds true here as well.

Say you own a vintage baseball card or a popular trading card from a collectible card game, like Magic: The Gathering. You own a representation of the original work — but you don’t own the original work itself.  The copyright for the artwork, design, and branding of the card you possess are wholly owned by the card’s manufacturer.

In the same way, while NFTs represent an item on the blockchain, ownership of an NFT does not transfer the intellectual property or usage rights of that original work to you. 

For example, let’s say you buy an NFT that contains the very first digital copy of Harry Potter and Sorcerer’s Stone. You own the NFT. But that doesn’t mean you have the right to sell Harry Potter merchandise, make Harry Potter movies, or give others permission to use the Harry Potter IP for commercial purposes. 

Sadly, NFT ownership and usage rights are often conflated, which has given rise to some buyers purchasing NFTs with the mistaken understanding that an NFT effectively gives them the rights to expand upon (and capitalized from) well-established IPs.

Of course, there are some exceptions to these hard and fast rules.  Bored Ape Yacht Club has stated publicly that all BAYC NFT owners have full commercial rights to that Ape.  It can be monetized however the NFT owner sees fit to do so.  Some projects like CrypToadz and Nouns have taken this even further by releasing their IP to the public domain under Creative Commons (known as CC0). But they should be viewed as the exception, not the rule.

Copyrighted content

Using self-minting platforms like OpenSea, it’s possible for any user to mint a new NFT using copyrighted content that they don’t own.  This is dangerous for the minter, buyers, and the original artist for a few reasons:

By profiting off of illegitimate content, sellers and buyers open themselves up to legal action by the legitimate copyright holders.Legitimate NFTs issued by the copyright holder may be devalued by illegitimate NFTs of the same work.Buyers may not know that the content they’ve purchased is illegitimate or that they’ve put themselves in legal jeopardy with an illegitimate trade.

Concerns around legitimacy are one of the reasons that verified NFT projects and accounts are preferable. To stay safe on NFT marketplaces, always look for verified projects on platforms, and only follow links from official (and verified) user accounts on social media.

In the case of sales that take place via official websites, like with Art Blocks or NBA Top Shot, buyers can act with confidence knowing that their NFT comes from a legitimate source.

NFT scams explained

NFTs are still a new phenomenon. As a result, the market is vulnerable to scams that can take advantage of unsuspecting collectors. Here are a few scams and problems with the NFT market that you should watch out for.

FURTHER READING:  How to Identify and Avoid NFT Scams

Rug pulls

Even though large generative projects are preferred by collectors, there’s not always safety in numbers, and no NFT project is entirely without risk. In fact, many projects have fallen apart due to rug pull scams. A rug pull occurs when the project creators take the investment money for the project and disappear. By absconding with all of the money, the team leaves collectors with a valueless asset. 

Notably, these kinds of rug pulls often aren’t illegal. Are they unethical? Sure. But if a project promises to donate funds and then chooses to keep the money, there isn’t much that anyone can do. In rare instances, a rug pull may count as fraud, but this often isn’t the case.

Rug pulls can also happen when NFT developers remove the ability for investors to sell their tokens. These kinds of rug pulls are illegal, and you may be able to recoup your money. However, it will probably cost you a lengthy court battle. Additionally, many NFT creators don’t use their legal names, so it may be difficult (or even impossible) to track them down.  

FURTHER READING: What Are Rug Pulls? Are They a Crime?

Wash trading

As with stocks and other collectibles, market manipulation can happen during NFT auctions.

Working together, a group of potential buyers can drive up the price of an NFT by artificially inflating the bid price until an unsuspecting buyer joins the fray. After the sale, the asset deflates in value, leaving the buyer with a valueless NFT. One of the most common ways of doing this with NFTs is with wash trading. Wash trading occurs when a user controls both sides of an NFT trade, selling the NFT from one wallet and purchasing it from another.

When many transactions like this are executed, the trade volume rises. As a result, it looks like the underlying asset is highly sought after. This has the effect of increasing the value (the price) of the NFT in question. In fact, some NFT wash traders have executed hundreds of transactions through self-controlled wallets to try and increase demand.

FURTHER READING: What is a “wash trade” in NFTs?

Phishing scams

Whether through fake advertisements, NFT giveaways, or some other form of coercion, scammers will sometimes ask for your private wallet keys and/or other sensitive information like your seed phrase.

Depending on what information they get access to, the scammer can then access your wallet and remove any cryptocurrency or NFTs stored within or sign transactions without your consent. Because blockchain is decentralized and often anonymous (i.e. there’s no regulatory authority and individuals don’t have submit proof of identity to use it) there’s generally no way to recover your assets if this happens.

Just like password phishing emails, these scams come in all stripes, and they can be very hard to spot if you aren’t looking for them.  As a reminder: Never share your seed phrase or private keys with anyone or they will be able to access your funds, and only follow links from official websites and accounts. 

Sometimes, even that’s not safe…

Taxes and NFTs

Tax responsibilities will vary by country, but due to the trading value for most NFTs, acquiring a large sum of money in this way is likely to be considered capital gains. If you’re an NFT creator — meaning that you’ve minted and sold your own NFTs — that income is likely to be considered some form of business income, and you’ll need to claim it when filing your tax returns.

The specifics will vary based on the legalities within your region, but NFTs are not a tax-free investment. Be careful if you plan to treat them as such.

FURTHER READING:  6 Critical Things to Know About NFTs and Taxes

But what about crypto philanthropy? We’ve seen a sharp rise in “intentional charitable donations” made via NFTs in recent years. The geopolitical crisis in Ukraine stands as a perfect example of how NFTs can be used to positively impact communities in need.

In fact, more than 1,300 nonprofits accepted crypto-based donations in 2021, which are considered tax-deductible in the U.S., among other countries. Meaning that taxpayers can get a tax-deductible write-off for donations they made in crypto or NFTs. But again, this will vary from country to country. 

FURTHER READING: NFTs and Charity: What to Know About Deductions and Tax Hurdles

A brief history of NFTs

The first NFTs

The first NFT ever created is called “Quantum.” It was minted by Kevin McCoy on Namecoin in 2014. Several other NFTs were launched on pre-Ethereum blockchains over the following years. For example, Spells of Genesis launched in 2015 and stands as the first-ever blockchain-based game. Rare Pepes came out in 2016 and helped kick off the first crypto art market.

However, these projects failed to reach widespread popularity. They remained mostly unknown to all but those who were well-versed in cryptocurrency and blockchain technologies. 

For typical consumers, NFTs only began to gain mainstream momentum in 2017. Around this time, the first NFT collections were launched on the Ethereum blockchain. Previous blockchains made trading and transferring ownership impressively difficult. The Ethereum network and its smart contracts functionality enabled token creation, programming, storage, and trading built directly into the blockchain itself. These new features eased the onboarding process and increased access.

One of these earliest Ethereum projects was CryptoPunks, a collection launched by Larva Labs that has become synonymous with early NFT history. As a result, many of its individual pieces have sold for millions.

READ MORE:  Top 10 Historical NFTs Everyone Should Know

NFT interest soars

Prior to 2021, two catalysts arguably helped increase price points and speed public interest along. The first was the COVID-19 pandemic, which forced many people to be more digitally native and connect with each other on platforms like Twitter and Clubhouse, where the NFT community has built a strong presence.

The second was Beeple. The longtime artist turned into an NFT pioneer when he became the first creator to sell an NFT with a major auction house. When the Christie’s auction for his “Everydays — The First 5000 Days” came to a close on March 11 at an eye-popping $69 million, NFTs could no longer be ignored. 

The sale made headlines in papers around the world, and more sales soon followed. Edward Snowden’s piece, Stay Free, sold for $5 million in April. In June, CryptoPunk #7523 sold for $11 million. In December, XCopy’s “Right-click and Save As Guy” sold for $7 million. 

While digital art and collectibles largely propelled 2021’s boom, there are countless additional applications of NFT technology that also launched around this time and drew attention to the space. There are NFT-based virtual worlds, such as Decentraland and CryptoVoxels, and NFT-based blockchain games like Axie Infinity and Zed Run.

As adoption has increased, so have the sales volumes and price points. This led to an explosion of interest from companies and brands looking to launch their own NFT projects and capitalize on market growth. Companies like Coca-Cola and Taco Bell have created NFTs around popular food and beverage products. Other brands, like Hot Wheels and Adidas, have begun selling NFTs connected to their physical products.  There are even reports of NFT collections by brands like Gucci selling for far more than the price of their flagship product!

READ MORE: Moving Mainstream: How Big Brands Are Using NFTs

The future of NFTs

Right now, NFTs are still in their infancy. With the possible applications of the technology seemingly limitless, it’s anyone’s guess where NFTs go from here.

It’s been widely speculated that NFTs could play some role in the metaverse of the future, mainly by acting as a digital representation of the physical objects you possess. This could also happen with your digital avatar. If NFTs are used to represent items in a video game on a unified blockchain, items and skins can be moved between all games using that blockchain.

However, some skeptics argue that NFTs don’t really have a future. Rather, they say they are merely a passing fad and may ultimately be relegated to a niche part of a larger market, similar to the trajectory with collectible card games and other vintage collectibles.  

What vision of the future is accurate? It’s honestly hard to say. Given how young NFTs are at the moment, the only way to know for sure is to wait and see. Where NFTs stand now is likely to look vastly different within a short period of time.

A timeline of innovative and popular NFTs

In this section, we’ll cover some of the most notable NFT projects to date. But be warned — this list is far from exhaustive. So be sure to check out our resources on historical NFTs for a more in-depth blast from the past.

Credit: nft now

Quantum (2014)

As noted, the world’s first NFT was minted by Kevin McCoy on Namecoin in 2014. It’s called “Quantum,” and it was sold in 2021 via Sotheby’s for $1.47 million. This led to a subsequent lawsuit due to ownership disputes.

Problems arose because McCoy originally minted “Quantum” on NameCoin, which is blockchain software modeled from Bitcoin’s code. NameCoin registrations must be renewed regularly, but McCor failed to renew it in 2015. 

Unfortunately, another party with the Twitter handle @EarlyNFT registered as the owner of the NFT ahead of McCoy’s 2021 sale. The contents of the 2014 blockchain entry include the statement, “I assert title to the file at the URL http://static.mccoyspace.com/gifs/quantum.gif.” And “Title transfers to whoever controls this blockchain entry.” This seems to indicate that the Twitter user may, in fact, be the rightful owner – not McCoy. 

However, given that NFTs are largely unregulated, it remains to be seen exactly how this will play out from a legal perspective.

Spells of Genesis (March 2015)

Credit: Spells of Genesis

Spells of Genesis was created in 2015 by EverdreamSoft on top of Bitcoin. It’s the very first blockchain trading card game. As such, it helped usher in a new era of gaming – one in which players have true ownership of their digital assets.

Each card contains a piece of art representing a historic moment in blockchain history. Players collect, trade, and combine cards to create a powerful deck. Once this is done, they can challenge various opponents. 

Rare Pepe (September 2016)

The Rare Pepes tokens are digital collectible cards that were minted by blockchain pioneers in 2016. The first Rare Pepes were mined in block 428,919 in September of 2016. They stand as one of the first art experiments on the blockchain, helping spawn the early crypto art movement.

The Rare Pepe Wallet was created by developer Joe Looney shortly after. It’s a web-based, encrypted wallet that runs on Counterparty. It lets users trade and destroy their Rare Pepes.

The tokens were initially traded almost exclusively on Counterparty. However, after NFT sales started to skyrocket in 2021, some Rare Pepe owners used a software protocol called Emblem Vault to reconfigure their tokens to run on the Ethereum blockchain. Many of these were then listed and sold on OpenSea for hundreds of thousands of dollars.

Out of the nearly 1,800 cards issued across 36 series, the Series 1, Card 1 is the rarest and most valuable. It pays homage to Satoshi Nakamoto, the person or group that created Bitcoin. It’s called the Nakamoto Card, and holding one (there are only 300 total) is the only way to gain entry into the 300 Club. 

CryptoPunks (June 2017)

Credit: Screenshot of Larva Labs website/nft now

CryptoPunks first hit the market in 2017 and was launched by product studio Larva Labs. The project was one of the earliest NFT generative art collections ever launched, and it directly inspired the current crop of popular generative PFP projects, like Bored Ape Yacht Club. In this respect, it’s one of the most influential NFT projects of all time.

Each Punk is algorithmically generated and entirely unique, with some characteristics rarer than others. 

To date, CryptoPunks is still one of the most sought-after NFT collectibles, and any NFT from the collection is considered a rare and exclusive item in the community. The Punks themselves typically go for hundreds of thousands, with some trades easily climbing into the millions.

FURTHER READING: A Guide to CryptoPunks NFTs

And it’s not just collectors that are after these valuable NFTs.  Some companies, like Visa, have also purchased Punks in the past, which has further driven up scarcity and demand among NFT aficionados.

CryptoKitties (November 2017)

Credit: CryptoKitties

CryptoKitties was created by Canadian studio Dapper Labs and launched in 2017. It’s one of the first blockchain games to be built on Ethereum, and it was the first project to receive widespread media attention. It was also the inspiration for ERC-721, an open standard that describes how to build NFTs on Ethereum virtual machine (EVM) compatible blockchains.

CryptoKitties is a collectible game where players purchase, breed, and trade virtual cats. Each cat is assigned 12 unique traits, including fur patterns, accent colors, eye shape, and nose shape.  The attributes have varying levels of rarity, and attributes are designed to be passed down through the breeding mechanics of the game.  Each cat is 100% unique.

Of course, breeding your CryptoKitties isn’t free.  You’ll need to spend ETH on the platform to trade and breed your cats.  However, because you can effectively generate new assets via breeding and then sell that new NFT on the open market, the game comes with a unique appeal for many prospective gamers.

Axie Infinity (March 2018)

Credit: Screenshot of Axie Infinity website/nft now

One of the first blockchain games, Axie Infinity is an online video game based around NFTs and Ethereum. It was created by Vietnamese studio Sky Mavis.​​ Players collect creatures called Axies, and then they use them to fight, build, and achieve victory within the game.  The platform also features a marketplace where individuals can sell game items and Axies to other players.

First launched in 2018, Axie uses a “play-to-earn” model, meaning that users can earn in-game cryptocurrency simply by playing.  This is an innovative approach that you won’t see with too many other NFTs, as it effectively allows Axie users to increase their overall market value by engaging with the game.

However, the game isn’t without its faults.  Some have likened the game’s payout system to gambling, and the buy-in price for new players has dropped dramatically in recent years.

Decentraland (February 2020)

Credit: Decentraland

Decentraland is a browser-based game where users can buy and sell virtual plots of land and in-game items. It was created by Argentinians Ari Meilich and Esteban Ordano, who began working on the project in 2015. It went live in 2020, and it’s currently run by the nonprofit Decentraland Foundation. 

Everything in the game is a sellable item. This includes avatar wearables, estates, and the land on which these estates sit. This is a unique change of pace for NFT ownership, as it transforms digital collections into interactive objects that have a function and value – they aren’t just units of data sitting on a blockchain. Additionally, it stands as the first virtual world owned by users.

Along with virtual world CryptoVoxels, Decentraland is often cited as one of the earliest demonstrable models for the metaverse.

Admittedly, the game itself has been plagued by subpar development, poor reviews, and lower player counts for years.  However, that hasn’t stopped big brands and celebrities from buying their virtual plots and setting up shop on the platform. Though the game has seen technical improvements recently, it’s safe to say that Decentraland is an ambitious undertaking that may be limited by the browser technology it relies on to be truly immersive. That said, some speculators believe that the game could take the market by storm – if it can overcome its own technical hurdles.

NBA Top Shot (October 2020)

Credit: Screenshot of NBA Top Shot website/nft now

One of the more popular NFT collections on the market is NBA Top Shot. The NFT project lets sports fans own a piece of the game they love. This collection is one of the first to transform cultural moments – via sports footage – into digital collectibles. 

And thanks to the prominence of the NBA brand, the project helped drive mainstream awareness for blockchain and NFTs as few things could. For any doubters out there, the numbers largely speak for themselves. In 2021 alone, the virtual platform had more than 1.1 million registered users who traded some $800 million in NFTs. 

FURTHER READING: NBA Top Shot: The Ultimate Guide

Top Shot allows users to purchase NFTs created using video clips of their favorite players and key basketball moments.  The clips are cut and numbered in a series, and multiple copies are minted to create varying levels of rarity. Compared with most of the other popular NFTs, Top Shot remains one of the most affordable NFTs for starting collectors, with most selling for well under $100 upon release and purchasable through standard fiat currencies.

Art Blocks (November 2020)

Credit: Screenshot of Art Blocks website

Art Blocks launched in 2020 and dramatically streamlined the creation of generative art. If you’re looking for truly unique NFTs, Art Blocks can help you flesh out your NFT portfolio in interesting (and remarkably fast!) ways. It uses generative scripts to create unique works of computer-generated art. Simply select a project that you like, and then mint an NFT from that collection. Your result will be randomly generated on demand, so you won’t know exactly what your NFT will look like until you make the purchase.

FURTHER READING: 5 Generative Art and Music Projects You Need to Know

As you’d see with a traditional art gallery, the collections that Art Blocks provide are often curated and have a high standard for uniqueness and NFT individuality.  Art Blocks also collaborates with coding creatives from around the world to create its Curated Galleries, which are designed to offer the best of the best in digitally generated NFT artwork.

Bored Ape Yacht Club (April 2021)

A wildly popular PFP NFT, Bored Ape Yacht Club has received massive critical acclaim since its founding. It was created by product studio Yuga Labs. The collection features 10,000 unique NFTs, and NFT holders have full commercialization rights to the Ape that they own.

With most Ape sales going for hundreds of thousands of dollars, this NFT collection is considered one of the most prominent and profitable examples of the medium.  Bored Ape also played a major role in kicking off the avatar craze (using NFTs as profile pictures). In many ways, it’s directly responsible for cementing NFTs as a pop culture phenomenon.

FURTHER READING: A Guide to Bored Ape Yacht Club

However, the art behind the BAYC NFTs isn’t exactly what started the Bored Ape craze. The status and prestige of owning one of these highly valued NFTs greatly increases their value and demand. In this respect, the community aspect is key to the brand’s success – and it certainly helps that a number of prominent celebrities are members of the BAYC community. 

Ultimately, owning a BAYC NFT is the price of admission to the Bored Ape Yacht Club community.  Once in, owners get access to exclusive merchandise, live events, voting rights, and more. 

Other interesting NFTs

Occasionally, you’ll also find other odd NFTs floating around in the metaverse.  These may not be attached to any particular project, but their cultural significance or quirkiness make them worth noting. For example…

Classic internet memes like Nyan Cat and Bad Luck Brian sold as NFTs, and many other memes have followed suit. This enabled the artists behind the creations to finally be properly compensated and recognized for their work.Some of the world’s most significant, real-life cultural events have been turned into NFTs and sold for millions. For example, Twitter founder Jack Dorsey’s first tweet and Tim Berners-Lee’s original source code for the world wide web were both auctioned off.In 2021, record label LuckyMe pushed the music art space (and NFTs) forward dramatically when one of their hallmark artists — electronic sensation Jacques Greene — auctioned off the publishing rights to one of his singles in perpetuity. A host of major brands, like Lamborghini, Coachella, Time, and Instagram started launching NFT projects and exploring innovative ways non-fungibles can be incorporated into their business models and overall missions.

In all likelihood, we’ll continue to see more quirky and innovative NFT uses, as brands and independent creators push the boundaries of the collectibles market even further in the years to come.

READ MORE: Unique and Weird Ways People Are Using NFTs

Are NFTs right for you?

So far, we’ve given you everything you need to better understand NFTs, how they operate in the market, the benefits and risks, and how to get started with them. But are NFTs right for you?

It’s a hard question to answer. In the end, it really just comes down to your personal preference and why you want to get involved in the first place. But here’s what we can tell you:

NFTs are perfect for hobbyist collectors who want to support a content creator, be part of a community, or own a little piece of something they’re passionate about.As an investment opportunity, NFTs are highly volatile and the market is speculative.  As with art and other rare items, some NFTs have gained immense value over time while others have lost immense value.The value of community for NFTs can’t be understated.  From Bored Ape Yacht Club and CryptoPunks to buying NFTs from your favorite brand or artist, NFTs can be a gateway to a different community and lifestyle.Despite the explosive popularity we’ve seen in the past few years, NFTs are still in their early stages, and it’s never too late to get started. You definitely didn’t miss the boat.

If you do decide to get into the NFT ecosystem, we hope you enjoy the ride – we know that we certainly have.

FURTHER READING: Should You Buy an NFT? Should Anyone?

Editor’s note: This article has been updated to reflect changes in the greatly reduced carbon footprint of crypto and NFTs since the Ethereum Merge.

The post NFTs Explained: A Must-Read Guide to Everything Non-Fungible appeared first on nft now.

In the last few years, platforms like Substack have upended the power dynamics of the legacy publishing industry, providing both established and emerging journalists with freedom, access, and uncapped earning power. Now, literary NFTs are adding fuel to this fiery paradigm shift, opening the door for unprecedented levels of collaboration, direct connection, and value creation between writers and their audiences. 

While traditional publishing will never disappear, the power imbalance between creators and publishers will. This article will guide you through the basics of literary NFTs, including the potential benefits and downsides, use cases, pricing, community building, and copyright.

First, let’s start with a definition. 

What is a Literary NFT?

A literary NFT is a digital literary work (a book, poem, or article) minted directly to the blockchain as a non-fungible token. The beauty of literary NFTs lies in their versatility. NFTs can showcase a written work, act as a digital collectible, or serve as a key to an exclusive fan community. Some creators may even release individual NFTs of fictional literary characters.

While still in its infancy, plenty of literary NFT projects have popped up in the last year from independent and well-established creators. EtherPoems released one of the first collections of on-chain poetry, and TheVerseVerse regularly mints the work of crypto-native poets like Sasha Stiles and Ana Maria Caballero. Neil Strauss minted the first major decentralized book, providing one random reader with the copyright. Kalen Iwamoto is pioneering the intersection between crypto-native writing and art. Cretokia is bringing it all together by building a new world and marketplace for publishers, authors, creators, and collections.

While the benefits are already visible as Web3 adoption increases, literary NFTs are positioned to become an integral part of any writer’s marketing, crowdfunding, and community-building strategies.

The benefits of NFTs for Writers

Like the art and fashion industries, the legacy publishing industry is controlled by power-hungry centralized middlemen. In exchange for providing upstart funding and distribution channels, traditional publishers have complete control over the value chain. NFTs upend this system, bypassing the publishers altogether and providing writers with more creative freedom, flexibility, and earning power than ever before. 

So follow along.

Creative Control and Fan Connection:

Writers, like all creatives, long for the freedom and uncensored ability to express their ideas as they see fit. But in many writer-publisher relationships, the publisher often has a strong hand, or even the final say, in creative input. By publishing directly to their audience, writers can avoid these creative gatekeepers and retain full creative control of their work. 

Going direct to the audience also provides creators with a layer of utility, access, and authentic fan connection, unlike anything we’ve seen before. Ultimately, it’s up to the creators what type of perks they want to provide their NFT holders. Some NFTs can grant owners personal access to the creator, while others can serve as a ticket to an exclusive fan community or exclusive book signings. 

Some creators even give their audience a say in the direction of the work through the use of on and off-chain voting proposals. This has further opened up a market for community-generative content where NFT holders can dictate the creative direction of the work and sometimes even add directly to the work themselves. A thriving example is The Writer’s Room from Jenkins the Valet and Tally Labs, which have partnered with Neil Strauss, a 10-time best-selling author and first mover in literary NFTs, to create the first community-generative book that will be sold to the public as its own NFT.

The opportunity for community-wide creative voting rights has built one of the most loyal, passionate, and tight-knit communities in the NFT space. With only 80 of the total minted 6,942 Writer’s Room NFTs listed for sale, it’s evident that the community wholeheartedly believes in the project and is determined to make it succeed. 

Unlockable Content: 

A major aspect of NFTs is the ability for creators to add unlockable content. This is specifically relevant for literary NFTs as now, instead of minting a block of plain text, creators have the freedom and flexibility to experiment with using different media forms such as photos, videos, and GIFs for the actual NFT while including the written work as downloadable content in the form of a PDF, .epub, or text file. 

It’s good to note that the downloadable content doesn’t need to be text. It can be anything, like an exclusive audio file, a link to an owner’s only live reading, or a collection of work-in-progress titles that didn’t make the cut. 

Royalty Structures: 

When it comes to earning power, writers have historically gotten the short end of the stick. Due to the vastly misaligned financial incentives of the traditional publishing industry, professional writers are often subject to low salaries and razor-thin royalty percentages, while the publishers and distributors capture the majority of the value. NFTs flip the value chain on its head, allowing creators to earn immediately, directly, and in some situations, consistently. 

With smart contracts, writers can earn a cut every time their work is resold. With used book sales accounting for a sizable percentage of the overall book market, the ability to collect royalties on secondary sales unlocks new value chains writers have never seen before.

However, it’s important to note that there are very few writers currently making a full-time living off of literary NFTs. Perhaps it could be done, but the nascent nature of literary NFTs is worth consideration as you approach your broader writing and marketing strategy.

Drawbacks of NFTs and things to consider

As you spend more time in the NFT space, you’ll often hear something like “we’re so early.” While that’s true for all of crypto, it’s a significant downside for literary NFTs. 

Most people still don’t know what NFTs are, and even fewer actually own any. Literary NFTs are a blip in the overall market, mainly driven by art and digital collectibles. This limits optionality for both creators and consumers. There are no well-known literary NFT-specific marketplaces and very few “household names” in the literary NFT space. While this is an upside to creators (less competition and first-mover advantage), it’s also a major drawback (fewer sales). A small market for primary sales means even less frequent secondary sales, ultimately removing a key financial driver for creators.

For greater adoption, readability needs to be frictionless and in-platform. Outside of the LIT Project, which is readable in OpenSea, there are no in-marketplace or standalone NFT content readers, nor is there integration with existing e-readers like Kindles or iPads. This is also part of the reason many authors opt to include their actual work as unlockable, downloadable content and have the NFT be another form of media like an image or GIF. 

Which blockchains you should mint on: the pros and cons

Most creators choose to mint on either the Ethereum or Polygon blockchains. Each has its own selling points around network size, creator spending preferences, consumer spending preferences, security, and community input which we cover in-depth in our guide to minting fashion NFTs. To maximize reach and market size, we recommend starting off on Ethereum as it’s the largest, most secure network. It’s also the entry point for those first getting into the NFT space. But if you want to distribute your work widely, Polygon will likely be much cheaper for both you and the end-user.

How to mint an NFT: platforms and fee structures 

Given the size of the literary NFT market, most creators choose to list their work on at least one of the many general NFT marketplaces like OpenSea, Foundation, or Rarible. Each of these marketplaces has built up sizable user bases through multi-sided network effects and provides creators with the highest likelihood of a sale. We cover all you need to know about platform size, minting fees, royalty structures, and copyright authority in-depth in our Top 10 NFT Marketplaces article, so we will spend most of our time here focusing on literary-specific platforms. Regardless of the platform, you’ll need a wallet (we recommend Metamask) and a little bit of ETH to get started.

Mirror: Mirror is by far the most robust offering for independent writers to publish their work to the blockchain, crowdfund projects, and build communities. 

On Mirror, all written work is published as an entry, which is essentially a basic blog post. From there, writers can choose to mint their entries as NFT editions, setting their desired price and quantity.

Mirror also offers users the ability to mint a limited supply of entries at fixed pricing tiers, giving them full control over the size and the price. This is a great way to represent tiered rewards or community memberships as an addition to your literary NFT. For example, you could release a total of 351 NFTs across various tiers. 

First Edition, 1/1, 3 ETHRare, 50/50, 0.1 ETHCommon, 250/250, 0.01 ETH

Although the writing of each entry is the same, owners of each tier will receive different levels of access and utility predetermined by the creator. The first edition commands more value, since it’s treated as the first edition of any literary work. 

As of writing, Mirror doesn’t offer unlockable content, so many people use Mirror to mint their writing, instead of another image or video file type (although that option is available too).

Like OpenSea, Mirror uses a process called “lazy minting,” meaning that your work isn’t minted on the blockchain until someone purchases it. This allows for a free listing, limiting any upfront financial risk if your work wasn’t to sell. On the flip side, since your work doesn’t actually live on the blockchain until post-primary purchase, it can not be listed for purchase on any other NFT marketplace until after the first sale. To compensate for this, Mirror offers the ability to embed NFTs into any website. This allows for a unique distribution mechanism that most other NFT platforms do not offer and is a great way to maximize reach. 

What really makes Mirror unique is its crowdfunding tool. Think of it like a Web3 GoFundMe. In just a few clicks, anyone can raise funds for an idea or project. In exchange for providing ETH to fund an idea, backers receive a project-specific token, and in some cases backer-specific NFTs, as a reward. This token serves as a “proof of patronage” and can even represent a financial stake in the future success of the idea. Like other NFTs on Mirror, crowdfund blocks can be embedded directly into entries, so that writers can provide a complete picture of their vision, mission, and goals.

This is an excellent way for writers to finance ideas, build upfront community buy-in, and share their stories with the world. 

Royalty Structure: Mirror does not currently enable creators to set secondary royalty percentages, since most entries are rarely resold. 

Notable Mentions:

As the space continues to mature, a rise in literary NFT-specific marketplaces, platforms, and protocols is likely. To succeed, these platforms need to establish multi-sided network effects. Lit Ether, Sonn3t, and zang.gallery are all exciting projects to keep an eye on and experiment with, although they are still too early to amass a large user base. 

Bottom Line:  While Mirror has positioned itself as the go-to platform to publish, mint, and crowdfund literary works, it does not have its own marketplace, drastically limiting creator reach and secondary earning power. Outside of entries and crowdfunding (where Mirror excels), when first getting started, many independent creators like Brian Ondrako recommend listing on OpenSea or another major marketplace to ensure the highest likelihood of a sale.

As a self-published author, Ondrako sought a means to spread the word about his new children’s book, according to an interview with nft now. The intriguing nature of the NFT space convinced him to turn his 16-page spreads into NFTs “as a way for true believers to support the project,” he added. “Listing on OpenSea saved me a lot of money upfront since I had no idea of how successful it would be.”

How to sell an NFT: pricing and royalties

Pricing is tough with all NFTs, but it’s especially challenging with literary works. Understandably, pricing is a subjective and personal decision based on a variety of factors like quality, scarcity, utility, and hype. Here are a few questions to consider when starting off with your first project:

What type of NFT are you releasing, and how many? 

A great way to command value is to create scarcity and exclusivity. Are you mass distributing a book with unlimited copies? Or are you launching a 1/1 NFT of an early book cover sketch, with an unlockable download link to the PDF of your book, and the right to a physical copy? Consumers will likely treat the single book NFT as any normal physical book, while they may view your early cover art as a unique collectible. The latter will always be more valuable. 

What can the owner do with them? 

As mentioned earlier, many creators use NFTs as access tokens, granting owners exclusive opportunities like meet and greets, behind-the-scenes content, or access to owner-exclusive merchandise. The higher level of access and opportunity that you provide to your owners, the higher price you may be able to command.

How good is your work? 

Let’s face it. While all projects are commendable, some are better than others. However, high quality is often dictated by the market, which defines the financial performance of the work, and thus the right to a higher price tag. 

How large is your existing audience? 

It’s often easier to charge more when you have an existing audience that is already supportive and familiar with your work. When first starting out, we’d recommend pricing on the lower side and letting your work speak for itself. As you continue to build up a community and drum up some hype around your projects, you’ll likely have the ability to charge more for your work. 

How to build a community for your NFT collection

In the NFT world, the community is king. The same goes for writing. Consequently, your audience should always remain the main focus when publishing any sort of written work, especially when launching a literary NFT project. You have to ask who the content is for. Have a clear purpose for your work in mind, and know it makes your reader feel. Crucially, the same considerations apply when building your community, and the best way to build one is to rally people around a goal or mission larger than themselves.

“If your community is built on hype, they’ll leave when that hype isn’t sustained,” said Tally Labs Co-Founder SAFA in an interview with nft now. “We spend time getting to know our members, we’re in Discord frequently, and we’re building a really solid community with a shared vision. As a Founder, being open and transparent with your community is crucial.”

Building a quality community can be achieved through emotional connection, virtual and IRL interaction, co-creation, or a combination of the three. Creating a tight-knit community helps to strengthen personal bonds, becomes a key differentiator of your project, and results in further success of the project and aligned financial incentives for all.

Creative commons and copyright in NFTs

There is an ongoing debate around the “right” way to approach copyright and IP protection in the NFT space. In the literary world, where IP around storytelling and character creation is so important, this discussion is even further amplified. The most liberal form of copyright is Creative Commons Zero (CC0), wherein creators must waive any copyright protection and agree to have their work live completely free in the public domain for use, reuse, or adaptation. From there follow various levels of non-CC0 protection related to commercialization and licensing.

A graphic explainer of creative common licenses. Source: University of Pittsburgh

It’s crucial to consider where you want your project to stand, especially for community generative or derivative work. Some relevant questions to ask yourself:

Do you want to retain full creative control?If you release coinciding NFTs for fictional characters, are NFT owners allowed to license out their avatars?Can they commercialize their NFTs up to a certain dollar amount, if at all? Can owners build full businesses around their NFTs?

Your answers will have massive implications across pricing, community buy-in, and overall success.

And this is where projects like The Writer’s Room — and NFTs in general — are particularly unique. Thanks to the commercial rights that BAYC grants owners, Jenkins has built an entire business and book around his ape. The project also allows ape holders to license their characters for use in the first Jenkin’s Novel, in exchange for a portion of the book’s proceeds. Tally Labs, who’s betting on the belief that the next generation of fictional household characters will live on the blockchain, plans to replicate this model across the top NFT collections as they venture into additional books, film, audio, and beyond.

“The most famous Web2 media business that most people think of is Disney,” explained SAFA to nft now. “Disney pretty much invented modern copyright law as we know it, and a large portion of their business is built on protecting their IP at all costs and owning everything. This works for them! When BAYC came around and offered commercial rights to holders, an entirely new mindset emerged. Rather than a central party being entrusted to build and own everything, individuals were given the tools to play their part and benefit both themselves and the wider brand.”

“We don’t think this trend is going anywhere anytime soon, and we’ve bet our business on it,” added SAFA. “We believe deeply in handing over amazing IPs to individuals, and harnessing their collective creativity. We will be there the whole time to help guide it and shape the vision, but if the community is driving, then the IP you create will always be reflective of what they want.”

Now that you have a general understanding of what literary NFTs are and how to use them as vehicles for direct distribution and value creation, it’s your turn to rewrite the narrative of Web3 publishing. Your imagination is truly the only limit, and we’re excited to see what you do with it.

The post Literary NFTs: Here’s How Writers Can Leverage Their Passion in Web3 appeared first on nft now.