What is an NFT? How does it work?
After the emergence and rise of cryptocurrencies, new crypto assets have become increasingly prominent. Among them, NFT has been the most popular crypto asset. You can continue reading this article if you wish to get to know the concept of NFT and to better understand this new world, which combines finance and art and has stirred a hype all over the world.
What does NFT stand for?
NFT, which stands for Non-Fungible Token, is a digital asset that cannot be duplicated or exchanged. NFTs are crypto assets that can represent real-world objects like art, music and in-game items. Just like cryptocurrencies, NFTs are created on a blockchain. And NFTs created on the Ethereum blockchain are also supported by other blockchains. NFTs render digital artifacts unique, verifiable and tradable on the blockchain, making it impossible to recreate or duplicate them. So, while you can exchange cryptocurrencies, you cannot exchange one NFT for another. For example, when you trade a bitcoin for another, you’ll have the exact same thing, but you cannot replace an NFT with some other NFT. This is why they are called Non-Fungible Tokens.
NFTs indicate the creators and owners of digital artifacts. They are generally bought and sold online like cryptocurrencies. In fact, most of the first NFTs were video clips previously available online or digital artworks already circulating on social media. So, why do people spend millions of dollars on these works that they can easily take a screenshot of or download to their computers for free? The main reason is that an NFT buyer can acquire the original work and its rights with built-in authentication.
The history of NFT actually dates back to 2014. The first known NFT, a video clip named “Quantum”, was created by Kevin McCoy and Anil Dash in May 2014. The NFT hype was fueled when the artwork named “Everydays – The First 5000 Days” by Mike Winkelmann, the digital artist known as Beeple, was sold for $69.3 million at an auction held by the world-famous auction house Christie’s in March 2021. Soon after this, Twitter’s founder Jack Dorsey sold the first tweet he posted as an NFT for $ 2.9 million, which heralded the beginning of the NFT era.
Key NFT Terms
It is very important to learn some primary concepts in detail in order to better understand NFTs and start transacting in the NFT market. Here are some key NFT terms:
NFT Market / NFT Marketplace
Membership to an NFT platform is required to create, buy and sell NFTs and to store NFT collections. In most NFT marketplaces, transactions are performed for certain fees or commissions. These fees and commissions are different in each marketplace. While most NFT marketplaces include all types of NFTs, there are also niche marketplaces that solely focus on a specific type. You can start exploring the NFT world by choosing the marketplace that suits you the most. The most popular NFT marketplaces can be listed as follows:
- OpenSea: OpenSea is by far the most famous NFT marketplace. Being the world’s largest NFT marketplace, OpenSea is the market leader in terms of transaction volume and NFT diversity. Supporting payment with many different tokens, OpenSea is ideal for newbies with its user-friendly interface.
- Rarible: Rarible is an Ethereum-based marketplace where all types of NFTs are sold. In Rarible, transactions can only be made with the platform’s native token Rarible (RARI).
- Foundation: In Foundation, where NFT creators can become members by invitation only, transactions can be made with MetaMask wallet and Ether. Foundation stands out with its user-friendly interface.
- Nifty Gateway: Preferred by popular digital artists like Beeple and the musician Grimes, Nifty Gateway differs from other marketplaces for being a curated platform. Here, collections are auctioned for a limited time only.
- Kalao: Kalao (KLO) can be defined as an NFT ecosystem that integrates virtual reality with the Avalanche blockchain. A platform for creating, buying and selling NFTs, Kalao promises speed and low transaction fees.
- Hicetnunc: Hicetnunc (HEN) is an experimental open-source NFT platform that aims to decentralize the crypto art market.
Minting basically refers to the process of turning a digital item into NFT on the Ethereum blockchain. An item that is turned into an NFT is forever recorded on the blockchain; it can’t be changed or deleted. Minting process converts a simple digital file in PNG, JPG, GIF, MP3 or MP4 format into a crypto asset that can be purchased or sold on NFT marketplaces. All the NFT creator needs to do is to upload the relevant file to the NFT marketplace, add the features of the work, determine the royalty fee and list the NFT that has been put up for sale. If s/he wishes, the creator can trace the NFT s/he has created and receive a certain percentage of the sale price each time the NFT is sold. Such percentages constitute the royalties of the NFT.
It is necessary to have an NFT wallet to be able to create, buy or sell NFTs. Although an NFT wallet is defined as a cryptocurrency wallet that supports the blockchain protocol, the wallet does not actually store NFTs or cryptocurrencies. It rather stores information about the location of your assets on the blockchain and provides access to and tracking of these assets via a private key. The following criteria should be noted while choosing an NFT wallet:
- Compatibility with NFT marketplace: Before choosing your NFT wallet, you should decide which marketplace you will be trading in. Some marketplaces may only support a single wallet.
- Strong security infrastructure: In order to ensure the security of the wallet in the digital environment, it is ideal that the wallet that stores your NFTs has extra mechanisms such as two-factor authentication.
- User-friendly interface: If you are new to the NFT world, you can use wallets that offer ease of use and clear instructions.
- Cross-chain compatibility: Most NFT marketplaces operate on the Ethereum blockchain. So it is important that your NFT wallet also supports different blockchains, particularly Ethereum.
- Multi-device support: With an NFT wallet that you can use both on your mobile devices and on your computer, you can perform your transactions the way you want.
How to create an NFT?
Technically, it is possible to turn any digital file to NFT and offer it for sale. Some of the digital assets that can become NFTs include:
- Paintings and pictures
- Musical pieces
- Video clips
- Video games
In order to create an NFT with the minting method, it is necessary to have a cryptocurrency wallet such as MetaMask, Coinbase Wallet or WalletConnect as well as some amount of Ether to make payments. Although it may vary across different platforms, an NFT can be created with the following steps:
- First, create your personal profile on an NFT platform such as OpenSea, Rarible, Mintable or Nifty Gateway and connect your Ethereum wallet to this platform.
- Upload the artwork you created to the platform by clicking the ‘Create’ button.
- After entering the title and other features of your NFT in the relevant fields, set the price.
- At this stage, you should choose a blockchain for your NFT. You can create a single NFT or multiple NFTs in a limited number.
- After checking all your information, you can create your NFT. It is important to make sure that the information you have provided is accurate, as some information cannot be changed.
- In the final step, you can put your NFT for sale by going to the page of the NFT you’ve created and clicked the ‘Sell’ button. At this stage, you can sell your NFT at a fixed price or set up an auction.
- You can also list your NFT to make it more visible.
In addition to Ether, you can also create NFTs on the Avalanche platform:
- To create an NFT on the Avalanche platform, first, create an Avalanche wallet at wallet.avax.network. You should transfer AVAX to your Avalanche wallet to be able to perform transactions.
- To start creating an NFT, you can determine the title of the collection, its icon and how many tokens you will create by clicking the New Family button under the Studio menu.
- Then return to the Studio page and click the Mint Collectible button. To create your NFT, you should first upload the image you will use for your NFT in the add image field and enter the image link in the relevant field on the NFT page.
- Enter detailed information about your NFT in the description section, determine the number of tokens and click the Mint button to create your NFT.
How to buy an NFT?
If you wish to create an NFT collection for your interest in digital art or for investment purposes but don’t know where to start, you should first decide which cryptocurrency wallet and which NFT platform you would like to use for buying NFTs. Then you can buy NFTs by following the steps below, although the process may vary depending on the platform.
- Since cryptocurrency is used in NFT transactions, you should first have some amount of cryptocurrency and a crypto wallet such as MetaMask, Coinbase Wallet, WalletConnect or Fortmatic.
- You may need to buy Ether (ETH) since transactions on NFT platforms are usually made with Ether. You can safely perform all your cryptocurrency transactions on Felixo Exchange.
- Create a profile on a popular NFT platform such as OpenSea, Rarible, Mintable or Nifty Gateway and connect your cryptocurrency wallet to your profile.
- You can examine the listed artists and NFTs in detail by clicking the ‘Explore’ button. Here you can buy the NFT you like and add it to your collection. At this step, you may need to pay a ‘gas fee’ to complete the transaction on the network. Gas fees may increase in high volume transactions.
How to use an NFT?
Blockchain technology and NFTs offer artists and content creators a unique opportunity to monetize their digital works. In this way, artists don’t have to go to galleries or auction houses to sell their works. Instead, they can sell their art directly to the consumer as an NFT. Artists who set a certain commission when creating an NFT can receive royalties every time their work is sold to a new owner.
It is also possible to use NFTs for investment purposes. Just like an art collector, you can create your own NFT collection, and earn money by putting the NFTs you’ve bought for resale or auction.
If you are interested in NFTs as an artist, collector or investor, you can learn about the most prominent NFT artists and their successful projects in order to keep track of the trends. Here are some of the most popular Turkish and foreign NFT projects:
Axie Infinity: Released in March 2018, Axie Infinity is an NFT-based trade and war game built on the Ethereum blockchain. In this game, players can earn tokens by collecting, creating, upgrading or trading the characters known as “Axies”, which are designed as NFTs. The network’s native governance token named Axie Infinity Shards (AXS) is used in the game.
CryptoPunks: Matt Hall and John Watkinson, the founders of New York-based software company Larva Labs, created a software program that would generate 10,000 different and eccentric characters in 2017. These characters called CryptoPunks are stored on the blockchain and sold at hefty prices at auctions. CryptoPunks have a major role in the current popularity of the NFT market.
Bored Ape Yacht Club: Bored Ape Yacht Club (BAYC) is an NFT collection consisting of 10,000 different monkey avatars named Bored Ape. Released in April 2021, all the NFTs in the collection were sold out in one week. An NFT in this collection was sold at Sotheby’s for 3.4 million USD.
NBA Top Shot: NBA Top Shot is the official NFT marketplace of the NBA. NBA Top Shot includes NFTs called ‘moments’ that comprise visuals of iconic moments in NBA history.
Pak: Murat Pak, also known as Pak, is an artist who has been working in the fields of design, coding and digital art for more than 20 years. Pak entered the NFT market in February 2020 and achieved great success in a short time. His NFT project entitled Merge has made a difference since it makes it possible to divide a single NFT into multiple NFTs. Merge was put up for sale on Nifty Gateway in December 2021. At the end of the two-day auction, 28,983 collectors bought a total of 312,686 Merge NFTs worth $91.8 million. This earned Pak the title of “the most expensive NFT artist”.
Tarık Tolunay: Tarık Tolunay, who defines himself as an ‘urban artist’, offered his work entitled Fractal Istanbul for sale as an NFT in March 2021 and found a buyer for $36.000. Thus, Tolunay has marked one of the first large-scale NFT sales from Turkey.
Selçuk Erdem: Renowned cartoonist Selçuk Erdem stepped into the NFT world with his project called Fluffy Polar Bears. A collection of 9,999 NFTs that consists of Erdem’s drawings of polar bears, Fluffy Polar Bears is on sale on OpenSea.
Uğur Gürsoy: Fırat, a legendary cartoon series drawn by the cartoonist Uğur Gürsoy and published in the comic magazine Uykusuz since 2007, is among the cartoon characters introduced to the NFT world. There are 4,999 NFTs in the Fırat collection, which is on sale through Kalao. Gürsoy had previously prepared an NFT collection entitled CryptoGrandpa.
Cem Yılmaz: Famous comedian Cem Yılmaz has also accomplished successful projects in the NFT market. Putting his drawings up for sale as NFTs in October and November 2021, Yılmaz’s works were quickly sold.
Refik Anadol: Media artist Refik Anadol, who gained a well-deserved recognition on a global scale with his original and remarkable works he created using artificial intelligence and data science, made a splash with his NFT projects. Anadol’s NFT named “Machine Hallucinations – Nature Dreams: AI Data Sculpture 2021 1/1” which was released on OpenSea was sold for approximately $1.2 million.
Serkan Altuniğne: Cartoonist Serkan Altuniğne has drawn the Bobo series, which centers around a dog named Bobo and is inspired by Altuniğne’s own dog, first in Penguen and then in Uykusuz comic magazines since 2014. Since 2018, he has been publishing the series regularly on his Instagram account. Bobo has more than 120,000 fans. Altuniğne has turned Bobo into an NFT project as randomly generated avatars. He continues to draw the series and is trying to realize his plans to turn it into an animation series.
You can start creating, buying or selling NFTs by following these steps. With Felixo Exchange, you can safely and quickly get the cryptocurrency you would need for buying or selling NFTs.