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NFTs 101



Kirjoittanut: Doneé Barendze - tiimistä SYNTRE.

Esseen tyyppi: Akateeminen essee / 3 esseepistettä.
Esseen arvioitu lukuaika on 16 minuuttia.

 

Written by: Doneé Barendze and Deniz Caliskan

 

Purchasing an NFT is not necessary a difficult process, there are just a few technicalities that need to be addressed first. Once the concept is grasped, it is easy to understand from there onwards.

Let’s address the most demanding question first: What exactly is an NFT (Non-Fungible Token)?

The easiest way to break this question down is to look at NFT’s as digital assets that serve a certain purpose either as a piece of art, music, game-items, videos, GIFS, etc. Just like physical “real–life” assets such as the Mona Lisa, virtual art pieces such as “Bored Ape Yacht Club” can serve as digital assets than can be purchased, sold, bid, and traded with digitally. Just like a person can buy a physical art piece for a set amount of dollars or euros, NFT art pieces can be bought with cryptocurrency.

NFT’s have been existing since around 2014, but they had a popularity spike within the past few years and had an annual revenue of $42 billion in 2021. Just as with real-life art pieces, there are limited resources used for creating NFT’s and that is what gives them their eventual value. They are scarce and serve as a status indicator. One NFT cannot be identical to another, because they have different resources used in the designing process.

Blockchain is the foundation of NFT’s. Blockchain is a decentralized public log that keeps track of all crypto transactions. This transaction record is spread around the whole computer network built on blockchain. The most popular one is usually the Ethereum blockchain.

The next demanding question might be what are NFT’s used for? NFT’s allow a new and XR (extended reality) platform for artists and creators to publish their designs and artworks on. It serves as a platform for artists to be in direct contact with their buyer and replaces the middleman’s (art gallery’s) job, increasing original profit. On top of this, artists can have a royalty-based selling approach (which is similar to commission), meaning whenever an art piece is resold from the original buyer, the artist will gain a percentage of the profit. For consumers, NFT’s are mainly a way of supporting artists that you admire, a status symbol and a way of embracing a new, trendy art industry. They are also very valuable when it comes to resales. NFT’s can be minted and bought for a low price directly from the artist and resold for 300% more than the original price. (M, Clark. 2022)

How to buy an NFT in 4 easy steps:

  1. First things first: Create a crypto wallet:

Since most NFT’s are based on an Ethereum driven blockhain, you will need a web3 wallet, which simply means a crypto wallet that is compatible with Ethereum (ETH) currency. A crypto wallet can be used to buy, sell, trade and stow crypto tokens. A good example of a web3 wallet is “Metamask” and it is also the one most commonly used. OpenSea is the most common NFT marketplace at the moment and it is easily connectable with a Metamask wallet. Simply search “metamask.io/download” to access the app on your browser, it is also possible to download this wallet on iOS and Android. Once you have followed the basic steps of opening up a Metamask account, a security measure will pop-up in the form of a string of random words, these words are essential to remember or keep a safe copy, because they are the only way in which you can recover your wallet if you have somehow lost access. After that, you will create a personal password which is also essential to keep safe and remember. Once you have created a solid password, you will be asked to insert the string of random words mentioned above, in the same order as previously (emphasis on the importance of keeping a safe copy of these words somewhere). After these steps, you should have your Metamask crypto wallet all set up and ready to go.

  1. Link your Metamask account to OpenSea

As mentioned previously, OpenSea is currently the leading NFT marketplace and is therefore the most recommended one to connect with. In order to buy, sell, store or trade NFTs on there, you need to firstly connect your Metamask wallet. To do this, you can simply click in the upper right corner on OpenSea and choose Metamask, where you will have to log in using your secure password and approve that OpenSea can access it.

  1. Top-up your wallet with Ethereum (ETH)

Ethereum can be bought on central exchange systems such as: Binance, Coinbase and Kraken. You can create an account on any of these exchanges by verifying your identity through an ID or passport. After the verification, you’ll be able to buy Ethereum. The most common way to transfer money into this account is via a credit card but some exchanges also work through bank transfers. After this, you will be able to transfer ETH (Ethereum) from the central exchange to your Metamask wallet, following the steps provided. Since these transactions are all based on a decentralized system, there are many verification processes to go through, but as long as you have your passwords and back-up codes in order, this is nothing to worry about. Ethereum usually requires little time to transfer, but during a network overload, it might take up to even an hour.

  1. Explore your NFT options on OpenSea

Once you have gotten your accounts in order, you will have the opportunity to explore endless amounts of NFT’s on OpenSea. You can explore them based on your favourite categories, trends, cheapest, etc. You can follow NFT statistics, properties, owners and so much more on OpenSea.

  1. Purchase your first NFT

After exploring the OpenSea and finding an NFT of your liking, you can purchase it via two options. 1. “Buy now” 2. “Make offer”. You can either purchase an NFT based on its already existing price, or you can bid on an NFT and buy it for a higher or lower price than its original value. Every time you purchase an NFT using a new currency, you will have to pay a “one-time gas fee”. The selling-method of the NFT is up to the current owner, some prefer timed auctions, and some prefer one-off sales. The final step is to confirm your purchase through your Metamask wallet and after that, you will be able to access your owned NFT on your OpenSea account. You can simply store it there, or you can resell it. (J, Cass. 2022)

 

Copyrights and ownership

When purchasing an NFT, you do not necessarily own the art piece itself, but you own a “token” that expresses the value of a one-of-a-kind asset. The ownership is less about the actual asset and more about the virtual record (often containing a URL) that can be traced back to you publicly on blockchain. In simpler terms, you can think of it as owning a certificate of intellectual property and not the intellectual property itself. Only one person can own a NFT at a time, unless the NFT is sold, traded, or given away. The essence of knowing what you can and cannot do when owning a NFT is very important in order to not get sued for misunderstanding actions. Just as owning a real-life intellectual property, you cannot make your own copies of the NFT you own and you also cannot use it for any commercial purposes. This is because you still do not own the copyright of the NFT, only the creator of the NFT does. Each NFT purchase comes with a unique additional set of terms and conditions, and it is utterly important to know these individually because they can be quite different from one another.

There are a few things to look out for before purchasing any NFT. First, it is recommended when buying an NFT to always confirm that the owner you are buying from actually owns the NFT fully, and the ownership needs to always be presented officially in writing. The next thing to look out for is if the link presented in the NFT is up to date and it does not take you to another platform when clicking on it. If it breaks, The NFT might lose all its value. Lastly, the NFT might have certain excessive royalties attached to it, meaning that the original owner of the intellectual property will always get a percentage of the sale and it is important to check this percentage before buying or selling the NFT. (R, Nightingale. 2021)

 

NFT Properties (what to look for when purchasing an NFT):

The main reasons for buying NFTs differ from person to person. It can be bought to support favourite artists, to gather collections, to serve as an investment, to be part of a community, etc.

  1. Buying an NFT to support artists:

NFTs are a good way of selling art directly from the artist to the consumer. This way of selling replaces a middleman or intermediaries of big companies. This leads to a change in the art’s industry, even for music artists who have not always been given the equal opportunity by bigger companies such as Spotify to express their music. This creates a whole new way of expressing and consuming art, variety is valued over popularity and through this, smaller companies or artists can have a fairer chance in becoming the next big thing.

 

  1. Gathering NFT collectibles:

There is something about collecting things that gathers a lot of attention from certain people, just like gathering card collections, gathering NFT collections take it to the next digital level. A popular example of collectibles is “NBA Top Shot”, which is a decentralized digital trading platform where cards can be traded in the form of NFTs. This platform came to existence through cooperation between “Dapper Labs”, “the NBA” and “the NBA Players Association”. These NFT cards are available on “Top Shot Marketplace” where they are traded based on scarcity and variety. There are similar trading platforms like this for all different kinds of sports, ranging from tennis to baseball and much more. There are also other collectibles non-sports related, but in the current market, the sport collectibles are quite popular amongst collectible traders.

  1. Investing in NFTs:

As with any other investment, investing in NFTs go along with a lot of intensive research and understanding. NFT scams have become a common issue and therefore it is crucial to go through the necessary research and learning process before just jumping in and putting millions on the table. (EJ, Beyer. 2022)

Why do people see NFTs as an investment? a simple sentence would be enough to answer this question: because NFTs are unique and they are not available to anyone else, but the current owner of the NFT. By purchasing an NFT, you do not only have the ownership of a unique art statement, but you often gain an exclusive access to different worlds that many can dream of. Purchase of a highly valuable NFT can get you into many quality online events with people that are in the community to largen your network. Or you can simply be one of the early birds to have access to the brand new NFT projects that are on their journey to be launched soon. Due to that, NFT minting is a very common way to purchase NFTs, which is to buy an NFT before it is launched. In this stage you are one of the first purchasers of the NFT, however, you still do not know what the NFT looks like, nor do you have the access to the properties of an NFT to make your own evaluations.

 

Having an early access to an NFT can bring you great fortune in the future, since it might be a hot topic project, and everyone might want to put their money into it. Your investment can bring you back to zeros as well if the project does not do well after the main launch. It all depends on how the project is doing after the launch and whether it has major investors on it. In an article on COINDESK.com called “Buying NFTs During Presales and Public Mints: Things You Should Know” it is explained as:

But high rewards come with high risks, and NFTs are no exception. When investing in non-fungible assets, you may find that your funds will become more illiquid (more difficult to cash out) than if you had invested in fungible cryptocurrencies like bitcoin. For example, selling bitcoin can be done at any time across a huge range of exchanges, mobile applications and brokerage platforms. But with NFTs, you are typically limited to just a handful of marketplaces – some of which have a limited number of buyers.” ( Genç, 2022 )

 

Once you know the NFT that you have decided to go forward is the right one for you and is going to bring good profit to you, you also need to think of it in a way that it must preserve its value in the future for the future reselling. In an article called Why do people buy NFTs? From Phemex, the situation is briefly explained as: “NFTs can be seen as a digital store of capital due to their ability to preserve value. Because they’re not subject to inflation like traditional currencies, certain NFTs offer a safe and stable investment option. This isn’t always the case, however, with some experts claiming that most current NFT offerings could lose up to 90% of their value in the years to come.” (Craig, 2022)

What to Look for When Purchasing an NFT?

 

When you are in the decision process of getting your first piece of artwork to hang on your new apartment’s living room, you might wonder and ask yourself, what piece of art is worth the most and which one will bring me the most value of the

money I invest into this? Will I be able to resell this art piece when I move into a new apartment, and it does not match the colors of my new walls? To get the most value out of your purchase, you need to be able to understand what makes an artwork unique and what qualities make it so valuable that you end up spending thousands of euros on a single portrait that is painted with acrylic.

 

OpenSea has a properties section for each NFT just for this case, so that the buyer or collectors can evaluate the worth of an NFT individually and make a decision based on their own research whether the NFT itself is valuable or can it bring any value in them in the future. Properties of an NFT allows the purchaser to see what qualities the NFT has to offer and how does it differentiate from other NFTs.

We can tell the same about NFTs, every NFT is unique and has a special feature that is given to them. Many people wonder why these images of monkeys are so expensive. Well, the short answer is their properties. Properties of an NFT determines how rare the NFT in question is and it makes the buying process easier for the buyer. Through properties, the buyer can see all the features an NFT has to offer. When each NFT has its own properties section, it is clear to see, that as a creator, you want to create NFTs with the rarest properties to make your NFTs more valuable than the others. And as a buyer or collector, you want to purchase the NFTs with the rarest properties to estimate the future value of it and potentially at least double the money you put to get the NFT for.

The creator of the project is only limited by their own imagination while listing their traits of their NFTs. For example: the creator can place the hair color, sunglasses description, background color, eye color, or if the NFT includes an item many NFTs does not have, the creator can include them in their properties to increase the uniqueness of the NFT. Even though the creators can list their own properties, there are four properties that OpenSea supports in the system.

Levels

Levels represent the strength, or impact of a given trait to an NFT and they are shown numerically. Since they are shown as a progress bar the user can easily understand the levels of the traits. We talked about how properties are “textual traits”. Levels are the complete opposite and they are “numerical traits’’

Since levels are numerical, it can be seen as a statement chart where you can see the strengths, power or impact is determined by a number under a defined range. Levels is the trait you want to use when you want to show numerical proof of your work and perhaps rankings.

Stats

In an article called Explained: The 4 NFT Properties OpenSea Supports

Stats are explained as: “Stats” are a numerical trait used in NFT collections and usually represent the strength, impact, or rank of a given trait. Unlike “Levels” they are simply displayed with their numerical value and nothing else. Examples would be numbers of editions and similar numerical traits. (Heidorn, 2022)

Boosts

In an article called Explained: The 4 NFT Properties OpenSea Supports

“Boosts” are a numerical trait used in NFT collections, similar to “Levels” and “Stats”. Boosts function the same way as other numerical traits, however, they are displayed on OpenSea’s interface in a “power-up” style. Boosts are best used for in-game items in NFT games. Boosts are only available via OpenSea’s API tools. (Heidorn, 2022)

Properties

And off to the last trait. Properties is the most common NFT trait you will come across to in OpenSea.

To explain properties, we can think of a business idea that you have been thinking of lately. In your mind it is unique and have never been thought of before. So, you decide to do research of people in the industry, and you are left with a frown soon to realize that the idea you had is common and there are people in the industry already. However, there is always a way to jump into the industry by releasing a product with a competitive advantage. This is when the properties start to take place in the purchasing process. Properties are the competitive advantage of an NFT. There are thousands of NFTs that look the same, and they still might have the same theme. However, the rarity of the properties of an NFT is what you are looking for, not the overall look. As an example, many NFTs might have a black background and the monkey can hold a cigar on their mouth. However, what if there were an NFT with a face mask on and the background was still black, but had glitters on it? There are many ways to turn a NFT into something rare by thinking outside of the box and doing research on what has been done and thinking of what can be done. Since properties are textual traits, you can create any texture on your NFTs.

The properties of an NFT are written manually by the creator, and it is important to know your target audience and write the qualities according to that. If you are only planning to sell in Finland and explain your properties in Finnish, that’s great. However, you might block the chance of people buying your NFTs internationally because they simply cannot understand what is in your properties. Due to that,

English is commonly used to describe NFTs so they are available for the international market, and anyone can reach them. Most common NFT properties that are listed by the creators are Earring, Clothes, Background, Eyes, Fur or a hat. Many other options are available, you just need to be creative and see which one works for you the best.

 

What can be NFTs used for In the Future?

Now we have covered what NFTs are and how to determine whether an NFT is worth going after for or not. But what can we exactly use these NFTs for? How are they bringing any value into our lives or how can they make our lives easier in the future?

If we need to give an example of our daily lives, when we want to go see a movie at the theater, we would need to go to the physical movie theater to get a physical movie ticket first. This habit started to change into buying tickets online in a digital form where the ticket man can scan the QR code, and the system automatically marks the ticket as purchased. Many of us do not even need to go to the physical theater to watch the movies at the movie theater anymore since Netflix is only one click away on our laptops with the comfort of our homes. The next step is NFTs are going to be used as a movie ticket to have access to watch movies or have access the premier of your awaited movie instead of buying a movie ticket. That said, NFTs are a way of having access to anything and any event you are currently enrolling into. The events are not limited by movies. In the future, to have access to your favorite artists concert, you might just need to purchase their hit single as an NFT to have access to their concert which will take place in Metaverse. This immersive 3D environment will allow you to see your favorite artist almost in person and have the full concert experience with the 360-music design of metaverse.

An example for this is that Ariana Grande recently had her concert in Metaverse. An article called Virtual Concert In The Metaverse: The Future of the Musical Industry from EventX delivers the information as: “Epic Games invited pop star Ariana Grande to perform in Fortnite, and her virtual event took place over the course of several days. The overall theme and message of her concert resonated with Season 7, fittingly titled “Moment of Togetherness.” (EventX, 2022).

Ariana Grande is not the only Artist who is Metaverse ready, Justin Bieber and Travis Scott has also arranged an immersive 3D concert in Metaverse and in the future it will be the main place where you will be able to have access to music and other types of music events.

Art, Luxury Brands and Other Memorabilia

We already talked about how NFTs can be used as an art piece or content creators to show their creative side to the world. Does it mean that NFTs can only stay as art? No! NFT can be any digital asset you want it to shape to, and digital fashion is also a good example for this.

NFTs allow you to create and have the full ownership of the art and clothing items you create. It is possible to have a digital piece of clothing in an NFT form and use it in digital platforms. This is not a very futuristic idea, in fact, Gucci has already been doing this for their own collections.

In an article called Gucci goes deeper into the metaverse for next NFT project that was published by Vogue Business it says that: The NFTs, called Gucci Grail, will be revealed on 23 March, minted on the Ethereum blockchain. Fans do not yet know what the ultimate reward will be, other than a “unique and personalized NFT envisioned by [Gucci creative director] Alessandro Michele and carefully crafted by Wagmi-san”. Already, 10KTF enables digital accessories such as sneakers and bags, so many fans are anticipating a Gucci NFT wearable, which would be a first for the brand.

Many big names in the fashion industry such as Louis Vuitton, Dolce & Gabbana and H&M are entering the NFT world to be Metaverse ready. It shows that these brands are investing into the future and developing their business model with the big changes around the world.

Many designer brands are already investing in digital fashion to anticipate in metaverse and invest in this new technology to be unique in the competitive market in the fashion industry. Digital clothing is also an alternative way for people to express their creativity through owning digitally made clothing on them rather than using actual materials in our physical world.

 

Fundraising for Awareness

NFTs are not only a way for a company to get profit, but they can also be used as a fundraising project. Many artists around the world gather to raise awareness to a common problem the world or their local community is struggling with through digital art. It is a great way to support digitalization and bring good to the world at the same time. A project idea under this category could be perhaps creating an NFT project to raise awareness to the breast cancer and using the money to help people that are struggling with breast cancer.

One of the existing examples for this is a project Busy Bees Club NFT project raises awareness of the extinction of bees around the world. An article called The Busy Bees Club NFT is the first-ever NFT that focuses on charity efforts to help save the world that was published by AP News: Through the ownership of The Busy Bees Club NFT, an exclusive virtual club known as The Hive will be accessible. The goal is to provide a one-of-a-kind virtual experience and allow owners to interact with other fellow busy bees from all over the globe. In addition to that, ranking in the form of Pollen Point (PP) can be earned. The points will grant owners special access to much more exclusive benefits such as Busy Bees Club NFT.nyc 2022 meet up and other special events.

 

Conclusion:

Although NFTs might seem scary and new, there is a lot of good that comes with it. We live in a world of exponential technological growth and to make the best out of it, it is essential for us to stay updated with the trends and potential life changing technologies such as NFTs. They are more than just a piece of art or a platform to gamble money and gain status. They can help society for the better good. The first step for us to be able to implement this new technology to benefit the economy, society and environment is by understanding their purpose, uniqueness and properties and we can do this by staying educated and making smart investment choices. The technology around us is evolving and so should we.

 

E, Genc. 2022. Buying NFTs during presales and public mints: Things you should know. Read on 18.09.2022 Link:https://www.coindesk.com/learn/buying-nfts-during-presales-and-public-mints-things-you-should-know/

 

J, Craig. 2022. Why do people buy NFTs. Read on 19.09.2022 Link: https://phemex.com/blogs/why-do-people-buy-nfts

 

C, Heidorn. 2022. Explained: The 4 NFT Properties OpenSea supports. Read on 19.09.2022. Link:https://tokenizedhq.com/nft-properties-opensea/

 

Event X. 2022. Virtual Concert in the metaverse: The future of the musical industry. Read on 21.09.2022. Link: https://www.eventx.io/blog/virtual-concert-in-the-metaverse-the-future-of-the-musical-industry

M, Mcdowell. 2022. Gucci goes deeper into the metaverse for next NFT project. Read on 23.09.2022. Link:https://www.voguebusiness.com/technology/gucci-goes-deeper-into-the-metaverse-for-next-nft-project

 

B, Craig. 2021. The Busy Bees Club NFT that focuses on charity efforts to help save the world. Read on 23.09.2022. Link:https://apnews.com/press-release/marketersmedia/bees-344231dc4068ef21a41aa0b8c2909990

 

J, Cass. 2022. How to buy NFTs- Ultimate Guide. Read on 11.09.2022. Link: https://justcreative.com/how-to-buy-nfts/

R, Nightingale. 2021. What do you actually own if you buy an NFT?. Read on 12.09.2022. Link: https://www.makeuseof.com/what-do-you-actually-own-if-you-buy-an-nft/

EJ, Beyer. 2022. How to determine what NFTs to buy: a must read. Read on 14.09.2022. Link:https://nftnow.com/guides/how-to-determine-what-nfts-to-buy-a-must-read-guide/

M, Clark. 2022. NFTs explained. Read on 14.09.2022. Link: https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq

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