What is NFT? Explained

Understanding NFTs

A non-fungible token, also known as an NFT, is a type of digital token or asset. A common analogy is to think of these as digital trading cards or digital paintings. Whenever you buy an NFT, you are basically just buying the rights to that specific asset.

Non-fungible means that it can’t be changed whenever it is created; you can’t split it up, and it must be distinguishable from something else. Unlike a Bitcoin, where one Bitcoin is the exact same as another Bitcoin, with NFTs, they’re never the same; they’re always different. Also, a token is just a small piece of data that you own. Together, an NFT is a token that you own that doesn’t change throughout time. So that’s the basics.

Technical Details

When it comes down to the technicals, what exactly is an NFT? Well, NFTs are actually just a piece of data that is owned by an address. Whoever has the password to that address owns that piece of data. This piece of data can be bought and sold to different addresses, and that data is verified on a blockchain. You can actually check the owner history; it’s always trackable with an NFT.

For example, this Cryptokitty that sold for $600,000 is essentially just a small URL that is owned by an address. The only thing that that person owns is a tiny piece of data. Now, that piece of data points to a server somewhere that usually hosts an image, and technically, whoever owns that server could change the image.

It’s important to know what you are actually buying when you buy an NFT. You are buying a piece of data that points to a server that hosts either an image or a gif. You should know that the server could change or that the image and gif could change. It’s actually the specific piece of data that you actually own on the blockchain, not the access to the server and not the image or the gif, but rather that tiny piece of data that points to the server.

So, in a sense, when you buy an NFT, you’re buying a small piece of data that represents something larger, kind of like buying a stock. You’re not buying the entire company, and unless it’s a dividend stock, you’re not actually getting anything from it.

Why Buy an NFT?

This brings us to the question: why would you want to buy an NFT? There are many reasons, but right now, the main reason most people are buying is because they see NFTs as collectibles in the investment category.

Let’s go over four main things that make an NFT valuable:

Firstness: Just like Bitcoin is so popular because it was the first cryptocurrency, the first NFTs of specific creators or businesses will also have value. For example, Pokémon cards are quickly gaining popularity, and the most expensive cards are those that were produced in the first edition. So, let’s say if you have the first United States NFT, it will likely have some perceived value.

Utility: This is the real-world benefit. Imagine if Elvis Presley was still alive and he sold 50 NFTs. Now, by owning one of them, you could have lifetime access to any of the shows that he participated in. These NFTs would quickly become popular and very expensive due to their real-world benefits. Personally, this is the only reason I would buy an NFT if it had a real-world benefit, and I think in the future, almost all NFTs will evolve to have this sort of aspect. Creators will sell NFTs for income and, in return, have a membership community or do a monthly lunch meeting or something in that fashion.

Uniqueness or Rarity: For example, think of the Mona Lisa. Anyone can have a copy of the Mona Lisa in the room, but only one person or a museum in this case can hang up the real painting by Leonardo da Vinci for everyone to view. Now, the same goes for the original Constitution of the United States or a Babe Ruth signed baseball. They are rare. Imagine if Stephen Hawking only minted three NFTs; they would be very valuable because there are only three originals. Even if they’re just pictures of the universe, other people could have that picture, but they wouldn’t have the original one minted by Stephen Hawking.

Ownership History: For example, what’s your favorite celebrity? Mine personally is Robert Downey Jr. Let’s say he decides to sell his leather jacket and buy a new one. When he first bought that leather jacket, maybe he paid $200 for it, but I might pay $800 just to have the same jacket that Robert Downey Jr. wore. Now, the same goes for NFTs. Someone might be willing to pay a million dollars for an image of a duck that Barack Obama owned at one point.

Keeping these in mind, you should think about what actually makes an NFT valuable. If an NFT is the first of its kind, if it has a real-world benefit, if it’s rare, and if someone important owned it, these are questions to ask yourself during the valuation of an NFT. For example, does buying Jack Dorsey’s first tweet for $2.5 million fit any of these?

Evaluating NFT Value

Let’s go down the list:

• Is it a first? Yes, it actually is the first NFT in that category.
• Does it have utility? It does not. You don’t get to change the tweet and you don’t get to advertise your business or something like that.
• Is it unique? Yes, it is unique.
• What about its ownership history? Well, this is actually a no. Yes, it is Jack Dorsey’s first tweet, but nobody famous has actually owned the specific NFT yet to fit this category. For example, maybe it was my tweet, and then PewDiePie owned it; then the answer would be yes. But in this example, it only checks two of the boxes. So, if you buy his first tweet, you’re basically betting that someone else in the future will want to buy it for a higher price because holding that NFT does absolutely nothing for you. There is no utility. You’re buying it as a novelty or as an investment unless one day Jack Dorsey says whoever holds that NFT he’ll have lunch with once a month; then the value would skyrocket.
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The 11 Most Valuable NFTs

I’d like to tell you the 11 most valuable NFTs now. This might get a little rambly and you can skip ahead if you don’t want to listen to them:

1. Crypto Punk 6965 – In February 19, 2021, it sold for 800 Ethereum.
2. Crypto Punk 4156 – Sold for 650 Ethereum on February 18, 2021.
3. Crypto Punk 2890 – Sold for 605 Ethereum on January 24, 2021.
4. The famous Dragon Cryptokitty – Sold for 600 Ethereum.
5. Crypto Punk 6487 – Sold for 550 Ethereum.
6. Some land in the Decentraland world around 12,600 square meters – Sold for 514 Ethereum.
7. Hash Mask 9939 – Sold for 420 Ethereum.
8. F1 Delta Time – Sold for 415 Ethereum.
9. Another Crypto Punk – Sold for 400 Ethereum.
10. An actual lot of land in the Centraland world – Sold for 345 Ethereum.
11. The famous Nyan Cat – Sold for 300 Ethereum on February 19, 2021.

Can Someone Copy Your NFT?

Another important question to ask about NFTs is: Can someone copy your NFT? Well, technically, yes. Someone can copy an NFT just like any other piece of artwork, but the original NFT address can be traced back to the original creator since all NFTs have a log of their transaction history. It’s also important to note someone could create a new NFT that points to the exact same hosting address that the original NFT does, or they could point it to a different address that is of the same image or gif. The value in an NFT is not the image; it’s the specific piece of data.

Just like I could make a free throw at my local YMCA and LeBron James could toss one in while 30,000 people are watching, even though these are basically the same thing, one has way more value based on what other people think of it. I may be doing the exact same thing LeBron is doing, but people value his free throw way more than mine.

How to Buy an NFT

Another question you might have moving into the NFT space is: How do you buy an NFT? Because purchasing an NFT is actually quite simple and it’s probably the same difficulty as purchasing a stock of a company. Most NFTs are sold on marketplaces kind of like eBay, Amazon, and Facebook Marketplace but that specialize in NFTs.

One thing that might be a drawback of buying NFTs is that they are usually purchased with Ethereum. So you’ll likely need to own some actual Ethereum before you purchase a Cryptokitty or an NBA Top Shot. Buying cryptocurrency and trading it to a wallet that you can buy an NFT usually takes some technical skill on transferring crypto because if you do it incorrectly, you could lose all of your money in the transaction.

Commonly Used NFT Exchanges

Here are the four most commonly used NFT exchanges that allow you to buy and sell NFTs:

1. app.rarible.com
2. niftygateway.com
3. openc.io
4. superrare.co

Whenever you go to buy an NFT, the first step is to create an account on that specific website. Step number two is that you’ll either have to buy crypto on another exchange and then transfer it to the wallet on that exchange. You should know NFT wallets are very similar to any other cryptocurrency wallet. They usually have a public and a private key.

Storing Your NFT

Which brings us to the next question: Where do you store your NFT? Because now that you’ve purchased your NFT, you’re probably wondering where the heck you store it. Well, you store it on a wallet. You’ll want to make sure that it’s safe and accessible to show your friends and other people what you’ve recently purchased.

The best way to store your NFTs is on a hardware wallet, something along the lines of a Ledger Nano, where it can be offline and protected. But if you’re wanting to keep it online, here are some online applications that host wallets for you:

1. metamask.io
2. trustwallet.com
3. engine.io