NFTs are the newest and hippest crypto kids on the block driving everyone crazy. From being an abstract Internet phenomenon back in 2014, they’ve bloomed and became responsible for people gaining millions in profit. The amount of NFTs expands enormously with each day, and so does the madness built around them. But what exactly is an NFT and why is it so valuable?
It’s all goodie if you are a newbie and don’t know everything or anything about NFTs. After reading this article, you’ll find all the answers you might need!
What is an NFT?
An NFT, or non-fungible token, simply is an irreplaceable digital cryptographic token existing on the blockchain. An NFT functions as a certificate stating that you are the sole owner of one or the other digital item. In other words, it is a unit of data and a smart contract for protection that is easily verified and visible to the public.
Thus, the blockchain itself ensures the ownership of a specific asset, and once the NFT is obtained it becomes the property of the person who bought it. With it, an individual can do whatever they want – sell, trade, license, show off, and so on.
Once the selected file is put on the blockchain, it is encrypted and converted into a token. The most common NFTs are in the .jpg or .gif formats. However videos or music, and even Twitter posts are also possible. Any digital item can be converted into an NFT – articles, tickets, courses, domains, collectibles, even real estate, and so on. This digital token will be completely one-of-a-kind, meaning that it cannot be duplicated or tampered with, as it will be recorded on the blockchain.
|Why is it non-fungible/non-interchangeable?|
The object of the NFT being bought is completely unique, unlike stocks or other cryptocurrencies, which always remain the same when bought or sold (and there are tons of them out there). That is, with a fiat currency, for example: 1 ETH or $1 USD can be exchanged for another 1 ETH or $1 USD. Thus, fungible items or tokens such as Ethereum or Bitcoin, are exchangeable because of their value, rather than special qualities.
NFT tokens act like serial numbers. They have a unique relationship with the online or offline goods they are associated with. The value of an NFT is determined similarly to that of a physical item. For example, the work of a well-known graphic designer becomes more expensive on a similar principle as a real painting. Nevertheless, the hype, enthusiasm, and popularity on social media, are the key factors that boost the financial value of NFTs.
Where to buy and sell NFTs?
The platforms where NFTs can be found and stored for purchase, trading, and selling are called NFT marketplaces. NFT marketplaces range in features, supported blockchains, currencies, and applied gas fees. Some marketplaces are made for niche NFTs, such as music (Royal, Catalog, and One Of), gaming NFTs (Axie Infinity), or a whole broad range of NFTs – OpenSea, Rarible, Nifty Gateway, and more.
Several marketplaces offer to join in on auctions or simply choose a fixed price for the sale of the NFT. Consequently, NFT marketplace is an online shop or space where people can interact, promote, and discover thousands of NFTs and their collections.
Why do people buy NFTs?
The reasons for why individuals purchase NFTs might be various:
- A good financial investment and a great way to get passive income (play-to-earn);
- A sentimental purchase;
- An addition to a collection;
- A way to get a little closer to the creator of an NFT (such as an artist or a brand). There are celebrity NFTs created that are often on the top of the most wanted and popular list of NFTs;
- A wish to not be left out of the experience and joining the club of NFTs.
Thus, this is not too different from why you purchase things in the real world. After all, we all know people who collect something or are big fans of some creator or company. We’re not too surprised by the person who puts in a huge amount of cash for the original Balenciaga or AirJordan sneakers – and we can understand why.
After all, NFTs have a strong community aspect to them. For example, some artists create NFTs of their works to give fans access to exclusive catalogs, festivals, special and limited edition merch – thus forming a special kind of private club that many want to join.
How are NFTs authenticated?
The idea of NFT sounds a bit unusual to a wider audience, also because we are not used to thinking of one-offs on the Internet. Everything there seems incredibly easy to copy, duplicate, and reproduce. Why pay for a .jpg file if you can just simply download it multiple times? Still, this kind of thinking and approach is wrong – as anyone can copy your photo or your art and claim it as theirs. You wouldn't like that.
Hence, NFTs are special because they are non-counterfeitable and non-reproducible, and their owner can be easily identified. The code behind an NFT contains the creator's personal signature, which can be used to identify the digital item on any server, browser, or platform. To put it in other words, tokens are authenticated in a decentralized manner. Because NFTs simply don’t exist on one particular computer, it is also impossible to copy them. Solely, the owner receives said signature, which grants the entry to the NFT itself. So, by applying this NFT practice, you’ll know that your acquired digital item is available only to you. And everyone would be able to see it.
In fact, NFTs are also significant in addressing the sensitive and long-standing problem of digital art. Because of the great culture of copying (and piracy) on the Internet, it has long been difficult for creators and developers to obtain fair remuneration for their work. Any graphic design may be copied and distributed. NFTs no longer allow this to happen. It is no wonder that we have been able to observe a boom with such works in recent years.
What can NFTs be used for?
NFTs can have various use cases. One of the most important applications of an NFT are blockchain gaming, especially in an immersive metaverse network or similar virtual environments. NFTs are also gaining popularity mostly in the fine digital art world and as collectible investments. Likewise, the music industry also expands the market with offers of music NFTs.
Problems and future
However, NFTs, like many blockchain-based technologies, still have room for improvement. Experts single out two key issues that need to be addressed here. First of all, it is copyright protection. Yes, NFTs both address and complicate the issue at the same time. All is well if the developer manages to leave the signature in the code in time. But at the same time, a digital object can be misappropriated even by the rightful owner.
Another problem is that NFTs do not have permanent storage space (again, this is a plus and a minus). Because such documents are stored in pieces on many computers, deleting one destroys the entire NFT. Potentially in an irreversible way.
However, despite these challenges, NFTs will certainly not go away any time soon. Yes, so far we are in the golden fever stage where people sometimes terribly overpay for digital items. But the idea that NFT is a reliable way to protect digital objects, as well as a beneficial approach to expand the possibilities of music and art industries is fulfilling.
NFT terms that you need to know
The language of the NFT world can be really hard to grasp for a newbie and requires some time for research. Below, we have simply explained all the language of NFT-related items, processes, terms and abbreviations that you can find on discussion groups, articles, social media, and Discord servers.
|Airdrop||A process of distributing and sending someone crypto assets (tokens or NFTs) for free. So nothing to do with Apple and its Airdrop feature.|
|Ape in||To ape in indicates purchasing an NFT project quickly and with a lot of excitement. Sometimes it also means investing a ton of your money into a project without doing any of the proper research about it.|
|Bearish||Bearish refers to the belief of numbers or price going down. Basically, just an expectation that the project is going to lose value over time.|
|Blue chip||Blue chip signifies a reliable, established, and stable investment. This is a sign that shows if the project is well known and generally perceived as of having a high value.|
|Bullish||The word signifies the opposite of bearish – this means that numbers go up, believing that the value of the project has a great chance to increase. Thus, if it is called bullish – it’s anticipated that the NFT will rise in value.|
|Crypto wallet||A cryptocurrency wallet (or a digital wallet) is a necessary tool for buying, receiving, storing, and managing NFTs (that you end up minting or purchasing). More importantly, it is the essential element ensuring that you are the exclusive owner of NFTs. Clearly, this is where your profits will be kept once you sell/trade NFTs.|
|Decentralization||The word refers to a collaboration and work directly with one another, rather than through a centralized exchange platform. Basically, without the control of a central authority.|
|DAO||Decentralized Autonomous Organization. This is the group that operates together where the votes of members are tallied automatically to make decisions.|
|dApp||A distributed open source software program known as a "decentralized application" (dApp) running on a peer-to-peer (P2P) blockchain network as opposed to a single computer.|
|DeFi||Decentralized Finance – the infrastructure, procedures, and technology utilized to democratize financial transactions.|
|Diamond hands||This phrase is a slang used to express the process of holding on to a volatile and high risk NFT, despite the pressure to sell.|
|Doxxed/doxxing||The process when the true identities behind an NFT project are finally revealed after being anonymous. Typically, it is rather often done without permission and with malicious intent.|
|Drop||The initial launch (date) of a new NFT project. It involves the release of all the relevant information: the date, time, and the price of NFTs.|
|DYOR||An abbreviation to the disclaimer of Do Your Own Research. It’s a phrase commonly used to express the need to do research before investing in anything. Often it is used while giving an opinion on a certain subject and then adding this as a suggestion just in case.|
|Flipping||The process of buying an NFT for the lower cost and selling it quickly for a higher price.|
|Floor||The name for all of the NFTs at the floor price of the collection.|
|Floor price||The lowest price to own NFT within a collection in the market. The higher the floor price the higher the value of the NFT project as a whole.|
|Floor sweep||When an individual buys all of the NFTs at the floor price of the collection, he or she sweeps the floor.|
|FOMO||Fear Of Missing Out. This usually stimulates quick and sometimes irrational investments in NFTs and is frequently caused simply by the hype on social media.|
|FUD||This abbreviation refers to the trio of Fear, Uncertainty, and Doubt. This is often used to express concern over the legitimacy of the project.|
|Gas fee||In essence, it’s just a cost for a transaction. Each time the transaction occurs, it requires energy to validate it. Basically you pay for the work and energy consumed by the miners.|
|GM||Surprisingly it is just an abbreviation/acronym for the phrase of Good Morning. It has spread on Twitter as a greeting that signifies your knowledge and relationship with THE NFT space.|
|HODL||Abbreviation for “Hold On for Dear Life”. In the context of NFTs, this can be perceived as a strategy. The goal is to hold onto the NFT (even when the value of a token or asset falls) in the hope that it will eventually increase in value.|
|Minting||A term used for the creation of an NFT. Basically, taking a digital asset (.jpg, .mp3 ) and putting it onto the blockchain.|
|Mooning||A word used once the numbers are going up rapidly in a short time period.|
|Paper hands||The opposite of diamond hands. Instead of holding on to an NFT, this term is used when the NFT is sold under pressure and too early.|
|PFP project||Profile picture project. These are the collection of NFTs created and launched with the intent for people to use them as social media profile pictures.|
|P2E||Play-To-Earn/Play-2-Earn. This refers to the process when you can get paid for playing and participating in some crypto games (examples of such games include Axie Infinity, Sandbox, Gods Unchained, and more).|
|Ser||In the NFT space this is frequently used to address the person. It’s gender neutral, as often people only see the displayed avatar and not the individual behind it.|
|Shill/shilling||A verb or expression used when someone tries to promote or sell NFT related stuff.|
|Smart contract||A public code or data that is attached to an NFT. It implements the agreement between the buyer and the owner of the NFT.|
|Staking||A method to earn passive income by locking your NFTs on the blockchain for a certain time period.|
|To the moon||This is a common celebratory phrase when an NFT project turns out to be successful and goes up in popularity and value. Quite frequently this phrase goes along with the rocket emoji.|
|WAGMI / NGMI||WAGMI abbreviation stands for “We Are Gonna Make It”. Often it goes with a positive message on Twitter, when one believes that the NFT is making a difference, or will succeed and benefit the community. |
NGMI – Not Gonna Make It, an opposite and negative meaning commonly used when the project loses value or flops.
We hope that now you have some clarity about NFTs and it will be easier for you to jump in this maze. After all, it is really not that hard to catch up and get into. Experience and enjoy all things the digital world is offering!
Curious to know more?
Follow us on Twitter
And while you’re at it, don’t forget to subscribe to our newsletter to be the first to receive the latest Lympo news.