What are NFTs & How Do They Work?
2021 was the year of the NFT. At least according to Collins Dictionary who chose the acronym as their word of the year. But so many still don’t know what one is! Here at KnownOrigin, we’ve been dealing with NFTs since 2018, so we’ve thrown together a complete guide to NFTs and how they work.
What does NFT stand for?
NFT stands for non-fungible token. Whilst that probably doesn’t make it any clearer, it can be pretty easily understood by breaking down the term.
Non-fungible: Something that is unique and can’t be interchanged.
Trading cards, paintings and property are all non-fungible. No two are the same. The value of each of these things is affected by condition, size, location, etc.
However, a £5 note can be replaced by another £5 note and the value would be identical, meaning currency is fungible.
Token: In the crypto world, a token is a digital crypto asset that lives on the blockchain. This could be in the form of a cryptocurrency, a governance token or an NFT.
So, a non-fungible token (NFT) is a unique digital asset that lives on the blockchain.
What is an example of an NFT?
As you now know, an NFT is simply a digital asset. This means they can take the shape of pretty much anything.
It’s probably easier if we break this down into types of NFTs and give you some examples of each.
By the end of the last decade, just about everything had shifted from physical to digital. Maps had changed from books to apps, bank cards moved from our actual wallets to our Apple wallets and prior to that, photographs went from being viewed in our hands to being viewed through our screens.
Now art is the latest thing to receive a digital makeover. A shift brought about by NFTs. Whether it’s in the form of a JPEG, GIF or something else, digital creators all over the world are starting to profit from their work via NFT marketplaces like KnownOrigin.
The digital art landscape is proving quite the rival of its physical predecessor. NFTs have facilitated the birth of digital Picassos and 21st century Da Vincis. For example, XCOPY, a London based digital artist that explores death, dystopia and apathy through his art has raised over 1176ETH on KnownOrigin alone. This is also after one of his earlier pieces was valued as high as $6 million.
Utility: the buzzword of the NFT community at the minute. But what do we mean by NFT utility? The utility of an NFT is basically ways in which your NFT can be used outside of being a piece of art.
If you want a great example of a utility NFT, look no further than the trail-blazing project that is Bored Ape Yacht Club. Whilst on the face of things, these NFTs may just seem like quirky JPEG monkeys, they’re actually much more than that.
A Bored Ape NFT doubles as your membership to the Bored Ape Yacht Club (BAYC), the newest, most exclusive social club.
As a member of BAYC, you’ll be able to attend private events, purchase exclusive clothing and receive priority for future NFTs.
Facebook’s name change to Meta last October vastly accelerated the concept of the metaverse. And with this acceleration came the need for digital clothing.
If Zuckerberg’s vision for Meta becomes a reality, we’ll see ourselves represented by our digital avatars in a virtual world. Obviously our digital counterparts will need to be kitted out in the latest clothing, which is where NFTs come into play.
With the success of games like Sandbox and the potential of Meta’s 3D spaces, brands have already started to compete in this new world.
Nike acquired a company that makes virtual sneakers, Balenciaga had over 100 developers working on their metaverse compatible clothing and Dolce & Gabbana have sold digital wearables including the ‘Mosaic Impossible Jacket’ which sold for over $300,000.
The global video games market will be worth $223 billion in 2022. But blockchain technology has brought about the emergence of a new gaming model: play-to-earn gaming.
P2E gaming sees gaming assets exist as NFTs on a blockchain. As a result, gaming items such as skins, weapons and characters can now easily be traded which allows players to earn real money from their gaming endeavours.
The biggest play-to-earn game, Axie Infinity, saw a plot of land sell for approximately $2.4 million in November 2021. And fantasy football trading card game, Sorare, saw a 1-of-1 Erling Haaland card sell for over $650,000 back in January.
What’s the difference between NFTs and Crypto?
The line between NFTs and cryptocurrency can appear blurred if you’re new to the world of blockchain technology, with both falling under the tokens category.
In terms of how they differ, aside from the fact crypto is deemed a currency so obviously used to purchase things like NFTs, the main difference is the fact that crypto is fungible whereas NFTs are not.
This means crypto is interchangeable just like pounds, euros and dollars. Because of this, the most popular cryptocurrency, Bitcoin, is seen as a potential replacement to fiat currencies and banks.
What is an NFT marketplace?
Buying and selling NFTs is a lot simpler than most people think. If you’re looking to explore the world of NFTs then heading to an NFT marketplace would be a great place to start. Think of these as ebay for NFTs.
Whilst some marketplaces choose to offer all types of NFTs, KnownOrigin has become the leading platform for people looking to collect digital art.
After starting in 2018 when the space was a lot quieter, KnownOrigin has created a platform that goes far deeper than being just a marketplace.
KnownOrigin has proudly become part of the digital art community through their relationships with artists.
Artists on the KnownOrigin platform receive a generous 85% of the original fee paid for their art before receiving a further 10% of any sales on the secondary market.
KnownOrigin’s commitment to being ‘for the artists’ has seen some of the world’s biggest names join their community.
OpenSea operates on an open market basis allowing anyone to join and start selling their digital art.
Nifty Gateway requires creators to go through an application process to start selling on their site. As a result, Nifty Gateway is home to many premium, high-end NFT projects.
Rarible is another open market platform that facilitates the trading of NFTs.
Interestingly though, Rarible operates as a DAO and holders of the $RARI token can vote on future plans for the project.
How do I buy my first NFT?
Buying your first NFT couldn't be simpler. The first thing you’ll need is a crypto wallet. Here’s a really simple guide to getting this setup if you don’t already have one.
If you’ve already got a wallet then follow these simple steps below on how to buy your first NFT on KnownOrigin.
• Go to KnownOrigin.io
• Hit ‘connect wallet’ in the top right and follow the instructions.
• Select NFT marketplace and choose between primary or secondary. The primary marketplace will allow you to mint artworks from world class artists whereas the secondary marketplace is where collectors are reselling their digital artwork.
• From there, select a piece of digital art that you like the look of.
• Next, select ‘buy with ETH’ or ‘place a bid’ depending on if the NFT is being sold for a set price or being auctioned.
• Making sure you have enough ETH in your crypto wallet, follow the instructions provided by your wallet pop up.
To make things even easier, KnownOrigin has made it possible to purchase your first NFT using standard debit and credit cards too.
Why NFTs are the future
Security is like the USP of web3. The fact that data and transactions aren’t stored or controlled by a central authority is a key reason why innovations like NFTs are becoming increasingly popular.
Smart contract technology
Smart contracts are arguably the most important piece of blockchains. If you’re unaware of what a smart contract is, think of it like a digital contract. Just with the terms and conditions written in code which allows transactions, transfers and just about anything to happen automatically without the need for an intermediary.
At KnownOrigin, we strongly believe smart contract technology can create a safer art space as trust no longer needs to be placed in a human buyer or seller.
Purchasing an NFT off KnownOrigin triggers a smart contract reaction as soon as the buyer finalises their purchase. The smart contract will then immediately transfer ownership of the art to its new owner. At the same time, the funds are taken from the buyer and given to the seller with any parties entitled to royalties receiving their share too.
Transparency of ownership
Faking ownership of something has long been a way to trick people into buying something that’s counterfeit. This issue commonly arises with items like designer clothing, tickets and paintings.
However, good luck to any con artists trying this once NFTs become the norm. As NFTs live on a blockchain, the owners of each of these digital tokens are out there for everyone to see.
As a result, buyers can ensure that their goods are coming from a legitimate source before the smart contract automatically ensures that the new owner actually receives their goods.
New brand opportunities
With advances in technology comes new opportunities. Just as the World Wide Web gave rise to E-commerce, blockchain technology is laying a platform for brands to explore new avenues.
As our lives become more virtual, our assets will become more digital. If we are to be living, working and socialising in the metaverse then we’ll need NFT shaped clothing, property and accessories.
Expect fashion brands to be dropping digital clothing lines, music artists to be hosting concerts in virtual stadiums and property groups to start expanding their metaverse portfolios.
So whilst some brands are attempting to go it alone, we may see more brands choosing to buddy up with web3 natives who already know what they’re doing. We might even see digital apes and pixelated punks replacing influencers as the face of our favourite brands.
Forget revenue and sales, what if we told you that NFTs could simply be used to improve the UX for customers or collectors?
As we’ve mentioned, NFTs can exist as pretty much anything. The security provided by smart contracts means NFTs could come in the shape of everyday items like deeds, receipts, tickets and records.
Mark Cuban, crypto enthusiast and billionaire owner of the Dallas Mavericks, has previously spoken about his plans to turn tickets to his team’s NBA games into NFTs. Such an innovation would see fans able to resell or buy tickets without fear of being hoodwinked on the black market.
Success in the Web3 space seems to be highly dependent on being prepared to give more than you take. NFT projects play into this perfectly by handing control and profits to the community of creators and collectors that make up the NFT ecosystem.
Power to the creator
The Spotify model was web2’s solution to illegal streaming. However, many are now coming to realise that these subscription services benefit from artist’s creations more than the artist themselves.
Smart contract technology and community centric marketplaces can fix this by allowing artists to trade their NFT work on a peer-to-peer basis safely without giving up a large slice of the pie to big corporate intermediaries.
The success of digital art is slowly being replicated in the music industry with artists like Kings of Leon turning their work into NFTs and cutting out the middlemen of the industry.
Power to the collector
Most NFT projects give full ownership of digital assets to the owner. This often includes things like commercial rights and IP rights. A great example of how this improves on past technology comes from the world of gaming.
Games like FIFA Ultimate Team see gamers collect football players as cards that can be used in the game. But do players truly own these cards? Not really. They live in the game and can only be sold for FIFA coins. Essentially, players are limited on what they can do with their digital assets.
By contrast, play-to-earn gaming giant Sorare sees players collect cards in a similar way to FIFA, with these players making up their fantasy football type team. However, the big difference comes in the form of ownership. The complete ownership of NFTs allows players to take their Sorare cards out of the game and sell for real money on NFT marketplaces.
If 2021 was the year of the NFT, hopefully 2022 is the year they become adopted on a mass scale. Whether to you they’re an investment or a key to a community, an asset or simply a piece of art, NFTs really are for everyone and we can’t wait to watch the world dive into this emerging space.