What is an NFT?
And how do I buy one?
Where do we start…?
You have definitely heard of NFTs at least once in the past month, whether it was on the news, on Clubhouse, at a family gathering, out at a restaurant or your friend talking nonstop about them (that’s me!). There is no doubt that the NFT world has been dominating the airwaves in almost every industry from sports to art. Every day, it seems like, a new celebrity, athlete or public figure comes out with a new NFT. Their most passionate followers and those who just want to be a part of the hype rush in to buy out those NFTs at jaw-dropping prices; the highest bidder for a collection of digital artwork by an artist named Beeple won with the bid of $69 million! So, you ask, what is an NFT?
NFT stands for “Non-Fungible Token” which means that each “token” is unique and cannot be replicated. These “tokens” are produced, or “minted”, only one time and at a specific quantity, such as 1-in-1 or 1-in-10. The reason why people are willing to pay so much for NFTs is all because of ownership and demand. The promise of NFTs is to revolutionize the way our society determines ownership of almost anything, not just art. Aside from digital art auctions (Beeple), there have been album releases (Kings of Leon), sports trading cards (Rob Gronkowski), attendance tickets for concerts (yet to happen significantly in the time of COVID), exclusive in-game items or rewards, virtual real estate (Decentraland), and domain names (Ethereum Name Service) just to name a few.
Wait a minute— you still don’t understand what an NFT is? Of course! That makes sense because I haven’t explained the Main Ethereum Network yet, the platform by which NFTs are powered. Before we go further, let me give you a quick crash course on the blockchain, a.k.a. decentralized finance, a.k.a. cryptocurrency.
Origins of Cryptocurrency
Cryptocurrency was born in 2008 with Bitcoin being created by the anonymous Satoshi Nakamoto. It was advertised as a “Peer-to-Peer Electronic Cash System” that could distribute the monetary system across a network of individual computer servers all around the world. Once a transaction, or block, is made, each computer races to verify that block through proof-of-work (computing power). After being verified, it is then added to the blockchain, completing the transaction and becoming unalterable or irreversible. A block from 2011 still exists today in the same exact form as when it was just added to the blockchain ten years ago. Consider the analogy in which a central bank has every transaction recorded on a ledger by the accountants at the bank at human speed, then the blockchain is a collective bank in which everyone verifies the ledger and is inherently public for all to see.
Once Bitcoin launched in 2009, it was worthless. There was abundant supply and no demand. However, throughout the decade that followed, demand caught up with supply and raised the value of one Bitcoin to thousands of US dollars. While Bitcoin was taking off and catching all the public attention, a new cryptocurrency was being developed by the public figure Vitalik Buterin. A major difference is that instead of having a limit of the amount of coins produced, which for Bitcoin is set at 21 million, it has near unlimited supply (not really unlimited since it depends on the size of the network); but the biggest difference that sets it apart is a capability known as the “smart contract.” This crypto, Ethereum, has the power to attach programmable terms to any transaction similar to how one signs a contract when buying a car or renting a house. If someone wanted to buy a house using Ethereum, they would simply inherit whatever terms came programmed into that transaction such as ownership and property rights.
So, how does this relate to NFTs?
Main Ethereum Network (MainNet)
The Main Ethereum Network, a.k.a. the MainNet, runs many ecosystems besides the Ethereum coin. Think of the Ethereum coin as a governance token (it is much more than that). That means when you buy Ethereum you end up buying a piece of the network. On this network, one of the main platforms being powered is the NFT space. Each NFT utilizes the MainNet to be created and to be maintained. That results in being charged maintenance “gas” fees to keep each NFT on the network. As long as an NFT is being maintained, it will remain on the network as its own type of cryptocurrency under Ethereum.
NFTs inherit the smart contract feature from Ethereum and this is what drives the success of NFTs. When an NFT is created, all of its attributes are programmed into the smart contract and then it is given an owner address. If the owner decides to transfer ownership, the new address would take over control of the token but would not be able to change the smart contract in any way. Once an NFT exists, the token cannot ever be altered or duplicated.
Do you understand?
To sum it all up, NFTs are digital tokens based off the Ethereum smart contracts in the MainNet, which allows each NFT to be forever completely unique. Since this all exists within the blockchain, every transaction is verified on a decentralized network and the ownership of each token cannot be mistaken, faked or lost. The value of an NFT depends on the supply of the token, 1-in-1, 1-in-10, etc., and the demand for that token, whether it was created by a public figure or entity of influence. The value increases, or appreciates, over time as the item holds more importance to those wishing to claim ownership. Again, it is all about ownership.
I think I get it now! So… how do I buy one?
Hold up— there are TONS of NFT marketplaces already, and each one serves a different purpose. There are Opensea, Rarible, and Cryptograph which provide to those looking for digital collectables. Then there are SuperRare and Async which both cater to art enthusiasts. Another one is InfiNFT which hosts media such as music, and there is Decentraland for digital real estate. Also, Ethereum Name Service sells domain names for the blockchain, and don’t forget VeVe acting as a market for pop culture and gaming collectables licenses.
Mindblown? No worries! To make it easy, domain names seem like a good pick and they also give us plenty of options to choose from, so for this example we will go with Ethereum Name Service (ENS).
First: Create Digital Wallet
To buy and trade cryptocurrencies and NFTs, you must own a digital wallet. A digital wallet is the address of which an individual’s currencies and assets on the blockchain are located. The wallet can either store the crypto, allow you to trade it with other crypto, or both. Some popular digital wallets are Binance, Coinbase, Gemini, BlockFi, MetaMask, and Trust. One of the most widely accepted digital wallets for trading NFTs is MetaMask, so I chose that as my wallet to purchase a domain name.
Next: Find NFT To Purchase
This was mentioned earlier, but the main goal of purchasing NFTs in today’s world is to find an item that will appreciate value over time and/or is minted by someone of importance or influence. For example, buying a domain name that does not make any sense would be unlikely to be any more valuable in a couple years than from buying it initially. However, buying a domain name that has meaning or popular reference will almost certainly be much more valuable. After looking around for a while, I settled on the domain name as my last name: mccabe.eth
Last: Purchase NFT
To initiate the transaction, you will need to connect your wallet to the platform on which the NFT is held. After the wallet is connected, and making sure there are enough funds in the account, go ahead and place the order to buy the NFT while keeping in mind of the network gas fees. Finally, after being verified across the network, the transaction should be completed as a block and the NFT will be transferred to your wallet address. Once I purchased the domain name, it was verified on the MainNet and then transferred to my MetaMask wallet address, which means that I am now the owner of that NFT.
Wait, there’s more?
You thought we were finished? Not yet, because during the process of writing this article, there was launched a new platform named VanCat. VanCat, according to the website, is a platform that “allows users to easily deposit BEP20 tokens (ANY tokens) into an NFT.” This means users will be able to purchase NFTs with much more flexibility and compatibility. The project is still very new, so be careful with any investments but there is a VANCAT governance token for the platform which enables people to invest smaller amounts into the NFT space without directly owning an NFT. As the platform grows, and the NFT space as well, the value of each token will go up giving more leverage.
The journey has just started…
Remember to be smart, keep in mind long-term growth and don’t get involved in something you aren’t familiar with or what you do not see value. Lastly, we are all discovering new possibilities every day and no one knows for sure where this will bring us in the future. So, the most important thing to remember is to stay educated and have fun!
Peace.
Colin McCabe
