When you hear tech buzzwords like “NFTs” flying around, dismissing them as another fad destined to the dustbin of time is easy. After all, hypes are an essential component of marketing.
Quite to the contrary, and as data from independent sources suggest, Non-Fungible Tokens or NFTs are very likely here to stay. With the sale of an NFT for $69 million (the Beeple NFT in 2021) and an ever-increasing market cap, there are strong indicators that NFTs’ revolutionary foray into the digital asset space will make winners.
If you are an artist, chances are that you are already thinking of taking the bold step to join the fray. Selling a minute piece of your creativity for a substantial sum of money like several NFT artists have done doesn’t sound too bad.
But what are NFTs, how do they work, how can you invest, and how can you create one? And most importantly, is it worth it?
To understand this imploding phenomenon, it is expedient to understand certain concepts, including fungibility. Fungibility refers to the capability of a commodity, asset, or good to be interchangeable and substituted with another.
For example, an ounce of raw gold in Brazil can perfectly substitute or interchange with an ounce of raw gold in Saudi Arabia due to the fungibility of raw gold. Similarly, a one-hundred-dollar bill in San Francisco can perfectly substitute another hundred-dollar bill in New York due to the fungibility of the dollar.
Nonfungibility is quite the opposite of fungibility. It refers to the inability of an asset, good, or commodity to be substituted, exchanged or interchangeable. Non-fungible tokens are unique in value and can never be replaced.
NFTs are digital assets and collectibles whose certificate of ownership is stored on the blockchain, essentially a highly secured and decentralized public ledger.
From video clips, tweets, artworks, and pictures, any digital content (including memberships — I know, now it gets complicated) can be transformed into an NFT. Its key features include immutability, uniqueness, permanence, provable scarcity, and intrinsic blockchain-backed value.
Note: real world assets can theoretically also be tokenised and turned into NFTs (NFTs can represent ownership of physical assets), but that is a blog post for another time.
Immutability: NFTs’ certificate of ownership and associated transactions are stored on the blockchain. This makes them highly secured and unchangeable.
Uniqueness: Every NFT is unique, and its originality can be verified on the decentralized ledger (blockchain).
Permanence: The technology undergirding NFT means everything pertaining to it, including its transaction history and ownership, is etched forever in an immutable, decentralized public ledger called the blockchain.
Provable scarcity: This feature is the corollary of immutable, unique, and permanent features. Once digital content has been tokenized or transformed into an NFT, its distinctiveness is solidified; they become unique and scarce.
Intrinsic blockchain-backed value: Their intrinsic value majorly lies in the value holders can derive from them, primarily through trading.
The exponential increase in NFT projects within the last few years is easy to understand. Everyone seems to want a share of the digital pie and the fortune it brings. However, not everyone will make a profit investing and trading NFTs (or with creating them).
Interestingly, there are tell-tale signs and principles to consider before investing in an NFT project. These principles include artistic component, founding team/company, roadmap, community, and trading metrics.
Artistic component: These special features make an NFT project stand out from the rest. It includes features that are rarely found in other projects, which is expected to drive up its demand.
For the uninitiated, you don’t have to hire experts to analyze your desired NFT project’s artistic component and unique features. Some NFT marketplaces, including OpenSea, have rarity scoring and index tools to ascertain NFT artistic components and their rarity index.
Founding team/Company: The same reason an average Joe will choose branded t-shirts over the unbranded ones is the same reason you should consider the brand, founding team/company before investing in an NFT project. Projects from brands with good reputations tend to perform better in the market. Satisfactorily answering the questions of who is issuing the NFT, what is their brand and reputation should be a prerequisite for holding an NFT?
Roadmap: Every customer-centric and commercially viable NFT has a roadmap for success. You should select projects with a proven use case, a comprehensive reward system for holders, the market viability of the project, and features. The roadmap must be able to quench your curiosity and conclusively answer what you can do with the NFT? Will its features be improved over time, and what is the value proposition? What is the exclusive members’ benefit of being part of the project?
Community: One tell-tale sign of a quality NFT project is a thriving community. Are members enthusiastic about the project? How does their Twitter and Discord page fair? Are people crazy about the project on social media?
Any NFT project worth its onions will provide community members with updates, assistance, and notifications on the project.
Trading metrics: Understanding the relationship between the demand and supply of an NFT project will assist you in weaning out inferior, low-quality ones from your portfolio. You may want to ascertain the project’s demand and supply ratio and the proportion between holders and the available NFTs in the project. If NFTs available are disproportionate to holders, you may want to look elsewhere.
Investing in NFTs
There are two major pathways to investing in NFTs as an artist. You can take the popular route of joining a project either from inception or at maturity in secondary markets like OpenSea. Provided you are artistically well-grounded and can deliver creative and inspiring ideas — the artistic route of decentralized entertainment, AKA entertainment DAOs, is yours to follow.
While several entertainment DAOs exist, FLUF World
You can find your favourite, then customise it with assets from a growing scenes & sounds collection. The fluffy bunnies are programmed to dance to a beautiful soundtrack and gyrate in and out of the metaverse.
Explore the fine intersection between storytelling and the metaverse with Jenkins the Valet. Featuring a writing room where members and holders of its BAYC NFT avatars can vote to unfold and determine stories’ direction while Jenkins retains the writing credit. You can also get paired with top-notch, world-class storytellers to create metaverse-themed stories across several platforms.
Now I know you might read this and say these examples are ‘old’ and outdated, but I just really like them, hence mentioned them here. There are many other prominent examples like the Bored Ape Yacht Club, CryptoPunks, Meebits and many more.
Let us now explore the critical steps to investing in NFTs and creating an NFT as an artist.
Think of the digital wallet as the digital equivalent of your physical pocket wallet. A digital wallet is a highly secure application perfectly designed to store your cryptocurrency. The two most prominent wallets include MetaMask and Coinbase.
Interestingly, these wallets are supported by FLUF WORLD and Jenkins the Velvet. The significant difference between these wallets is their supporting blockchain. While MetaMask is based on the Ethereum blockchain, Coinbase is based on several blockchains, including Bitcoin.
Purchasing cryptocurrency into your digital wallet is perhaps the easiest thing to do on the internet. Create an account with your wallet and log in. Click the “Buy” button and be promptly directed to the payment screen. Pay with your debit card or Apple Pay as you prefer. Move to the next step after making your payment.
While there are a growing number of NFT marketplace to choose from, the most popular include OpenSea, Rarible, SuperRare and NBA Top Shot. It is best to research the marketplace to ascertain the quality and determine its suitability for your NFT needs before selecting.
Some NFT marketplaces are subject matter specific, while others pander to all NFTs. Some require users to use their currency, while some give them the freedom to use any of their choices. The bottom line is researching the best marketplace that aligns with your needs.
The next step after selecting a marketplace is connecting your wallet. It requires locating and clicking the button that allows for making the connection. Proceed by choosing your wallet from the drop-down that appears next. Sometimes, your wallet app will prompt a connection to your wallet of its volition.
The most crucial part is choosing and uploading the file to sell as NFT. You will find this easy to do even if you have not uploaded anything on the internet before. Most platforms allow you to upload files in GIF, MP3, WEBP, PNG, or MP4 formats and elect to either upload a single item or duplicate. Of course you need to have created your collection beforehand.
Beneath the hype of NFTs being the best thing to happen to humanity since the chocolate cake is the harsh reality of several NFTs projects being not worthy of attention. While it’s true that the investment or creation and sales of NFTs have the potential to earn a lot of money, it’s by no means a sure thing. Contrary to the popular narrative, there is no chance in hell that some NFT project will ever sell or be a good investment.
It is best to understand what you are getting into before taking the leap of faith to prevent incurring a cost and its attendant effect on your finances. You should reconsider your NFT stance if you cannot sustain a loss in making and trading NFTs. It is highly recommended that you spend what you can afford to lose on making NFTs, no matter how fascinating your ideas are.
However, NFTs can be risk worthy if you have the appetite to stomach every possible loss. Ensure your NFT has value and list fees covering the minimum price on your project. Who says you can’t sell the next NFT for $69 million?
If you are a perfect mix of tech-savviness and openness to risk, investing in or making and selling an NFT can be profitable and exciting. It presents an endless opportunity for breathtaking financial freedom and artistic engagement. However, there are always risks involved so do your own research and really understand what you are doing before you engage in any investments or actions creating financial liabilities.