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NFT is being talked about in 2022 on almost every corner. The technology itself appeared relatively recently - in 2017, and in a few years has gained wide popularity in various fields - art, games, sports, finance. Crypto product development is gaining momentum. Digital artists sell their tokenized artwork for millions of dollars. Mark Zuckerberg is building an entire metaverse based on NFTs and cryptocurrencies.
If you are not familiar with tokens, smart contracts and crypto exchanges, but want to touch the “brave new world”, this little guide is for you.
How NFTs work
NFTs are non-fungible tokens. At their core, tokens are separate links in a single chain of transaction records called a blockchain. For ease of understanding, let's imagine that the blockchain is a ledger, and NFTs are specific lines in it.
Blockchain technology has three important features:
Records of transactions within the network are not stored on one server, but on many different computers.
There is no single main regulator in the block network. Transactions are confirmed and recorded by all participants simultaneously. It is impossible to make changes to the "account book" without an agreement with all holders of its copies. This greatly increases the security of interactions between users.
Operations within the network are transparent. All keepers of the "accounting" can read it at any time.
NFTs are unique. This allows you to use them as digital certificates of authenticity for images, audio, video, game items. The built-in token gives the buyer a guarantee that only he is the owner of the acquired artifact and has the right to dispose of it at his own discretion (although the legal aspects of NFT are still being worked out in the legal field). At the same time, ordinary, non-tokenized copies of the picture can easily spread over the network. Similar to physical paintings, you can keep the original Rembrandt, but its reproduction can be printed in catalogs and art books.
How tokens have changed digital art
The first digital art with the introduction of NFT was “Cryptopunks” by the Larva Labs team. These are 10,000 stylized portraits sized 24x24 pixels. All painted punks have their own individual features - skin color, hairstyle, headdress, glasses or pipe. Therefore, digital pictures from this series are of collectible value. The most expensive copy - CryptoPunk #3100 - was bought for 7.58 million dollars.
On March 11, 2021, the digital work "Everydays: The First 5000 Days" by artist Beeple sold at Christie's for a record $69.3 million (including commission).
More and more modern popular artists are connected to NFT, such as Banksy, Pokras Lampas, Damien Hirst. Financial turnover in the field of tokenized art is constantly growing.
Musicians are also joining the world of tokens. Canadian singer Grimes, Elon Musk's ex-girlfriend, sold her works for $6 million. Russian groups Ruki Vverkh and Little Big are planning to enter the NFT market.
NFT in games
The game industry does not stay away from new trends. Tokenization of games allows not only creators, but also ordinary players to earn money on them. That way everyone wins. Developers get new users and a general “hype” around their product, and players get additional, and sometimes very considerable, income. Axie Infinity is the most famous NFT project built on the “play-to-earn” model (play to earn). In this game, you can develop characters, participate in battles, get valuable resources and NFT artifacts for subsequent resale.
Another way to monetize NFT games is through collecting (or the pay-to-earn model - pay to earn). The Sorare project invites users to collect cards with the image of football players. In the game, you can arrange matches between virtual teams and earn points. In fact, this is an improved version of fantasy football. Given that the price of rare cards can reach several hundred dollars.
The use of tokens has another advantage. Objects with built-in NFTs can theoretically be transferred from one game to another. A conditional fantasy sword can become a player's personal weapon, with which he will cut enemies in different titles - perhaps even created by different developers.
Now NFT is becoming the lot of not only small indie studios. The introduction of tokens into their projects was recently announced by Ubisoft, one of the largest companies in the game dev industry.
These are open game worlds where ownership of items, land and real estate is verified through NFT. The most famous metaverses at the moment are Decentraland and Sandbox. They develop their own cryptocurrency-based economy, host various events, and even open “universities” where open lectures are held.
Other ways to use tokens:
Decentralized finance (DeFi) is based in part on NFTs. Tokens are used to provide loans, mortgages, and insurance. Today, this approach is not widespread, but is likely to become popular in the future.
NFTs can be attached not only to virtual items, but also to real items. For example, to trace the origin and movement of expensive branded items, premium products (such as Swiss cheeses or French wines).
In 2021, there was an attempt to sell the ownership of a house through NFT. But so far, legally, the token cannot replace a real certificate for ownership of real estate or land.
NFT exchanges and how to get there
Digital artifacts are sold and bought on special platforms - NFT marketplaces. The most famous of them are OpenSea, Niftygateway, Rarible, Binance, AtomicHub. It takes a few easy steps to create and list NFTs for sale.
- Starting a wallet.
Marketplaces use different cryptocurrencies for settlements. The most common option is Ethereum. You can create and replenish a wallet on the official website - myetherwallet.com or through third-party services, such as Ledger or MetaMask.
- Loading our object.
Let's consider the actions on the example of the OpenSea site.
- create an account and link your crypto wallet to it using instructions;
- go to the “My collections” section;
- click the “create” button and select the desired file on the computer for the presentation of the collection, add a name and description;
- add objects to the collection by clicking the “Add new item” button, fill in all the required fields;
- to sell the created NFTs, go to the “Sell” section, set the price and order of trading - at a fixed price, through an auction, or privately for a specific user;
- confirming the sale - if you are placing an object on the marketplace for the first time, you will need to initialize the wallet.
Don't forget that exchanges charge a fee for all transactions made with NFTs. You must have enough funds in your wallet to pay for it. The size of the commission is not fixed, and depends on the network load at a particular moment. You can buy NFT by simply replenishing your wallet with the appropriate cryptocurrency (most often these are the same “ethers”) and buying an object at a designated price, or by participating in an auction. Upon completion of the transaction, NFT will go to your wallet.
The NFT digital token provides an opportunity for additional earnings for creators - artists, musicians, game designers. Creating an NFT on an exchange is a relatively simple process and accessible to everyone. Some aspects of trading in tokenized objects - in particular, legal ones - still raise questions. But they will be settled soon.