Everything You Need to Know About NFTs
And why you can’t just screenshot them
Everyone and their dog by now have come across the hype surrounding the digital revolution of non-fungible tokens (NFTs). Perhaps you were scrolling down your Instagram feed only to see that a badly drawn picture of a stoned primate sold for a million dollars, and thought one of two things: either this whole space is a ticking time bomb and you should stay away, or that this opportunity could potentially change the trajectory of your life. If you are reading this, then I presume you belong to the latter. In which case, this article will serve as your guide to navigate through the complex digital world of NFTs.
To understand what a non-fungible token is, one must first define the words that constitute it. Fungibility is defined as the property that makes something interchangeable and replaceable with an identical item of equal value. Fiat currency is an example of an item that is fungible. Let’s say you have one freshly minted US $1 dollar bill and somebody has a wrinkled, coffee-stained $1 bill, and exchanges it with yours, the value of the bill is still the same and you can still only purchase goods that are less than or equal to that dollar.
Non-fungibility is therefore the property that states that there is no other equivalent item that can be interchanged with it and still possess the same value due to its uniqueness. Leonardo Da Vinci’s Mona Lisa is an example of a non-fungible artwork whereby a replica made by another artist could not be exchanged with the original piece and still be worth the same value.
The last aspect of NFTs is they are tokens. A token is defined as a symbol that is used to represent another fact, quality, or feeling. In casinos, the chips used for gambling are examples of fungible tokens in that they represent a certain value in any given currency. Exclusive VIP membership cards can also be seen as tokens that represent special access to certain events and facilities that other people without the card may not access. In the case of NFTs, buying certain ones gives you ownership and can also serve as VIP membership cards that give you special access to communities, events, and many other benefits.
Another way to conceptualize NFTs is to think of them as similar to a title deed for a house. You are essentially purchasing the ownership rights to the property which gives you the right to use it as collateral for loans, to rent it, and to ultimately sell it. Nobody else can claim it as theirs because the proof of ownership is documented on the blockchain. Now, when people say, “oh but I can just screenshot your NFT”, well you can also take a selfie in someone’s mansion and claim it as your house, but at the end of the day only the person who possesses the contract that proves the ownership can actually earn money from it. Therefore, the reason why people are willing to pay for digital assets is that the blockchain is infallible and cannot be faked, because ownership can be verified at any point.
Why Buy an NFT?
So it is clear how NFTs work. But why are some people paying millions of dollars for pictures of monkeys? let's discuss why they might actually be good investments long term. First of all, when you buy an NFT, you are given ownership rights as the transaction will be recorded on the blockchain of the NFT, which means you can sell it at any point. Highly desirable NFTs can also become exponentially more valuable over time as more people get into the space and more attention gets drawn to the project, which means you can actually get rich quickly with little upfront money, especially if you get on whitelists and have access to mint prices.
To be whitelisted means that you have gone through the process, as defined by the NFT project team, of getting your wallet address pre-approved to mint the NFT at a predetermined date before the public sale at a higher price. Minting an NFT basically means creating a new block on the blockchain and recording that information into it which is the process by which NFTs are created. Different projects may have different criteria to meet in order to be whitelisted so be sure to check. Whitelisting also allows supporters to avoid “gas wars”, which is when multiple people try to mint NFTs at the same time, driving up transaction prices.
To take an example, Bored Apes had a mint price of 0.08 ETH on the 29th of April 2021. Since the price of ETH on that day was in the $2,700 range, we can assume it cost around $210 — $220 (excluding gas fees) to mint a Bored Ape. As of today, the cheapest BAYC will set you back 91 ETH which is roughly $288,028 at a price of $3130/ETH. For context that is an appreciation of 1309%, what other market will give you that kind of return in less than one year?
Some NFTs can also be staked to earn passive income. For example, people who bought a Cyberkong Genesis NFT are eligible to stake and earn 10 $Banana tokens daily for the next 10 years. As of today the price of $Banana stands at about $18, but at one point last year it went as high as $122. This means people were earning $1,220/day just by holding their NFT.
Beyond monetary value, NFTs enable people to join communities of other people around the world who also hold the same NFT, enabling one to be a part of something bigger than just themselves and achieve a sense of belonging. That means if the NFT takes off to the moon, you all win and can celebrate together, and if it crashes to the ground, you don’t have to suffer alone.
The last aspect that is not often talked about is the psychological component of it. Humans by nature crave social approval and exist within dominance hierarchies. Therefore, we are always looking for ways to show off to others how well we are doing and convey who we are in society. Just think about why people buy designer brands and expensive cars even though there are cheaper alternatives that do achieve the same objective or desiring a blue checkmark on social media platforms. It is a way of showing your status and position in society. This is one likely explanation why profile pic NFTs are taking the world by storm at the moment, with everyone trying to get the most expensive, rare NFTs on the market just to showcase it on their profile pics and state which specific one they own in their bios. It is basically the 21st century equivalent of “Peacocking”.
How to Create NFTs?
If you happen to categorize yourself among those artistically talented among us, then perhaps your route to wealth via NFTs could be through creating them. First, create a community of people who you think would like to buy your work via a social media channel like Discord and generate hype around your project via social media marketing. Then decide what kind of NFT you would like to create, be it music, art, written, or all three. If you pick art all you really need to do is to create a bunch of designs using Adobe Illustrator, incorporate a little bit of solidity code, which can be learned via a quick youtube video. Then you will need to create a wallet to connect to Opensea.io using Metamask or Coinbase Wallet, after which you can upload your files (JPG, PNG, GIF, SVG, MP4, WEBM, MP3, WAV, OGG, GLB, and GLTF) onto Opensea. You will need to pay an upfront gas fee in ETH, and after that point, you are free to list them for sale as well as determine your royalties.
If you are not an artist and do not want to do all the hard work of building a community and generating hype around your project, the good news is that all these tasks can be outsourced online on sites like Fiverr or Upwork.
Selling your creative work as NFTs instead of in the conventional sense serves two real benefits for creators. The first is that you get easy access to millions of people via the Opensea marketplace as opposed to having to sell it on your own on the streets of a busy city or on your website. The second benefit is that you get to set royalties on your NFTs, meaning after each sale, you get a percentage of the total amount paid in perpetuity so you can feel like Kevin O’Leary from Shark Tank.
Problems with NFTs
Although you can make insane returns on investment when it comes to NFTs because the space is still booming, there are still a number of key problems with them.
Firstly, NFTs are a bubble that is bound to burst at some point. One credible spokesperson for this belief is Gary Vaynerchuk, who recently sat down with us at Arts DAO on a roundtable discussion on Web3. He believes that 99% of NFTs will eventually go to zero. This is largely due to the fact that the popularity of NFTs is due to the herd behaviour propagated by social media, and that too many people are in it for a quick cash-grab putting out low-quality projects and underdelivering on their roadmaps. So finding the right projects to get into requires in-depth research and engagement with the key people in the industry which is a step most retail investors skip.
The second key issue is that to make a real profit in this space, you will need to get whitelisted on the major projects, which can be difficult to get if you do not have the time to put in engaging with the community or the social media presence to warrant a spot on the whitelist. For context, securing a whitelist spot enables people to mint NFTs at a discounted price before it is offered on the secondary market at inflated prices. Just to give an example of how powerful getting on the right whitelist for the right project can be, the NFT project Hape Prime by Hapebeast offered a mint to whitelist holders at 0.2 ETH ($638). The same day, those NFTs were listed for sale at 6 ETH ($19,124), Which is a 30x ROI in the span of 24 Hours.
So how does one ensure a high likelihood of finding the right projects while also getting access to the whitelists?
How Arts DAO Solves These Problems
The Arts DAO was built to survive the inevitable burst of the NFT bubble. With a growing team of highly skilled individuals with long-term experience in the space and a community of artists, managing directors, and crypto experts, we ensure our community gets all the latest alpha on upcoming projects that have the potential to increase in value in the long-term.
Moreover, the Arts DAO frequently collaborates with these top projects as we are familiar with the founders and team running them, which means we are able to secure whitelists spots much easier for our community of members to benefit from.
If you would like to join the Arts DAO community to receive the aforementioned benefits as well as plenty more, such as access to exclusive networking events with other collectors and artists, then be sure to check out our earlier article to find out details about the upcoming limited NFT drop.
Connect with Us
- Anas: twitter.com/ananasbrb
- Danosch: twitter.com/thecryptosheikh
- Rahim: twitter.com/rahim_mahtab
- Zayaan: twitter.com/thenftpenguin
- Sam Z: twitter.com/zuckerswag
- Kristel: twitter.com/atelier_kristel
Thank you for getting involved early in the Arts DAO journey. We are dedicating every moment we have to building and being part of the evolution of blockchain technology, the NFT space, and art more generally. We look forward to meeting with you either in one of our real-life events or elsewhere in the metaverse!