NFT 101: A Practical Guide to NFTs for Beginners
It’s December 2021 and it’s fair to say that NFTs are one of the biggest and most foundational technological revolutions of our history.
If that sounds exaggerated, I assure you — it’s not.
In 2021, (tens of) thousands of people quit their day jobs or added side hustles to their schedules in order to devote more time to the wondrous world of NFTs. University students becoming overnight millionaires, monkey jpegs being sold for millions of dollars, people constantly sharing how NFTs changed their lives for good and how thankful they are to this technology. The stories are wild and intriguing.
But I’m aware it might feel intimidating and confusing if you’re very new to all of this. The platforms, technical terminology and the lingo that’s unique to NFT & crypto communities doesn’t make it very easy for ‘noobs’ or ‘normies’ (aka newbies or normal people).
So, let’s make this your one stop guide to find answers to the most common questions around NFTs. We’ll cover everything from NFT basics, evaluating NFT projects, buying and selling NFTs, prices, and more.
Let’s dive in!
What is an NFT?
NFT stands for a non-fungible token, an individually unique asset, meaning each item is different from every other of its kind. These can’t be broken down into smaller value units like fungible assets such as cash or gold bars. In a nutshell, non-fungible tokens are unique items that can be sold and traded independently.
An NFT is minted with smart contracts, which enables the network to store the information that is indicated in an NFT transaction.
The code of the contract exists across a blockchain network. The most widely used smart contract blockchain for NFTs is Ethereum.
But what can an NFT be?
Most popular form of NFTs we know of is digital art. But NFTs can be anything digital, such as music, courses, drawings, tweets, photography, and more.
When did it all start?
In January 2018, Ethereum blockchain added a support system for NFTs by the creators of ERC-721 (Ethereum Request for Comments 721), which meant that NFTs could be hosted on the Ethereum blockchain from this point onwards.
So, who was the FIRST to catch the NFT train? CryptoKitties.
Each kitty’s ownership was tracked via a smart contract on the Ethereum blockchain, and each of them is an NFT under the ERC-721 standard.
What is a blockchain?
A blockchain is a public ledger of all cryptocurrency transactions. Blocks are the individual pieces of information, and the chain is basically the database they are stored in.
Blockchain doesn’t require trusting one central entity since it is a decentralized system. Which means, eliminating the need for a middleman — such as a bank — to process transactions.
The blockchain records every transaction that occurs on its network. And because each block in the chain contains information about the previous block, it’s virtually impossible to tamper with any records or data within the chain without breaking or hacking every single block on the chain!
What is minting?
You’ll hear this word SO much. Minting means creating an NFT and generating a record for it on the blockchain for the very first time. It is often used to describe when someone becomes the first owner of an NFT upon completing a transaction on the blockchain. The minting process turns a digital file into a crypto collectible on the Ethereum blockchain.
Each NFT is unique — which means it can’t be replaced by another token or swapped. On the other hand, banknotes or bitcoin (which is a fungible token) can. If they hold the same value, you can easily replace them with one another. Think about it as an art piece such as Mona Lisa. There’s only one Mona Lisa and all others are replicas and imitations. She is one of a kind and unique!
What is the gas fee?
If you’re about to buy your first NFT, this is something that might come as a surprise. This is also something you’ll notice people complain or inquire about in Discord chats as they want to make a transaction when gas fees are possibly at its lowest rate. (You’ll find more info on when it’s low in the PRICES section)
Gas fee is the amount of money that users have to pay to complete their purchase of an NFT. This fee is added to each transaction right before you checkout. You know how when you’re at the checkout step for your online shopping cart and you see tax or service fees added to your final bill? You can think of gas fees like that.
In this case though, the gas fee is charged for the mining service, to account for the computational energy required to process transactions and secure the blockchain. Miners validate your transaction even if it fails or succeeds, taking computational power. So, a gas fee must be paid even if a transaction fails.
What is metadata?
If you think of NFT as a cell, an NFT metadata is a cell nucleus. It holds the details of the NFT. Usually, metadata contains the name or description of an NFT.
What is airdrop?
AirDrop is a marketing strategy that allows a company to distribute a new cryptocurrency into the world quickly and effectively. When blockchain projects give away tokens, NFTs, or other crypto-related products to their users for free, it is called an Airdrop.
You might see some collections doing airdrops to certain holders to reward them or celebrate a seasonal holiday like Christmas.
What is a wallet?
An NFT wallet is a crypto wallet that supports the protocol for blockchain-based NFTs. An NFT wallet is a safe and secure way to store your digital assets. Not only does it allow you to purchase, sell and trade your assets on the blockchain, but it also provides you with a secure platform where you can store them offline.
Some examples of NFT wallets are Metamask, Coinbase Wallet, AlphaWallet and Enjin.
What is the floor price?
The floor price of an NFT refers to the lowest possible price you could buy it at. It appears in commodity trading and reflects the lowest rather than average market value to ensure there’s always demand and stability.
(On September 14, 2021, the floor price of NFTs peaked and reached 1.1 ETH! — It was 10X higher than June 2021.)
What is HODL?
Hodl? Yes, it is actually a thing.
The word Hodl comes from a misspelling of the word “Hold,” and it is a cryptocurrency trading strategy. Hodl is short for “hold on for dear life” and means hold on and wait, rather than selling off in a panic.
This word was coined by an anonymous user who posted it as a comment on Reddit in 2013 and has since become an internet meme.
Who is a paper hand? 📄🙌🏼
Paper hands are people who quickly sell their NFTs when market prices drop. This is a derogatory term because they’re considered “weak hands.”
Who is a diamond hand? 💎🙌🏼
Diamond hands are people who plan to hold an NFT long-term. Therefore, they have no concern about the market conditions in the short term and are in the game for the long run.
EVALUATING NFT PROJECTS
What makes NFTs valuable?
I can just right click and save as, right? :)
Well, yes you can. But you won’t have ownership of that NFT nor the utility that comes along with it. It just means you have access to the art since it is public.
Let’s think about any JPEG you downloaded and set it as your Twitter profile picture. Without asking permission from the owner or without paying for it. Initially, it was impossible to prove the authenticity or value of digital items. Now, the ownership is signed and visible on the blockchain. Well, who cares, you might ask. You’ll notice that major platforms will soon bring verification criteria before you use an NFT art as your profile picture. We hear Twitter is working on this.
But there’s lots more than ownership that make NFTs valuable.
#1 rule in economics: Law of supply and demand. Which means, the more people who want to buy a product, the more valuable that product becomes! Scarcity and FOMO (fear of missing out) makes everything valuable.
#2 is the utility that comes with the ownership of an NFT. This could be becoming a part of a community, access to certain information or benefits that’s exclusive to members, and many more. Think of yourself like an early investor in a startup project that you believe has the potential to succeed and grow. You get to have a say in how that project unrolls, benefit from it’s growth, as well as accessing the perks of being in that community from the start, whether that translates into network, money or other perks.
How can I find good NFT projects?
Glad you asked, because this is where most people get stuck! There’s so many options, how do you know which one to choose and what value you will get from investing into this?
Here are some key things we suggest looking at to filter the options and identify what makes the most sense for you and your wallet:
Check out the Community
One of the key drivers of success for an NFT project is the community. Take a look at the size, the type of conversations, engagement, enthusiasm from the community to get a sense of the potential of the project. See if the conversations align with you and evaluate if this community could support the project in the long run.
Spy on Twitter
There’s not one NFT project that doesn’t have a Twitter account because this is where things happen in the NFT-verse. Check out the project’s Twitter handle, their content, the engagement they get, how people talk about them, etc. You’re trying to see if this project is legit. Browse through the founding team and their accounts too. Next, take it a step further and follow other content creators in the NFT space and check out what kind of projects they are talking about these days. Is there a certain trend that’s more hyped up for example? A quick investigation could go a long way!
Join Discord servers and the conversation
Every single NFT project has a Discord server for their community members and to enable the flow of information. Check out the conversations on the channels, how involved the members are. What topics are being discussed and what you find in there that makes sense for you. I personally check out the tone of voice and transparency from the team and make sure to ask questions about what it’s like to be a verified member. This is your due diligence before investing into the project!
Check the Roadmap
Most NFT projects have a roadmap that is open to the public. This is where you’ll find out about the short and long term plans of the team and where they want to take the project. In other words, what will you get by being a member and investing into the project in the long run. Feel free to ask questions about the roadmaps on their Discord or during AMA sessions which most teams hold on Twitter Spaces. The roadmaps can usually be found on the project website or social media accounts.
Finally, check the rarity of an NFT as you pick which one to invest in
Rare is precious. Right? In NFTs, the value of an NFT was also determined by a bunch of elements such as background color, eye color, clothes, etc. So if let’s say, the NFT collection has 0.6% of pink backgrounded NFTs, it means they are valuable. So keep an eye on the rarity of these projects and try to figure out how the NFT makers make their work rare.
If you’re up for a more technical analysis to decide which project to invest in, here’s a guide we find very helpful.
How can I learn about the benefits of a project?
An NFT whitepaper is a document that is written to inform readers of the benefits and uses of the NTFs. It is an authoritative report that attempts to convince readers about something, typically through the use of facts and statistics.
A white paper can be used as part of their marketing strategy, specifically when they sell products or services that require some education to sell effectively.
BUY & SELL
What is MetaMask?
MetaMask is a software cryptocurrency wallet used to interact with the Ethereum blockchain and DApps. The MetaMask extension is currently available for Google Chrome and you can download it on an iOS and Android device.
MetaMask is a bridge that allows you to visit the distributed web of tomorrow in your browser today. In addition, it will enable you to run Ethereum dApps right in your browser.
MetaMask is also more than just an extension — it’s an entire ecosystem for decentralized apps built on top of the Ethereum Network.
How do I set up a MetaMask wallet?
Go to https://metamask.io/ on your browser, click on Download now and select the browser you use.
- Create a wallet.
- Set a username and password.
- This step is important! You will get a recovery phrase for your wallet. Reveal the secret phrases and you will see 12 words. Write these phrases on a piece of paper and keep it somewhere safe. You will not be able to access your wallet if you lose it.
- Verify your secret phrase by selecting the previously generated phrase in order. Click Confirm. You have yourself a MetaMask wallet!
How do I know an NFT is original?
Check the creator’s social media
If the NFT is originally from the creator you are expected to be, they must have shared something! They usually actively post about the listing and related content about their work. See if they are credible or not. Check other people’s comments on the posts they shared too.
Reverse-search the image on Google
You can do a reverse search for the image on Google’s search engine. See if there are any variations of the same image and when it is uploaded.
Check if the NFT is selling on various platforms
This should be another red flag for you. If the NFT you are interested in is also selling on different marketplaces, they are probably not reliable sellers.
How can I buy NFTs?
NFTs can be purchased via several NFT marketplaces such as OpenSea or Rarible.
Open the marketplace on your browser, connect your wallet using the connect button on the top of the page and voila. You’re ready to start browsing through collections and NFTs.
Once you choose the NFT you want to purchase, make sure you have enough ETH in your wallet for the transaction. Click buy now (unless you’re bidding, which is another case), check the gas fees and confirm the transaction once ready.
Once the transaction is processed on EtherScan, you will be able to see your NFT in your wallet.
Tip: You need to keep an eye on the gas fees; there are peak times when gas fees are really high. You may want to look for the best possible time! :-)
Where can I sell my NFT?
Here are the top 3 NFT marketplaces for creators & collectors:
How to sell NFTs (without getting rekt)?
This is a big subject that deserves it’s own guide. But here are some key rules to keep in mind
Rule #1: Do not accept bot offers
Rule #2: Remember to calculate royalties & fees before listing (these royalties are different for every project and will impact your final payout)
Rule #3: Have an exit point in mind, don’t hesitate when selling. Profits are profits!
Rule #4: Sell into upward price movement. Once the price hits a peak, undercutting (panic sellers selling under the floor price) will begin to do its work. It will be hard to sell at this point.
Rule #5: Unless you have a rare NFT, don’t list at an unreasonable price, know that price moves slowly, all the sell orders before you need to be filled before yours sells!
Rule #5: Also don’t undercut the floor by too much, even if you need to sell fast! You’ll be hurting your potential profits and may start a race to the bottom if someone has a similar goal. Move the price down slowly and you might just maximize profits.
When to sell NFTs (without getting rekt)?
NFTs are not black and white. Some projects will see massive peaks near mint date because of FOMO and hype, and other projects will shine in the longer-run.
This is why fundamental analysis is a must! If the developers are solid, they will deliver a product that will only go up in value. If there is little development, there won’t be anything to support the price.
Again, the best strategy is to have an exit point in mind. Take profits when satisfied and don’t look back. For projects that you believe in to have huge goals, buy and never panic sell. Price fluctuations are natural, don’t let it shake you out of a moon bag!
How do I know what to buy?
There are no specific rules when deciding what to buy in the NFT world. The first thing you want to do is choose the NFTs that interest you. Everyone has a different taste. I may want to buy A, but you would hate buying A. You need to build up the skills to evaluate something for yourself. Therefore, first, think about what would excite you and suit your interest.
After you find the projects which excite you, do your investigation. Do a little research about the creator of the NFT project. Ask yourself questions that you want to learn about them, such as their credibility, social status, etc. Don’t forget about the community of the NFT project. You should have learned by now that community is the key for NFTs! Find an engaged and helpful community filled with positive people. Join their Discord servers, ask questions, observe, and join discussions.
Another thing while making decisions is that it is perfectly okay to listen to other people’s ideas and feedback or join discussions but always keep in mind that it is your decision. Therefore, make your own decision in the end based on your judgment so you don’t end up blaming anyone else! :)
P.S. You can refer to the “How Can I Find Good Nft Projects?” Question we answered earlier in the post.
Which website/platforms canI use to stay updated with upcoming projects?
Twitter is an important place for new NFT projects to share their work, without having to pay for any additional promotion. Twitter has a huge advantage in terms of organic reach, with people sharing posts right away. However this also means that posts will disappear quickly if they don’t get a lot of engagement.
Reddit is another good source to keep up with upcoming NFT projects. You can use /r/NFT/ extension to see the news on NFT.
OpenSea is the largest NFT marketplace. There are over 20 million listings on OpenSea, yet you still have a chance to encounter great projects which are upcoming! Use the filters to see new projects, NFT categories, chain, price range, and more.
Discord is an open-source chat app, primarily designed for video gaming communities. It is popular with gamers because it offers both text and voice communication. You can use Discord to find NFT gems. Discord is not only helpful for finding trading gems but also to find new friends in the crypto space. You can easily find people with similar interests and learn from them or they can learn from you!
What does listing and delisting an NFT mean?
Listing means that an NFT is available to trade on a certain platform. Delisting means the opposite.
What is an average minting price?
The costs of minting non-fungible tokens can vary a lot, from under $1 to over $1000. Common mint prices on Ethereum are 0.05–0.08. For Solana, you can expect to see a range of 0.5–2.
NFTs on the Ethereum blockchain cost a lot more since it is more expensive to use this network. Solana is a much more affordable network to mint and trade on. However, Ethereum has the largest share of the market with better platforms. Your budget will determine which blockchain you need to prioritize.
If the supply is at or around 10,000 — make sure that the price is not too high (i.e. >0.08 Etherium) this usually suggests that the developers are being greedy.
How is the minting price determined?
NFT creators determine their own prices. For a proper project, the proceeds from the sales must go to funding the development and marketing for the project. Therefore, the scale of the project also determines minting price.
What determines the floor price of a collection?
The collectors are the ones that determine the floor price. Floor price just means the cheapest listing for any given collection, usually for the most common NFTs. However, the floor price is also influenced by many other factors.
If the trade volume for a project is low, collectors may begin to lower the price in order to sell their NFTs. Also, if there are a lot of sell orders at a certain price, the floor price will have a hard time surpassing this barrier unless there is an extraordinary amount of volume.
Additionally, the mint price of the NFT will also influence the floor price — there may be exceptions. If an NFT costs very little to mint, the upside may be smaller since the risk for the buyers was relatively small. More expensive NFTs (with a good team, of course!) will likely have more upside.
What determines gas fees?
It is determined by the amount of traffic on the network and the computation power taken to execute a transaction. You are actually paying gas fees for the computer power that was needed for the creation of the NFT.
When are gas fees low?
The lowest Ethereum fees are between 1 and 3 am UTC. If you want to save some cash, perform your transactions either in the early morning (1am — 3am) or late at night (9pm-11pm).
What is the bull market?
A period of time in financial markets when the prices are rising continuously. The bull market is a period of relatively high stock prices and volatility in the worldwide financial markets. The opposite of a bull market is known as a bear market.
What is the bear market?
The bear market is a prolonged period of low stock prices.
Why do people sell their NFTs under mint price?
So many reasons for this. Losing interest or trust in the project, needing cash, intention to make a profit with the change of exchange rates. Or simply because they are amateur investors and don’t know what they’re doing. All cases happen all the time. :)
How can I list my NFT for free?
When you want to list your NFT, you need to pay a certain amount of gas fee if you are using the Ethereum blockchain. In the OpenSea marketplace, there is another option: Polygon.
You can sell your NFTs by paying very little gas fees if you use Polygon. This is not recommended since the demand for Ethereum backed NFTs is much higher than Polygon. There is a cost to doing business on the Ethereum blockchain. If the fees are too expensive for you, it is better to work your way up by focusing on cheaper networks like Solana or Avalanche.
Can someone copy my NFT?
Yes and no. Every NFT is unique and can be tracked on the blockchain, which means no one can copy it. A lot of people find the idea of owning something digital strange and feel like they don’t have control over their purchases. But with NFTs, there’s no need to worry about potential piracy — because every time you buy an NFT, it is recorded on the blockchain and becomes un-copyable! You can’t have the “actual” Mona Lisa, but you can have the replicas.
As we come across more FAQs or new information becomes available, we will keep updating this post.
Hope you found answers to your questions!