An NFT or “niftie” is a token that is associated with a specific physical or digital asset that has a unique form and value. In contrast, cryptocurrencies such as BTC, ETH or other altcoins are interchangeable with others of the same type (1 BTC = any other BTC).
NFTs can be linked to physical assets, e.g., a diamond, a piece of physical, or a digital asset like an online concert ticket or digital art.
NFTs can be tracked on the Blockchain as they are transferred or sold to other people. In addition, NFTs can be programmed so that when they are sold on the secondary market, a portion of the proceeds can automatically be sent to the creator, thus creating a new motivational value chain for the creator economy.
NFT functionality is still in its infancy, but has the potential to change how assets are traded.
You should protect the NFTs you own by securely backing up the wallet that is holding the keys to your NFTs. It is especially important for creators, who might be associated with myriads of NFTs they authored, and thus all proof of ownership revolves around protecting creator’s keys.
What is an NFT?
NFTs, or Non-Fungible Tokens, also known as “nifties”, are digital assets tracked on a blockchain like any other token. The term “non-fungible” means that each token is unique. In practical terms, an NFT and its trading history can be tracked on the blockchain, and unlike Bitcoin — where each BTC is valued the same as any other BTC — NFTs can have different values depending on their attributes and on their unique market demand.
NFTs come in all shapes and sizes, but they have two key linked properties:
- They are linked to actual assets — physical or digital. Effectively, NFTs express the immutable right of possession, and this right is cryptographically fixed in a blockchain as an advanced digital version of a ‘certificate of ownership’.
- Tracked on the blockchain so that ownership history is always verifiable. This means that not only digital items can be tracked, but physical items also can also be tokenized and represented as an NFT.
This opens a wide range of use cases for NFTs. Beyond the hype:
Art — both digital and physical art can be tokenized, traded, and tracked via the Blockchain. In March 2021, a JPG image produced by digital artist “Beeple” fetched $69 million in an auction run by Christie’s. Other high-profile artists, musicians, and creators are creating new art, as well as tokenizing their historical catalogs.
Plane Tickets — in fact, tickets of all kinds can be issued, tracked, transferred, or even bought and sold, possibly with a percentage of the ticket price going back to the original issuers.
Baseball cards and other collectibles, including limited edition items, can be registered, traded and collected.
Real-world physical assets like diamonds or real estate can also be tokenized, and then traded. As long as there is clear provenance (a known source, or history of ownership) for the physical items, once registered as an NFT, they can easily be traded on a global market.
Looking towards the future of NFTs, there are incredible possibilities for how Smart Contracts will increase the utility of NFTs even more by supplementing them with real-world, dynamic data. Consider the possibilities for NFTs beyond serving as a record of the chain of custody and ownership: GPS location data can indicate the physical location of an NFT-tokenized object; real-time or virtual sports team game outcomes can offer additional token “rewards” to NFT owners; economic data could be used to automatically modify interest rates used for NFT-tokenized mortgage agreements. A dynamic NFT becomes a trackable asset that can be used to participate in various contractual relationships besides just collectible trading.
How are NFTs different from Cryptocurrency?
Most NFTs live on the Ethereum blockchain, although some other blockchains offer NFT support. Unlike cryptocurrency coins like Ether, which are interchangeable with other coins of the same type (fungible), NFTs are unique — like snowflakes — so what is being tracked on the blockchain for any given NFT captures its unique properties, as well as its trading history.
How do I create an NFT?
To create an NFT, first, choose a blockchain network — Ethereum has the widest range of NFTs today, but other blockchains that support NFTs include Finance Smart Chain, Flow by Dapper Labs, Tron, Polkadot, Tezos, Cosmos, and WAX, to name a few. Your choice of NFT blockchain network will determine which exchanges and which crypto wallets can interoperate with your NFT.
If you choose to use Ethereum for your NFT, you will need a crypto wallet that supports the ERC-721 standard, such as MetaMask, Trust Wallet, Coinbase Wallet, or Rainbow. In addition, you will need some funds in Ether (ETH). All Ethereum transactions will cost a transaction processing or “gas” fee.
The platforms that enable you to create NFTs include OpenSea, Rarible, and Mintable. To use these NFT platforms, connect your crypto wallet to the platform, click the “Create” button, and upload your digital art, or other NFT formats add contract terms and details, once your NFT is signed with your wallet, your NFT is ready to go and can be listed.
How do I buy an NFT?
There are lots of sources to buy NFTs, and more are coming online every day. The most popular platforms include:
Livestream of the first-ever authenticated Banksy art burning.
How do I secure, protect and backup my NFTs?
NFTs are registered on the blockchain and linked to your wallet address, so backing up your claim to a purchased NFT includes the same process as backing up a wallet’s seed phrase.
If you own the actual digital art source file itself (regardless of its format), you can also back this up in a Digital Vault, ensuring that your copy of the art is also protected from accidental deletion or loss. Especially important for NFT art that may pass through many hands e.g. auction houses, and also for insurance purposes.
Read on for step by step instructions:
Backing Up from an NFT Platform
Once a creator or developer has created an asset it needs to be “minted” on an NFT platform, this is the process of registering it on the blockchain and activating the smart contract that governs the NFT e.g. what percentage of future sales are credited back to the creator. Once minted it can be made available for purchase. Buyers will purchase directly from the NFT platform using their crypto wallet.
NFT Platforms support wallets in different ways, some wallets can display NFT records, others cannot — it’s still early days — in this example, we will use Opensea.io a leading NFT platform, and the Metamask mobile wallet.
With NFTs (as with cryptocurrency) it is in fact the wallet seed phrase that becomes the most important item to back up and secure.
Step 1: Reveal the seed phrase in the wallet so that it can be backed up.
Backing up your Crypto Wallet
Once you have access to the seed phrase you can back it up in many different ways — see our articles on MetaMask as well as seed phrase back up to learn more about the options available to you.
Note: backing up a seed phrase to paper is not recommended — read this article to understand why other options will be more secure and more robust.
The following steps for owners of NFTs, as well as creators, utilize a Digital Vault as the mechanism to store seed phrases as well as the original asset.
Owners: Using a Digital Vault to back up NFTs
A Digital Vault has the advantage of being focused on a singular purpose — that of securely storing digital assets for long term use. While there are many types of digital vaults available for cryptocurrency storage, for NFTs it is better to use something that is independent of any one blockchain and can store any type of digital asset.
Here we will use Vault12 to demonstrate how an NFT can be backed up and how digital assets can also be stored in a Vault.
Step 1: Create and configure a Digital Vault
Step 2: Add your NFT Wallet Seed phrase — this can be done in multiple ways — (a) Enter a Note in the format of a seed phrase or (b) you can enter a Note in free format text — see steps below:
Open your Vault and click on “Add an Asset”.
Unlocking NFT assets from a Digital Vault
When you need to access the seed phrase associated with your NFT wallet, select the asset in your Vault and press unlock.
Creators: Using a Digital Vault to back up NFTs and original artwork
For creators, in addition to backing up wallets that contain their NFT collections, there is also the option to back up the original artwork itself — this could be an image, video or some other file format.
To add artwork to your Vault, simply take the “Add Asset” option in your Vault.
Unlock and access Creator assets
To gain access to your asset or artwork, select the asset in your Vault and take the unlock option.
The NFT market is new and evolving, there have already been hacking attempts on two platforms where owners and creators had their accounts drained. Please make sure that you are using well known and trusted wallets to associate with your collection of NFTs. Follow the guidelines laid out to make sure you are able to robustly secure and back up your NFTs — where you bought them or if you created them.
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Originally published at https://vault12.com on March 29, 2021.
