NFT 101: The Ultimate Guide
You’ve probably heard some buzz regarding NFTs — specifically, how they might be “the next big thing.”
Maybe you’ve heard rumors about people becoming overnight millionaires from buying and selling silly cartoon pictures.
You might even be curious about getting involved with NFTs yourself and worry you might miss out if you wait too long to learn about them.
The problem is that NFTs are like their own entire universe, full of languages of unique jargon and technical terms. To complete beginners, it can be hard to break through and understand the world of NFTs.
Thankfully, though, it’s probably a lot easier to understand NFTs than it may initially appear.
In this article, we’ll give you a basic NFTs 101 lesson — an introductory guide to understanding the hype behind NFTs.
What is an NFT?
NFT stands for non-fungible token.
“Fungible” means that a particular item is interchangeable with any other.
For example, physical money is fungible because you can interchange any penny for another penny, as both serve the same purpose.
In contrast, a non-fungible item is one of a kind. You can’t just replace it with something else.
Think of Pokémon trading cards. Even though they’re both trading cards and from the same set, a Squirtle card is different from a Charizard card. They look different, and one might be rarer than the other. Even among two cards of the same type, one might be in mint condition while the other has scuffs and scratches. So, each card is truly a one-of-a-kind item.
In the world of cryptocurrency, Bitcoin and Ethereum are fungible. You can trade one Bitcoin for another, and they’re essentially the same thing.
An NFT, on the other hand, is non-fungible. Although NFTs use the same blockchain technology as cryptocurrencies, each token is unique.
Anyone can create an NFT, which can then be traded or sold to someone else.
You can create an NFT that represents a photo, a video, a song, an item in a video game, or all kinds of other things. NFTs can even be associated with real-world physical assets.
Having an NFT is like having a certificate of authenticity that proves you’re the owner of something — although the legal rights conferred by owning an NFT are flimsy and still developing.
Owning an NFT may or may not entitle you to copyright, intellectual property rights, or any other rights. A clear example of this is being able to take screenshots of art piece NFTs or simply right-clicking and saving them to their computer.
Although the concept behind NFTs is fairly simple once you understand it, the technology has huge implications. NFTs are still in their infancy, and their most important applications are likely still yet to come.
Already today, it’s estimated that about 23% of millennials in the US collect NFTs.
Why have NFTs become so popular?
The current NFT market is worth about $3 billion, and that number is expected to reach $13.6 billion by 2027.
But what makes NFTs so popular? Why are people willing to hand over thousands of dollars for one, in some cases?
The reasons behind people wanting to own NFTs are just as diverse as the various applications that NFTs can have.
Investment and speculation
Some people look at NFTs as purely speculative investments. They see that NFTs have risen in price in the past, and they try to buy into new NFT projects early enough to flip them for a profit.
A sense of community
Other people enjoy NFTs because they can create a sense of community. If you see someone on Twitter whose profile picture is from the same NFT project as yours, you get an instant sense of camaraderie there.
Certain NFTs provide exclusive access to Discord groups and other communities for owners. And some NFT projects even hold in-person events that only holders of their NFTs can attend.
Something in the human psyche seems to really enjoy collecting things. Some people collect stamps. Others collect Beanie Babies or comic books.
NFTs are yet another opportunity for people to indulge in their desire to collect things.
Lots of people collect NFTs not because they hope to get rich but because they like the digital artwork or what the project represents.
Empowering artists and creators
NFTs allow musicians and artists to take control of not only their art but also the entire pipeline involved in bringing it to market.
An artist can use NFTs to release their work directly to their fans without the need for publishers or agents — who often charge a hefty fee for their services.
Actual utility and value
While many early NFTs centered around the artwork side of things, NFTs are emerging today that offer more to owners than just a profile picture.
For example, the Stack NFT provides real utility in the form of a lifetime license to Stack PRO.
How are NFT prices determined?
As with most items that you can buy, an NFT is worth whatever someone’s willing to pay for it.
Most NFTs on the Ethereum blockchain start at a minimum of $20–30 since it currently costs about that much in Ethereum gas fees to mint and release a new NFT. So it wouldn’t make sense to sell for less than that because you’d be selling at a loss.
Other blockchains, like Solana, Avalanche, and Cardano, allow users to mint NFTs for smaller amounts — even, in some cases, just a few cents.
When it comes to art NFTs, like Bored Ape Yacht Club and Cryptopunks, their prices are almost entirely driven by hype. There’s a limited supply and a lot of demand for the most popular NFTs.
For example, there are only 10,000 BAYC NFTs, but millions of people want them. So naturally, their price continues to be driven up over time.
NFTs with more utility may have a more tangible price. For example, one NFT might provide you with lifetime access to a particular service that would normally cost $50 per year.
If someone plans to use that service for years or decades to come, they’ll likely be willing to pay several times what the regular annual subscription would cost.
Are NFTs here to stay?
Whenever the NFT market or cryptocurrency market as a whole experiences a downturn, you’ll inevitably see articles claiming that NFTs are dead.
However, we don’t think this will be the case.
With NFTs, as with any new technology, you’re going to see drastic price fluctuations. NFTs tend to go through periods in which they receive lots of hype and become overvalued, followed by cool-off periods in which their prices retract significantly.
The overall trend for NFTs seems to be upward, though. Even after prices retract, the total value of the NFT market continues to hit new highs year after year. And more and more NFTs are being created. So it doesn’t seem like NFTs are going anywhere any time soon.
However, there are definitely some hurdles that NFTs will have to overcome to gain mainstream acceptance and stick around long-term.
Minting NFTs — and even just buying or selling them on the aftermarket — can require a lot of electricity.
An average NFT transaction on the Ethereum blockchain currently has a carbon footprint of around 48 kilograms of CO2. That’s the equivalent of an average car using about half a tank of gasoline.
While that sounds alarming and would certainly be unsustainable long-term, the good news is that solutions are already in the works.
Most of the energy used by the Bitcoin and Ethereum blockchains results from the fact that these blockchains rely on a proof-of-work model to keep things running. This means using rooms full of graphics cards solving complex mathematical problems to verify blocks, which takes a ton of energy.
Thankfully, it looks like Ethereum will be moving to a proof-of-stake model in the near future. This will drastically reduce the energy input needed to keep the blockchain running and process everyday transactions.
Potential for scams
The NFT market is kind of like the Wild West in some ways. When disruptive new technology like NFTs emerges, it takes a while for laws and other safeguards to develop to protect people.
Trading NFTs takes a certain level of technological knowledge and sophistication. Beginners who are just getting into NFTs may not know how to safely mint or purchase one.
Common NFT scams include counterfeits and phishing scams.
You could also classify a pump-and-dump scheme as a type of scam in the NFT space. This is when insiders pump up the price of an NFT project, and the last purchaser gets left with something worthless that nobody wants to buy anymore.
The last type of NFT scams we’ll discuss are referred to as rug pulls.
A rug pull occurs when an NFT project comes along promising all kinds of new, revolutionary features and benefits. Then, once this hype is used to sell out their initial mint of NFTs, the project owners disappear with all the money and stop working on the project.
NFT prices going up or down 30% in a day is enough to scare away many would-be adopters.
This is normal for a new type of digital asset with a lot of hype surrounding it. However, NFT prices will need to stabilize and flatten out if people are going to feel comfortable buying them long-term.
For now, we recommend only buying NFTs that you’ll feel comfortable holding for at least a few years.
How to buy NFTs step by step
Getting an NFT for yourself can seem intimidating if you’ve never done it before. There are certainly points in the process where, if you enter a wallet address wrong, you could lose your crypto.
Overall, however, it’s a fairly straightforward process once you’re familiar with it.
In this section, we’ll explain step by step how to buy an NFT for yourself.
Step 1 - Get a crypto wallet
You’ll need somewhere to store cryptocurrency to purchase an NFT, and your NFT will also be stored in your digital wallet once you buy it.
Some reputable wallets include Metamask, Exodus, and Trust Wallet.
You can install a crypto wallet onto your phone or as a Chrome extension on your computer’s internet browser.
If you’re going to be storing large dollar values’ worth of NFTs or crypto, you may want to consider a physical hardware wallet, like a Ledger or Trezor.
Step 2 - Buy crypto
Most NFTs that currently exist are ERC-20 tokens on the Ethereum blockchain. So, to buy them, you’ll need Ethereum. However, double-check to ensure that the NFT you want isn’t actually on some other blockchain.
If you’ve never bought cryptocurrency before, you’ll need to sign up on a reputable exchange, like Coinbase, Binance, or Kraken. If you live outside of the US, your country might offer platforms that are a better option.
Before you buy your crypto, you’ll need to figure out how much your NFT will cost so you’ll know how much to buy.
Also, be sure to factor in the added gas fees associated with minting or trading NFTs. Furthermore, be aware that some platforms have a one-time setup fee when you create a new account. When you’re getting started, we recommend adding at least an extra $100 worth of ETH to your wallet. That way, you’ll be sure you can cover any associated fees.
Step 3 - Pick your NFT marketplace
There are several large NFT marketplaces available.
Opensea is the largest, and the vast majority of already-minted NFTs are listed there. However, you might also want to consider other marketplaces, like Rarible or the Binance NFT Marketplace.
Note: If you’re buying a brand new NFT at launch, you’ll likely need to buy and mint it directly from the NFT project’s official website instead of using a secondary market.
Step 4 - Buy your NFT
Once you have your cryptocurrency in a wallet and it’s linked to an NFT platform, the hard work is done. Now it’s just a matter of finding the NFT you want to buy and clicking the “buy” button.
When you go to buy your NFT, it’ll likely bring up Metamask or your wallet of choice, where you’ll need to confirm that you’re okay with the price and complete the transaction.
It may take up to five minutes for the transaction to go through before your NFT shows up in your wallet.
That’s the basics of NFTs covered
NFTs are only going to grow in popularity and utility in the coming years. So by learning about them now, you’ve put yourself in a good position for the future.
At their core, NFTs are just non-fungible tokens. They’re unique and can be independently identified, unlike generic Bitcoin or Ethereum, which are fully interchangeable.
The value of NFTs comes from the numerous, unique ways that they can be used. Most people think of them as just digital art, but they’re so much more. They can be used in finance, software, gaming, real estate, and numerous other industries.
If you’re interested in getting started with NFTs, consider choosing Stack and get lifetime access to Stack PRO.