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Pretty much everything you will want or need to know about NFT's...
Back
Pretty much everything you will want or need to know about NFT's...
Written by Vee Tardrew on 04 July 2021
Everyone in the cryptocurrency space is talking about them - NFTs. But what exactly is an NFT, and why should you care? We got you covered, answering 6 questions about non-fungible tokens!
Before we even get started - if you’re not familiar with the concept of blockchain technology - I’d recommend hopping over to read up on that first so that the following makes sense.
NFT is the acronym for a ‘non-fungible token’. It is a technology that uses blockchain to create tokens that represent either purely digital items or relate to a real-life, physical object.
Helpful? Yeah, I thought not. So let’s pause and break that down for a moment by looking at some dictionary definitions.
Noun - a thing serving as a visible or tangible representation of a fact, quality, feeling, etc.
Similar: symbol, representation, proof
Adjective - replaceable by another identical item; mutually interchangeable.
By that definition, ‘non-fungible’ means that the token is unique and not interchangeable with another.
Put together, we can explain an NFT to be a record of a unique asset. Because the asset connects to a blockchain token, trading or transfer of ownership is simple. The provenance of an item is auditable and undisputable.
An NFT essentially provides the owner with exclusive property rights.
The most popular assets for NFTs are music, artwork (memes and GIFs too!), videos and collectable items like trading cards, but the options are practically endless. If you consider future possibilities, we imagine seeing items as common as event tickets or coupons, or as exclusive as a 1/1 SE30 Diablo Homage Huracan Performante.
Let’s dive a little deeper into some examples, shall we?
Imagine you’re in the market for an asset such as a one-off supercar. In ‘real-life’, you’d be looking at the car’s logbook and other documents to prove its exclusivity, ownership transfers and probably the maintenance records too.
In this example, the NFT could hold all this information (and more) and would represent a tangible, physical asset - being the supercar. A transaction of the NFT would represent the transfer of ownership from one person to the next. Instead of paper-based records that can easily be fabricated or amended, the blockchain record is immutable and a ‘universal source of truth’.
Let’s say you’re a collector of trading cards of - insert anything you’re most passionate about here - and there’s been a release of only 25 cards in the whole world of this special collection. The card creators have been smart enough to create them using NFTs to show and prove the limited availability by minting 25 tokens, each representing one of the trading cards.
These could either be digital cards or physical items, but the important aspect is that - once again - as they’re available on the blockchain, it’s easy to establish that you own, say, 1/25. You’d also then be able to sell on your NFT (with the trading card), and that would be logged as a record of transfer.
In this example, let’s imagine your favourite artist is about to drop a new album and follow it up with a world tour. Being tech-savvy, the artist offers a limited number of albums as an NFT, embedding extra rights and benefits. So, while the album may not be unique, and anyone can listen to the songs, your NFT ownership offers you, for example, an exclusive track and perhaps a VIP ticket to the concert with a backstage pass. Any additional aspects can be added to the NFT, which is where we can imagine loyalty programmes, coupons, event tickets and similar to find tremendous value in the technology.
These would be able to be applied using a characteristic of blockchain called smart contracts. Essentially it simply means that you can set specific parameters, and when met, an action occurs. Another example would be when an artist uses a smart contract NFT to pays royalties when the NFT is sold.
As I mentioned earlier - the options are practically endless - and we look forward to seeing an explosion of innovation in this space.
The process of creating an NFT is called ‘minting’, similar to the term used to produce currency coins. NFTs are most commonly created on the Ethereum network at this stage, done via sites like Nifty or OpenSea.
BUT here’s our two words of caution about Ethereum-based NFTs … gas fees!
Ethereum is notorious for high gas fees (essentially what they charge to process and confirm transactions) and a slow network when busy. An OpenSea blog post on creating NFTs explains:
“The gas fee required for setting yourself up for trading fluctuates between $50 – $250 due to network congestion. We wish we could lower this fee, but we’re powerless until the network is scaled effectively. - Source”
The combination of such broad fluctuations in gas fees, and a highly unpredictable, unreliable network is a core reason we fully support Bitcoin Satoshi Vision (BSV) as the original Bitcoin, delivering on the vision of the 2008 whitepaper. This means unlimited scalability and being able to use BSV as electronic cash. As such, the fee for a BSV transaction is well below a penny (average of $0.0021 at the moment)!
Several businesses are enabling NFT minting on BSV, including the likes of RelayX, Tokenized and soon, on our very own Gravity!
Stop press!! At the recent CoinGeek conference in Zurich, Switzerland, our CEO, Michael Hudson, announced our new partnership with Vaionex that will allow us to offer NFT minting services and a market exchange on Gravity in the near future. This is a project in the making, so be sure to follow us on Twitter or Instagram for updates.
As we now know, NFTs represent an item or asset, and can be anything from collectable trading cars, art, videos, music or even a supercar or property! Buying any of these items can be for practical, financial or sentimental reasons, but adding in the NFT element elevates the experience, due to the unique property rights they provide.
Here are just a few reasons why NFTs could be considered valuable:
Any investment will come with some level of risk. And NFTs are no exception. However, a few ground rules will help you to minimise your risk, and make sure you’re making a sensible, informed investment.
Where collectables are concerned, it’s crucial to know that you’re buying an official piece of merchandise and that it’s a genuine offering. Because of the nature of blockchain technology, NFTs offer a unique way to do this, as the ledger is public and can’t be fraudulently ‘fixed’ or counterfeited.
A little due diligence will go a long way in determining whether you’re buying an NFT from a reputable source or not. Research the company, individual and check reviews before you part with even a penny!
As mentioned above, fees for transactions on some blockchains - I’m looking at you, Ethereum - are exorbitant and can, in some cases, inflate the transaction from a monetary perspective. The price of the fees to buy the NFT shouldn’t outweigh the asset’s current value or diminish its potential future value either. Again, this is a core reason we support BitcoinSV, as fees are negligible and don’t impact the price of the NFT.
As NFTs are linked to cryptocurrency, you’ll need to have a relatively good understanding of wallets and how to store cryptocurrency safely and securely.
If you bought an original artwork from a famous artist worth your retirement, it’s unlikely you’d leave it in the gallery. It’s more likely you’d have the original stored in a safe of sorts. In the case of NFTs, the exchange where you bought from would be considered the gallery, and a hardware wallet would be regarded as your safe.
Once purchased, it would be prudent to take assets off the exchange and keep them secure in a hardware wallet with the necessary security measures in place.
Most definitely not financial advice, but rather a friendly tip: You may want to consider adding details of your cryptocurrency or NFT holdings to your will, and make sure that any beneficiaries know where and how to access them should anything happen to you. It’s never a nice thought, but some preparation on this front would go a long way to avoid valuable assets being ‘lost’.
All-in-all, NFTs are an exciting development to come to the cryptocurrency space, and it finally feels like the catalyst to break into mainstream adoption. And as a company (and a bunch of slightly obsessive collectable nerds when it comes to cool sh*t), we’re looking forward to seeing what comes to market as a result.
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