NFT: what non-fungible tokens are and how they work | Tips and Tricks

The photo below, or rather the one inside the frame, portrays the digital work “Everydays – The First 5000 Days”Of the artist Beeple, stage name of Mike Winkelmann. It represents a college of images created by Beeple for his personal series Everydays, started way back in 2007. You may be wondering now what all this has to do with NFT, which you became aware of after watching a video on YouTube or a discussion on a forum.

Well, you have to know that a NFT depicting this work of art was sold in 2021 from Christie’s auction house for 63.9 million dollars. This is the highest price ever paid for an NFT.

Without wasting any more time, if all this has piqued your interest, below you will find a quick index with all the topics covered in our in-depth analysis on NFTs.

What are NFTs

We mentioned Beeple’s artwork not by chance. In fact, when we talk about NFT, we often resort to the use of paintings to explain their meaning “to non-experts“. By definition, NFTs are non-fungible tokens (Non-Fungible Token in English). On the one hand the word token indicates the presence of a whole series of digital information linked to each file. On the other side, the non-fungible adjective, indicates their specific individuality.

But let’s go back to the example of the picture to better clarify the concept. A work of art is a non-fungible asset since it is a single piece, that is, it cannot be exchanged with the same painting. In fact, however close it may get to us, a copy will never be like the original.

This is why non-fungible tokens (NFT) are different from fungible tokens, which for convenience we will compare to classic currencies and cryptocurrencies. In fact, if you lend 5 euros to a friend, when he returns it to you you will have the same money in your wallet as you had before. The same goes for cryptocurrencies: if you exchange a Bitcoin for another Bitcoin, your assets remain identical, nothing changes.

In summary, NFTs are digital information that gives a file its individuality and peculiarity. If we are talking about a digital work of art, an NFT represents the author’s signature. The latter allows not only to recognize the authenticity of the work, but also to sell the property, just as happened to Beeple’s painting.

How NFTs Work

NFTs are based on the blockchain (find more information at this link), a sort of huge shared digital register (accessible by anyone but not editable). To be more precise, for the creation of unique tokens, the Ethereum it is the most used. Once created, the token is transferred to a wallet, after which it can be freely exchanged. The exchange – it is important to underline it – takes place through smart contracts, or computer protocols that facilitate, verify, or enforce, the negotiation or execution of a contract or manually.

As you can see, it is a simple operation, which does not require who knows what ingenuity to be understood, it is only necessary to initially understand the meaning of these new terms (token, blackchain, wallet, smart contract, etc).

The concept of ownership

Remember we started our guide with the sale of the Beeple painting for nearly $ 64 million? Here, when we talk about NFT we must always remember that they are equivalent to real asset, that is a property that has a value that can be quantified through currency, that can be exchanged by buying and selling and that can be converted into cash, that is, they can be bought or sold.

However, there is a substantial difference compared to most of the goods that can be purchased today. Let’s say you decide to buy an electric bike from Decathlon: you show up in the shop, inform the sales clerk about your willingness to buy, buy the bike and go home with her. Then you start using it, in the city, in the countryside, wherever you want, maybe you lend it to your friend, have it serviced, etc. Until, one day, the moment of separation arrives, either because it is too deteriorated or because the new model has just come out.

Here, today this concept can be replicated 99 times out of 100 to any other shopping experience. NFTs, on the other hand, work differently. Think about who bought the non-fungible token from the first tweet in history. Okay, it’s his, but the concept of ownership changes radically. How does he own it? NFTs, by their very nature, represent not only unique works, but also digital and (above all) accessible to all.

The first tweet that appeared on the microblogging platform can and will still be read by everyone, not just those who bought it. For this reason, classical economics analysts argue that, after all, NFTs only offer bragging rights (“bragging rights“).

Note: first we made the example of the electric bicycle, but we could choose any other product, such as a smartphone or a computer.

How NFTs are created

The steps to create (and sell) NFTs are basically three:

1. Setting up an Ethereum Wallet:
2. Purchase of a small amount of Ethereum;
3. Link the newly created wallet to a marketplace that sells non-fungible tokens.

First of all, it is essential to set up a digital wallet to store the Ethereum cryptocurrency. This same wallet will then be connected to the marketplace you will choose to sell the NFTs.

The second step is to purchase a small amount of Ethereum, required by the marketplace to sell the first NFT, or rather, to upload the digital file. Finally, all that remains is to choose the sales platform and then connect the wallet set previously.

To date, the reference marketplace is OpenSea, while a more than valid alternative is Rarible.

As for the opening of the digital wallet, the app recommended by the same OpenSea portal is Meta Mask. The application is available for both Android, iOS devices and as an extension for Chrome, Edge, Firefox and Brave browsers (download section at this link).

How to buy NFTs

The procedure for purchasing an NFT is not that different from the one seen for its creation. Even in this case, in fact, it is indispensable set up a wallet able to interact with the blockchain used to create the NFT token. Since in most cases it is the Ethereum blockchain, you will need to have a digital wallet that is easy to use and capable of supporting the network in question (Ethereum in fact).

The next step is thepurchase of the cryptocurrency Ethereum, in sufficient quantity to complete the purchase of the unique token you wish to purchase. Remember that you can pay with either a credit or debit card.

Once this is done, go ahead with the creating a new account on the marketplace where you want to buy a particular NFT. The only requirement is connect the Ethereum wallet created previously.

Now you just have to browse the marketplace and look for the non-fungible token you want to become the owner of. If you are atto stay re-launch the last offer, otherwise select the “Buy now” per buy it immediately.

At the time of purchase you will sign two transactions: the first to encapsulate your Ether in the ERC-20 version of the cryptocurrency (wETH), the second to pay the seller. To the sum required to transfer the ownership of the NFT token, you will then have to add the transaction costs, quantifiable in 0.022 Ether, about 50 dollars at the current exchange rate.

How to invest in NFTs: the best platforms

The potential of unique tokens means that they represent a real form of investment. The main platform for trading an NFT is Open Sea, at present the largest marketplace on the net.

If you are an artist and want to have visibility, we suggest you turn your attention to Nifty Gateway. It is a platform that selects only the most talented people, that is, those who offer real value with their digital work.

Other platforms for investing in NFTs are:

• NBA Top Shot: site that collects the historical moments of American basketball;
• Valuables: portal that offers registered users the possibility to purchase tweets;
• CryptoKitties: platform that hosts the so-called cryptographic kittens, from which the NFT-mania began in 2017.

What NFTs contain

After all this information, you are probably wondering what a specific NFT contains. Do you want a trivial answer? Very little, or rather, less than you can imagine. All that is inside a single token are some properties and thehash del file.

Take as an example the new owner of Beeple’s work, which was sold at auction for over $ 60 million. After his crazy expense, what he remains is a certificate within the Ethereum blockchain with the unique identifier of the stipulated contract. In addition, this certificate contains the properties of the token and the hash of the file hosting the Beeple artist image.

The risks

And here we return to the aforementioned “bragging rights“, Which can be translated into Italian as”bragging rights“. In fact, if we focus on what are the rights of the purchaser of an NFT, on balance it can be said that this person has a unique token that refers to a digital work. Attention: in most cases the buyer’s rights are only on the purchased token, not on the work.

What does it mean? Nothing prevents Beeple – yes, still him – from reselling the same work “Everydays: the first 5000 days”By modifying a single pixel, so as to change the hash as well. Or, the artist can decide at any time to propose the same painting on a different platform, without the first buyer being able to protest in any way.

This scenario, even if it may seem surreal at first, is legitimized by the regulation of the platforms that act as intermediaries between the creator of the digital work and the purchaser of the NFT. In this regard, the Valuables website clarifies how the purchase of an NFT does not guarantee the owner of the token any rights to the sold work, in this specific case a tweet.

Then there is another important issue to note. Only some NFTs contain le contractual conditions of the sale. In most cases, in fact, they are inserted only on the platform that acts as an intermediary between the buyer and the seller. And this is a problem to be aware of, because the conditions could be canceled if the website in question goes out of business.

Our guide to NFT ends here. What idea have you got? Do you think that the unique token market can be a viable path for you.

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