What is an NFT?

NFT stands for Non-Fungible Token.

A more in-depth explanation

The previous explanation won't bring you far, I know. But let's take a more in-depth look at what an NFT is.

An NFT is a digital asset. It is a wrapper around another piece of digital information. This digital information can be one of the following:

• A video
• An image
• A piece of music
• etc.

This is a physical card you can exchange and trade. But an NFT takes this to the digital level. Instead of a physical copy, you gain ownership of the data making up the card on the blockchain. This digital card is stored in your blockchain account. Everyone can view this card, but only you can decide whether to transfer it to someone else. And an NFT is usually decentralized. No central entity owns the data. Everything is hosted on a decentralized network that everyone owns.

The Difference between NFTs and Cryptocurrencies

A cryptocurrency like Bitcoin (BTC) is interchangeable. It doesn't matter which Bitcoin you have in your wallet; it's only a number. You can exchange one BTC for one BTC, and you would have neither gained nor lost anything.

NFTs are different. An NFT is unique. When you exchange one NFT for another one, even if they have the same piece of media attached to them, you still get another NFT. This is what makes them non-fungible.

How do NFTs work?

NFTs are implemented as so-called smart contracts. Those contracts are programs running on the blockchain, and they contain the whole logic of an NFT.

An NFT usually consists of the following parts:

• A name
• A symbol
• A URI (Uniform Resource Identifier) pointing to the media wrapped by the NFT
• Metadata (like attributes)
• Royalties

The actual media the URI of an NFT points to is usually a URL on the internet or a URL pointing to some form of decentralized file storage (like the Interplanetary File System; imagine BitTorrent but more advanced and modern). The metadata can, e.g., contain the attributes of your Pokémon (when the NFT models a trading card).

To get back to the example with the Pokémon card from above, look at the following image.

This image shows you one possible way of structuring your Pokémon card as an NFT. There are, of course, other ways, but it should give you a general idea.

An important thing to realize is that an NFT does not protect any data from being viewed or copied. Everyone can view your Charizard card and see its attributes and media. But no one can take that NFT away from you. The smart contract contains logic that ensures that only you, as the owner, can transfer its ownership.

Royalties are a way for NFT creators to profit from the market created around their tokens. Whenever someone resells one of their tokens, the original creator can receive a certain percentage of a sale as royalties. This can create a recurring revenue stream, especially when a collection is traded frequently.

What can NFTs be used for?

NFTs have a wide array of possible applications. There are a few very well-known use cases already, some that are slowly gaining traction, and probably quite a few we haven't even discovered yet.

One of the most prominent use cases is to wrap digital art. Photographers, artists, and designers can create NFTs of their work and thus create a sellable piece on the internet.

Or imagine a festival ticket but in a digital form. When you buy it, it's transferred to your crypto wallet, and upon entry, you show proof of your ownership on your smartphone. You can grant access to anything with NFTs. A SaaS subscription, festival tickets, tickets for concerts or the opera, and many more. They can also be used as access tokens.

Another promising application is game assets. If you ever bought a skin for your favorite game, you already own a piece of digital data. Your favorite game company could issue NFTs for your items and in-game store purchases in the future. In the game itself, not a lot changes, but if done correctly, this could even enable you to resell your items to other players.

The NFT Market

Transferring tokens is one of their core functionalities. This is why NFTs are actively traded on the internet; both on centralized and decentralized exchanges. Prices range from a few dollars to a few hundred thousand or even millions. But those prices largely depend on supply, demand, utility, and much more.

Platforms like Binance NFT or OpenSea attract many different people. Collectors look for the next great addition to their digital collection, traders try to make money by buying and selling NFTs actively, and some people just try to get their hands on utility NFTs. The latter are tokens that come with some additional form of functionality. They can be traded, as well, and some of them grant access to exclusive clubs on the internet or even guarantee a meeting and some time with celebrities.

How to create NFTs

Talking about NFTs on a meta-level creates fundamental knowledge, but there is nothing better than actually getting your hands dirty. This is why the following paragraphs take a look at how you can create NFTs yourself.

Using existing platforms

Existing platforms make it very easy to start your NFT collection. Their UI usually guides you through the whole process, from start to minting (this is the process of creating the NFT on the blockchain and dropping it in your account).

Some of the major and most popular platforms include:

1. OpenSea
2. Rarible
3. SuperRare
4. Mintable
5. Binance NFT

The only thing you need to get started is a browser wallet like MetaMask. Navigate to one of the platforms above, log in using your wallet, and create your first NFT.

Building your own

If none of the existing platforms offers the features you look for, you have to implement your own NFT. The process is not trivial and requires a lot of technical knowledge. Depending on your idea and its potential, though, it might be worth looking for a software engineer to partner with. This engineer can implement a custom NFT version for you that does exactly what you look for. As long as this implementation satisfies some standards, it can still be picked up by all popular NFT marketplaces. This enables you to customize your tokens and trade them on OpenSea, Rarible, or else.

If you are technically versed yourself and aim for Ethereum-like blockchains, take a look at Open Zeppelin Contracts, an open-source library containing implementations for all Ethereum token standards. You can use them as a base and derive from them to implement your custom features. The blockchain universe is pretty open. Man things are open source. Even if you don't aim for Ethereum, there might already be a library with all standards implemented that you can use.

NFTs for Creators

We have looked at the foundations until now, but we haven't taken a look at some real-life applications or possible applications for creators yet. The following paragraphs give you a small selection of already-existing projects as a showcase before we look at how you could use the tokens yourself.

Showcase of popular applications

VeeFriends

VeeFriends, released in 2021, is Gary Vaynerchuck's answer to the current NFT trend. It's a collection of 10255 NFTs that all come with various degrees of utility. Together with the tokens themselves, there is also a platform and a Discord server attached.

You can see an example of one VeeFriend below.

This is Workout Wolf. The image was drawn by Gary himself, and it has a lot of utility attached. It also comes with a video where Gary Vaynerchuck explains the meaning of the image, which is meant to be motivational. Like all VeeFriends, it gives holders a ticket for the so-called VeeCon, a fair for marketers, entrepreneurs, and fans of Gary. But it gives even more utility. In this case, the holder gets the chance to work out with Gary and his personal trainer two times (once per year). Other tokens offer similar but different utilities. Some give its owner a chance to go bowling with Gary, and others allow them to go shopping with Gary at Wine Library.

At the time of writing this article, VeeFriends generated $1,505,509.71 in sales over a 7-day period, with some going as high as a few hundred thousand dollars.

Gary Vaynerchuck is a huge fan of NFTs and crypto, and this project was a huge success for him. He does, of course, profit massively from the community he built around himself for years, but he also attracted many new members into his community. VeeFriends is definitely a perfect example of how to leverage NFTs and one's own community.

NBA Top Shot

NBA Top Shot is the NBA's version of digital basketball trading cards. Memorable moments from NBA games are made into NFTs, wrapping highlight videos on the blockchain.

Top Shots don't come with utility. They leverage the collectible aspect. Collectors buy booster packs and receive a number of top shots in return. All individual NFTs can be traded between collectors.

Although those NFTs do not act as tickets, they still show how to successfully bring the concept of trading cards over to the digital world. At the time of writing this article, NBA Top Shot has a market cap of $707,664,685 and a daily sales volume of around $521,750.

How to use NFTs to your advantage

Throughout this article, you have already seen a few examples of applications for NFTs. In the end, it's up to you and your creativity what you come up with. As a creator, you should know your audience best. You know what they like, why they follow you, and what they expect from you.

A good NFT project should focus on your audience. So ask yourself:

• What does my audience expect from me?
• How can I help my audience?
• How can I come up with something useful?
• Do I really need to profit from this project only myself?

Those questions can act as a guide. If you are an artist, people might love to support you by buying your work as NFTs. Add some royalties so you get a small percentage of each sale, and create a market for them. Giving people the opportunity to profit from your work is also a great service for itself already.

If you think about starting a closed online community to teach people certain skills, why not give out NFTs as access tokens? Do a one-time drop with NFTs that give lifetime access to your community. Set the price accordingly, and make holders of your collection priority members of your community.

If you work on a book, why not launch a pre-sale with a few premium editions as NFTs, each granting their buyers a small percentage of your book sales? Buyers of your drop become investors who finance your book. In return, you involve them in your business. And if you don't want to share your revenue, you could still sell some premium editions with each giving a different level of access to you. Something like: "This gold edition gives you access to a monthly one-on-one with me. We will have a Zoom session and I will answer all your questions and help you with your projects as far as I can."

There are endless ways to set an NFT project up, and it's really up to your own creativity to find a use case that the user base you built will love and support. And don't forget that experiments are okay and sometimes fail. Learn something from it and start again.

One last word of advice: A project that is solely aimed at your own personal profit is more likely to fail than one that has your community as its focus.

Are NFTs worth it for me?

That decision is up to you. If you think that your audience/community might like to participate and be a part of an NFT project, then go for it. If not, that's fine, as well. But don't put the idea aside only because you hear a few critical voices shouting things like "scam" or else. Many projects, even simple ones, have already shown that there currently is a huge interest in NFTs and everything associated with them. It's a business opportunity for you and for your audience and community. And it's certainly also a hype train that you can ride right now. Hypes create a lot of visibility, and if you happen to hit a jackpot with your project, you might also be able to increase your visibility by a lot and make your brand known far further than ever before.

Conclusion

NFTs are an impressive piece of technology. They live on the blockchain and wrap some form of media and utility. They are currently hyped a lot but behind all that is an exciting opportunity for creators and their communities. Use cases are plenty, and many more projects go live every day. The market, though, is still far from being saturated. There is still a place for everyone.

The challenge for creators right now is to analyze their community/audience and find use cases they could apply NFTs to. Overall, it's well worth considering those tokens. Even if the hype dies down, NFTs will surely not vanish anytime soon. You have the chance to become an early adopter right now. The longer you wait, the less special having your own NFT collection becomes.