Non-fungible tokens (NFTs) for Beginners Ebook

Imagine a world where you can buy digital items and get a unique token that proves you’re the sole owner of the item you bought. Sounds cool, right? Well, you’re living in that world now, thanks to NFTs. 

NFTs are taking the digital collectibles and art world by storm. Just as the world saw Bitcoin as the digital replacement for fiat money, NFTs are presently seen as the best option for digital collectibles. Since NFTs entered the art world, artists have experienced life-changing breakthroughs thanks to massive sales from a crypto-backed audience. 

If NFTs as a concept interests you, and you want to research more about what they are and how you can benefit from owning NFTs, you’re at the right place. Here’s a beginner’s guide to the world of digital assets.

 

A. What Are NFTs

The acronym, NFT, stands for non-fungible token, and for something to be regarded as non-fungible, it is unique and typically has no replacement. Take, for instance, the Mona Lisa by Leonardo da Vinci; there’s only one genuine copy in existence. 

However, to fully grasp the concept of non-fungible tokens, you first need to understand what it means for something to be fungible. The word “fungible” is often found in finance circles and refers to divisible, indistinguishable, and interchangeable items.

A good example is a currency or fiat; let’s consider the American dollar (USD). For the most part, you can’t tell a five-dollar note apart from another, and they all look the same, with the same designs and markings. 

In the same way, five notes of one dollar bills are equal to a five dollar bill, and you can swap them for the other because they are interchangeable. However, you can’t switch your cat for your neighbor’s cat, even though they are of the same breed. 

The thing is, your cat may be gentle and not scratch the couch, while your neighbor’s cat may be aggressive. So, it is not an equal exchange. That’s how non-fungibility works; you can distinguish them from other similar items.

For example, cars are non-fungible, as while two 1st edition Pikachus may have similar holographic features, they may be auctioned for different prices. The reason could be that one model has more miles and a better, cleaner interior, making its value higher than the other. 

All these are what NFTs are trying to turn digital assets into, using cryptographic technology to ensure that the copy of any digital asset you hold is original. That way, when you purchase an NFT, you receive a unique token that identifies you as the owner, and the collectible, as the original. 

 

B. What Types of NFTs Exist

There’s no limit to what can be regarded as an NFT. So, if you say that NFTs can be anything, you’re not far from the truth. Here are some of the popular NFT categories today:

1. Artworks

Art is the most popular and can be one of the most expensive sets of NFTs in the market today. In NFT terms, artworks are digital, programmable art, a mix between innovative technology and creativity. 

The visual appeal of these digital artworks is not much different from paintings, the only difference being the medium with which they are created and displayed. While paintings typically come on canvas, digital artworks can only be created and consumed via an electronic screen, whether that be a computer, tablet or even your cell phone.

However, distributed ledger technology (DLT), such as Hedera, makes it possible to hold and trade one copy of a digital artwork, like a physical painting, in an incredibly fast and efficient manner. The owner of the NFT piece can then choose to display their artwork however they wish. 

Still, the original version remains the version stored on the public ledger. On the flip side, an artwork can start as a physical representation that the artist can mint on the ledger to create an NFT version. 

The use of DLT in these instances is to combat the creation and sale of fake art pieces as original versions in the market. As a public ledger, anyone can assess paintings registered on it; sellers can easily prove ownership, and buyers can authenticate the digital artworks they are interested in. 

2. Music

Instead of uploading music or other digital media to streaming platforms or public channels like Youtube, Spotify, or iTunes, a musical artist can decide to mint their work as an NFT on the DLT and distribute it to fans.

Minting music on the DLT may not cost much, depending on the network, and artists have the opportunity to keep all the proceeds from their music without worrying about giving streaming platforms or record labels a cut. Plus, as the DLT is a decentralized public platform with no entity owning it, artists cannot suffer censorship or have their work removed.

Any person who purchases the NFT has complete ownership and control of it, depending on the licensing agreement. This differs from what is obtainable with streaming platforms, as music lovers only buy the right to listen to or stream the song on the specific platform.

With NFTs, the buyer gets both listening rights and ownership of the file itself. This way, regular people can buy and own the music they love. 

Sometimes, artists can limit the number of released copies of a single track, making these limited copies a collectible. They can even program these music NFTs with smart contracts, so they receive royalties every time the NFT is sold within the secondary market. 

Going by this, music NFTs have the potential to be more useful to artists than regular distribution channels. Although its use has not been mainstream, it is exciting to see where this technology will take musical artists in the future. 

3. Collectibles

Any rare item that holds sentimental value is a collectible, and many NFTs fall into this category. The concept of collectibles has existed for centuries, and there are brick-and-mortar stores that deal only in collectibles for collectors.

NFTs are now revolutionizing this age-old market and giving it a modern twist by trading rare digital items. The first case of digital collectibles arose in 2017 with the emergence of CryptoKitties, a unique collection of digital kittens that were popular among collectors during that time. 

Since then, many collectibles have flooded the NFT market, and some examples are the Bored Ape Yacht Club, Koala Klub, Cat Colony, CryptoPunks, Meebits, and more. 

4. More Access

As the Web3 space grows, NFT use cases have now evolved past digital arts and avatars. These days, NFTs are assets that give holders access to communities, rewards, exclusive events, and so much more.

For example, organizers of concerts and live shows can mint a set number of NFT tickets through which guests can be invited and admitted into the events.

Unlike regular tickets, these NFTs can have codes imprinted in them, set to self-execute upon the occurrence of certain actions. Event tickets as NFTs can reduce forgeries and serve as memorabilia for guests who can hold on to these tickets long after the event ends. 

5. Real World Assets

This refers to NFTs created to represent real-time assets like cars, real estate, and even physical paintings. These NFTs exist to manage already-existing assets efficiently, and a real-world asset is a token signifying virtual ownership of an existing physical object. 

Just like its digital counterparts, the token attached to a real-world asset shows ownership and establishes a legal contract of enforceability, warranty, and insurance. They offer an extra layer of security, as these tokens cannot be forged, and the digital ledger is transparent and cannot be modified, therefore preventing fraud. 

Early instances of this application of NFTs date back to 2017 when Michael Arrington, founder of Arrington XRP Capital and TechCrunch, sold an apartment in Ukraine as an NFT. More recent examples are the NFT sales of a $175,000 home in South Carolina and a $653,000 five-bedroom home in Florida.

 

C. Why Should You Care About Them?

There’s no doubt that NFTs are the rave of the moment, the newest digital assets in town. 

So, it’s understandable to wonder why you should care about these digital assets. In this next section, we’ll highlight some of the benefits of NFTs.

1. Improved Marketplace Efficiency

NFTs make it easier for artists to communicate directly with their audience, eliminating third-party involvement and increasing supply chain efficiency. With digitalization, transactions can become a lot more simple, with easier ways of proving the authenticity and lower expenses.

2. Proof of Ownership

When you buy an NFT, you get exclusive ownership rights over the token. Since NFTs operate on a transparent public ledger, the ownership of any digital asset is tied to a single account, making it easy to track ownership. 

 

3. Authenticity

One of the top qualities of NFTs lies in their authenticity; digital assets created on DLT have a unique record. NFT creators also have the right to release only a certain number of NFTs so that there’s a limited supply, with replicas only allowed in certain cases like show tickets. 

4. Safety

When dealing with digital currency assets, security is an important and growing concern. NFTs easily allay these fears, as it’s transparent, public, and difficult, or rather near impossible, to alter, hack or delete. So, when something, like a digital asset, for example, is minted on a network, it’s hard to alter or delete it, providing a safer option for creators and buyers alike.

5. Insurance

Another benefit of NFTs is that you can claim insurance depending on the value of your digital asset. All assets stored on second and third-generation ledgers have smart contracts embedded in them, containing the special attributes of the NFT, the owner’s information, ownership details, manufacturing date, serial number, and other details. 

You can use these smart contracts to prove the ownership and uniqueness of your product if it goes missing or stolen. The recorded data on the ledger is further evidence to prove an insurance claim.

D. How You Can Use NFTs for Regular Business Activities

People buy NFTs for many reasons, but here are some common uses of NFTs, especially if you’re a business owner:

• Link your physical products with NFTs to attract more customers to your business. For example, if you run a fashion business, create NFTs around your fashion apparel and offer these NFTs to customers that buy clothing items. Some examples of this are Gucci and Nike. 
• You can use NFTs to prove product authenticity. Counterfeit fashion is an industry worth hundreds of billions of dollars, it has become so sophisticated that even some businesses cannot tell the difference between their genuine product and a counterfeit item. Since all information is stored on the DLT, customers can easily verify the manufacturing history and inspect the digital certificate of authenticity, proving the item is genuine.
• You can use NFTs as a medium for customers to access some of your digital services, like subscribing to your online courses. Those who buy your NFT can unlock the course, and it’s a sure way to keep content pirates away.
• With distributed ledger technology, you can easily manage your supply chain and track products from manufacturing to sales, making inventory management easier.
• You can create a loyalty program using NFTs, allowing regular customers to gain more rewards as they use your products. 

E. How to Buy NFTs

 

Now that you understand what NFTs are and their advantages over other cryptocurrencies, you may want to venture into the world of NFTs. If so, there are some steps you need to follow to facilitate your first purchase:

Step One: Get a Digital Wallet 

A digital wallet helps you not only buy but also store your NFTs. Blade Wallet is the fastest growing and only multi-lingual, security-audited Web3 digital wallet built on Hedera, available on iOS, Android, and Chrome.

Step Two: Choose an NFT Marketplace

An NFT marketplace is a platform where you can buy and sell NFTs. Top NFT marketplaces include OpenSea, Rarible, and HashAxis (serving the Hedera community). You need to choose an NFT marketplace selling the NFT you want to buy. Then connect your digital wallet on the NFT marketplace. 

For instance, to connect your Blade Wallet for example, to Hash Axis, follow these steps:

• Visit the Hash Axis page
• From the verified Blade collection page, enter your serial number
• Connect your wallet to the list
• Or, buy NFTs
• Approve transactions

Step Three: Buy the Supported Crypto 

Every NFT marketplace has one or more cryptocurrencies it supports. For instance, platforms like Magic Eden support ETH and SOL, OpenSea supports ETH, AVAX, MATIC, and HashAxis support HBAR. Before you can trade NFTs, you need to buy the supported crypto for the marketplace. 

Most NFT enthusiasts prefer to hold stablecoins like USDC, BUSD, and USDT because they are pegged to the dollar on a 1:1 ratio. However, you may have to convert the stablecoin to the supported or preferred cryptocurrency of the NFT marketplace. 

Step Four: Identify the NFT You Want to Purchase 

Browse through the NFT collections on the marketplace(s) you connected your wallet to and select the NFT you wish to purchase. Some NFTs allow you to place bids while others have a fixed price. Depending on what you opt for, make the payment using your digital wallet. You’ll receive the NFT after the transaction has successfully completed. 

 

F. How to Transfer NFTs

You may wish to transfer NFTs from one wallet to another for several reasons, whether for trading purposes or in exchange for another asset. There are many ways to initiate this transfer, depending on the type of wallet in question. 

Using Blade Wallet as an example, take the following steps:

• Open your Blade Wallet app
• Input your password to login
• Go to the Gallery section to see a list of NFTs in your wallet
• Select the one you want to transfer
• Click the ‘Transfer’ button
• Enter the Hedera wallet address of the recipient
• Click on the ‘Send’ button and wait for a moment for the transaction to be completed.

 

G. How to Store NFTs

 

The three common ways to store NFTs are 

• Cold storage hardware wallets
• InterPlanetary File System (IPFS)
• Digital wallets

Using a Cold Storage Hardware Wallet takes your NFTs completely offline. People opt for this form of storage for security reasons, especially to avoid being susceptible to any form of cyberattacks. Cold storage hardware wallets come with password protection, providing an extra layer of security for your digital assets. 

InterPlanetary File System (IPFS) stores NFTs off-chain to reduce the chances of cyber-attacks and hacks. It further uses content identifiers (CIDs), which are pieces of data linked to your NFTs, to provide an extra security layer for your NFTs. 

Digital Wallets are a common and convenient choice for many NFT enthusiasts. Security-audited wallets like Blade Wallet offer you a tangible level of security for your NFTs and other digital assets.

 

H. Conclusion

NFTs open a whole new world of opportunities for creatives and collectors, and the trend is gradually disrupting industries, one after the other. The future is digital and understanding NFTs now places you ahead of the curve.

For a beginner, navigating NFTs can be difficult, and that’s why we put this guide together. We’ve provided a clear picture of how NFTs work and how you can start your NFT journey. You can visit bladewallet.io to download a secure digital wallet to start exploring NFTs.