NFT Explained: What is an NFT? How does NFT work? (2022)

What is an NFT? How does NFT work? What is the point of NFT? This article will explain how to invest in NFT for beginners in a straightforward manner.

When it comes to today's emerging blockchain-based digital economy, NFT is a critical component. NFT has been and continues to be tested in a variety of industries, including gaming, digital identity, licensing, certification, and artwork. But what exactly is NFT? 

In this article, Coin98 Insights will give you an overview of NFT, including:.

• The history, characteristics, value, and application of NFT in the cryptocurrency world
• NFT Classification 
• How to create, purchase and store NFTs
• Investment Opportunities in the current NFT market
• A few frequently asked questions about NFT.

Let's get started!

What is an NFT? Who created the first Non-Fungible Token?

NFT is an abbreviation for Non-fungible token. Let's go over each word in this term to get a better understanding.

• A token is a digital asset issued on the blockchain, such as USDT, USDC, or CAKE, that is typically traded in the cryptocurrency market.
• Fungible is an adjective which means "easy to exchange or trade for something else of the same type and value".

For example, if you purchased a black iPhone 13 from the Apple Store and it broke, you could replace it with another iPhone 13 that had exactly the same functions, color, and even manufacturing location. This iPhone 13 is fungible, as I'll call it.

• Non-fungible, as opposed to fungible, means they are not interchangeable.

Returning to the iPhone 13, if it was given to you by your grandfather, you could buy a similar one if it broke, but you wouldn't be able to find the exact one that your grandfather gave to you. This time, the grandpa's gift of an iPhone 13 is non-fungible.

⇒ A Non-Fungible Token (NFT), as a result, is a one-of-a-kind digital asset that cannot be replaced by another token. Which means, it is completely unique. There are many different uses for non-fungible tokens (NFTs), such as demonstrating ownership or tokenizing works of art by artists and game developers, and so on, due to their characteristics.

What is an NFT (Non-Fungible Token)?

Kevin McCoy was the first to issue his non-fungible token "Quantum" in 2014, years before the crypto art market exploded. The "Quantum" NFT was sold at Sotheby's Natively Digital auction for $7 million.

The first NFT on the market

The differences between Non-fungible Token and Cryptocurrency

In the cryptocurrency case, one Bitcoin can be interchanged with another Bitcoin without any difference, similar to the iPhone 13 from the Apple Store I mentioned above.

However, because each NFT is distinct, they cannot be exchanged in the same way because each has its own digital signature stored within the same blockchain.

The only thing that NFT and cryptocurrency have in common is that they are both "tokens" that exist on the blockchain.

NFT Explained: How does NFT work?

Because NFT is a method of storing data on blockchain, they will have all of the following basic characteristics of a token in general and an NFT in particular:

• Uniqueness: This is a one-of-a-kind token, so even if others try to "fake" the original, they can't "fake" the data on the blockchain. Based on that blockchain data, you can determine whether or not this is a scam NFT.
• Permanent: Those NFTs exist indefinitely, linking to other data such as messages, time created, sounds, pictures, and so on.
• Programmable: NFT is created by multiple lines of code; therefore, we can track who its author is, as well as the transaction records of that NFT, such as how many people have bought this before, etc.
• Permissionless: Because they exist on the blockchain, no one can prevent you from purchasing or selling them. They're completely permissionless.
• Ownership: The owner will have complete ownership rights to the NFT. Nobody can take away your NFT.

An NFT is "minted" from digital objects that represent both tangible and intangible items, such as: 

• Arts.
• Videos & sports highlights.
• Collectibles.
• Avatars.
• Music.
• ...

What is the point of NFT?

Because of its uniqueness and inability to be faked, NFT can be used as a certificate of authenticity in the future, and thus replaces the physical certificate of authenticity. NFT has the ability to solve forged problems that have existed for years.

Furthermore, each person will approach NFT for a different reason.

If you are an artist, NFT can make your life a lot easier by providing another market for you to sell and publicize your work. In contrast to the traditional market, where you only receive proceeds once when you first sell that artwork. With NFT, you also receive royalty fees every time that NFT is exchanged. These are game-changing improvements.

If you are a buyer, NFT is a highly lucrative investment. They can make you a lot of money. Furthermore, many NFTs also grant you access to VIP events, membership in prestigious clubs, fame, and other perks that others do not have.

Alternatively, if you are a collector, NFT is a good option for you to simply store any NFT that you like or are impressed by. It is reasonable to store every NFT that your idol releases.

Non-fungible Token Classification 

NFT Art

NFTs and blockchain technology provide an unprecedented opportunity for artists and content creators to monetize their work. As an example, artists no longer have to rely on galleries or auction houses in order to sell their artwork.

An NFT marketplace is ideal for artists because they can offer their work directly to buyers and keep more of the profits.

"Everydays: The First 5,000 Days" NFT

This "Everydays: The First 5,000 Days" NFT was previously created by a 41-year-old man named Beeple. He collected 5,000 different images and day by day combined each one into a single image. When the art was auctioned off, the amount of money shocked the community, fetching $69 million at the end of the auction.

NFT Game 

NFT Game is another popular option for many gaming projects. In the traditional gaming industry, some of you may collect in-game items to possibly strengthen the power of your in-game character, or to build up your houses/gardens, and so on. However, those items are not entirely yours. Why?

Because, in this case, the game company has the right to remove your collected items at any time.

However, with blockchain technology, game developers can program all of the items into unique NFTs, so once you collect those NFTs, they are completely yours. You will have full control over the NFT, and no one (including the game's developers) will be able to take it away from you.

Blockchain Game: Axie Infinity

A slew of gaming blockchains arose in response to this demand, tokenizing all in-game items and allowing players to trade all that NFTs in order to profit from it. Axie Infinity, a blockchain gaming project founded in early 2018, is regarded as a legend in the industry after attracting thousands of players from around the world.

Play to Earn Blockchain Games (Source: Coin98 Analytics)

NFT Music nft

Here's something you might be interested in: https://bom.so/qs0uUT

When I hear the melody that has been permanently stored on the blockchain as a music lover, I am extremely happy.

You can listen to some of the NFT Music artwork here: https://opensea.io/collection/music

NFT Music creates a world in which there are almost no middlemen between artists and their communities. "There will be no Spotify or Apple Music anymore". Authors will be able to earn royalties directly from their artworks rather than having to share a large portion of the revenue with third parties in the traditional industry.

Furthermore, NFT Music serves as a new platform for artists and their communities to interact with one another. They can monetize and sell their track records, videos, sounds, and so on to fans. Even if you are an NFT holder, you will be granted some exclusive rights, such as VIP status at the real-world music shows or dining with your idol (yes, perhaps).

NFT Real Estate 

NFT Real Estate is in its early infancy. In theory, NFTs can provide easy ways to transfer ownership of shares in real estate investments or virtual real estate.

As an NFT Real Estate holder, you may have the rights to that entire house, or partial rights to some digital square feet of that house. It depends on the company that provides the real estate service to you.

Gulfport four-bedroom house

For example, this year, a Gulfport four-bedroom house was sold for $653,163 in ETH, and the winning bidder now holds the NFT, showing ownership on-chain.

The NFT holders of this house will have:

• Access to ownership transferred paperwork.
• The apartment picture.
• The digital art NFT by the artist, and the physical painting of the artwork on the house wall.
• NFT Real Estate can also be used as collateral for lending or borrowing.

NFT Stocks

NFTs are digital assets in and of themselves, whereas NFT stock is a share of the company working in the NFT industry. If the company is large enough, these NFT Stock can be bought/sold on a stock exchange.

But for what?

Yes, as an investor, some people may lack the necessary experience and time to invest in such risky assets; however, by purchasing a share of a company that invests in NFT, you will indirectly own a portion of all NFTs in the company.

The company, in this case, could be a NFT investment firm, or an NFT infrastructure-as-a-service company, or NFT marketplace, etc.

A few examples of what I'm referring to include:

• Coinbase (NASDAQ:COIN): As one of the world’s leading cryptocurrency exchanges, Coinbase is a great example of an NFT stock.
• DraftKings (NASDAQ:DKNG): The DraftKings NFT marketplace operates on the Ethereum blockchain and it is primarily related to sports collectibles.

NFT Meme

I'm sure you've seen a lot of memes in your life. NFT Meme is simply a meme that has been tokenized as an NFT.

This legend meme…. Do you remember?

In 2021, this "Disaster Girl" picture was sold for $500,000. The girl in this picture is Zoë Roth, now a college senior in North Carolina. After the sale, she used the proceeds from this NFT auction to pay off student loans and donate to charity.

NFT Examples: Some popular NFT projects

Okay! I'll tell you about some notable NFT projects and collectibles that are being traded at exorbitant prices.

Moonbirds

A set of 10,000 utility-enabled PFPs with a richly diverse and one-of-a-kind pool of rarity-powered traits. The Moonbirds unlock private club membership and additional benefits the longer you keep them.

Moonbird Collectible

These birds were only released yesterday (yes, yesterday, on April 16th, 2022). Originally priced at 2.5 ETH (nearly $7,500), the floor price of this collectible has now been raised to 12.71 ETH, representing a 5x increase in your initial investment in just one day. Isn't it bizarre?

Crypto Punks

CryptoPunks launched as a fixed set of 10,000 items in mid-2017 and became one of the inspirations for the ERC-721 standard. 

CryptoPunks

They've appeared in publications such as The New York Times, Christie's of London, Art|Basel Miami, and The PBS NewsHour.

Bored Ape Yacht Club

This is a collection of 10,000 one-of-a-kind Bored Ape NFTs, which are digital collectibles that live on the Ethereum blockchain.

10,000 Unique Bored Apes

Holders of that NFT will have access to the collectible's members-only benefits.

Benefits of Ape Holders

Jimmy Fallon, Post Malone, Mark Cuban, Paris Hilton, Snoop Dogg, Stephen Curry, Eminem, and Shaquille O'Neal all own Bored Apes. These celebrities have made a significant contribution to the increase in the price of those Apes.

How to invest in NFT, for beginners

How to create an NFT

I will walk you through the process of creating your own NFT artwork. Let's get started!

Download and install Coin98 Super App

The NFT Issuer is now available on Coin98 Super App for both iOS and Android users.

• iOS: ios.coin98.com
• Android: android.coin98.com

After downloading the app, you need to create your multi-chain wallet. Watch the tutorial video HERE.

Following that, it’s time to create your first NFT. Here is a video tutorial on how to make an NFT.

Well done! Show me your NFT in the comment section below. I'm excited to see it! 

How to purchase NFTs on NFT Marketplaces

In order to start your own NFT collection, you'll need a few key items:

First, you’ll need to get a digital wallet that allows you to store NFTs and cryptocurrencies. You’ll likely need to purchase some cryptocurrencies, like ETH, depending on what currencies your NFT provider accepts.

Top NFT marketplaces like OpenSea, Rarible, and Magic Eden are great places to buy NFT.

Learn more: How to buy NFTs on OpenSea 

How to store NFTs on NFT Wallets

As the demand for NFTs increases, users need a tool to be able to buy, sell, send, receive, or trade their NFT assets. To maximize the convenience, these wallets also need to support buying, selling, and storing conventional cryptocurrencies.

Distributed NFT management is complicated by the fact that different projects use different kinds of NFTs, each with their own blockchain.

Get the blockchain wallet address which has the NFT project that Coin98 Super App supports through the Wallet Management section.

Step 1: On the main interface, select All Wallets.

Step 2: Select the wallet of the corresponding blockchain on which you want to receive the NFT.

Step 3: Select Copy Address or Scan Wallet Address.

The other four wallets include Trust Wallet, Coinbase, and Phantom. You can take a quick review of these wallets here: Top 5 NFT Wallets on the Crypto Market you should know 

Investment opportunities with NFT

NFT is the gateway to attracting new users to cryptocurrency, and it is a market with enormous profit potential. I've summarized the most popular investment methods below.

The NFT market has enormous profit potential and is the entry point for new cryptocurrency users. I've compiled a list of the most popular investment strategies in the following section.

Creating NFTs

NFT is currently a very fertile market for those who are talented in design and art. If you can create works such as paintings, logos, game characters, etc, you can absolutely sell them on NFT Marketplaces such as Rarible, OpenSea, and others to earn money.

Buy Low, Sell High

I'll divide the method into two options for this type of investment.

Option 1: NFT Minting and Secondary Market Sales.

Normally, with NFT collectibles, the team will release their artwork into public by allowing users to mint those NFTs. After the minting period ends, you can list your NFTs on the marketplace with a higher price. 

Example: With Moonbird Collectibles, minting one bird requires you to pay 2.5 ETH (~7,200$). After minting, the floor price of those birds in the secondary market (NFT marketplace) is now at 19.4 ETH (~56,000). Good investment exemplar.

Option 2: Trading NFTs on secondary markets.

This method is similar to stock trading in a traditional market. You'll purchase the NFT at a low (undervalued) price and sell it at a higher (overvalued) price.

Taking part in NFT Gaming

Option 1: With this type of investment, you will play the game while also trading the NFT. Let's say when playing the game, you have to complete the missions and, in return, you may receive some in-game items that are valuable.

Some people may need your goods to complete their mission. This time, you can sell that NFT to someone who wants it and get your money back.

Option 2: Some blockchain games will require you to buy the NFT first to complete in-game missions. After finishing the missions, the game will reward you with their tokens, and you can sell those tokens into the market to earn back the money.

Axie, for example, must be purchased if you plan on playing the game for the first time. Once you've completed a mission with a pet, the game rewards you with SLP tokens. By selling SLP to the market, you can recoup your investment.

Some questions about NFT

Is NFT a scam?

It depends on the team. I mean, NFT is similar to cryptocurrency in a way that it will be stored on a blockchain and will be completely secure and straightforward. Creating an NFT is easy. However, building a community and utilities is much harder. The responsible team will maintain the utilities surrounding their art and increase its value over time. Let's call them Bored Apes.

A scam NFT is the artwork that was created by an irresponsible team. The team simply creates multiple NFT clones and dupes members into purchasing those artworks. After that, they flee. In this case, I will say it is a scam.

Is a Non-Fungible Token always unique?

Yes, literally every NFT is unique with its own address. However, the artist can make identical NFTs that serve some special purposes. For example, creating 100 identical NFTs as a card membership to a club.

How does an NFT gain value?

By demand, everything must be in high demand in order for the price to rise. The demand for an NFT may be influenced by its novelty or utility (e.g., owning that NFT can give you a chance to meet your idol).

Why do people buy NFTs?

The majority of people buy NFTs in order to profit from them. Other purposes may include: memories, fame, gifts, and so on.

Should you buy NFT?

It depends. Owning an NFT can make you a lot of money or cost you a lot of money, depending on how much risk you're willing to take. Despite the fact that NFTs are a relatively new phenomenon, there isn't enough historical data to predict whether or not they will be profitable for everyone.

So, if you want to invest in NFT, you should start with a small amount of money and be prepared to lose it if something bad happens.

The lightning bolt that protects you from losing money is conducting your own research.

Conclusion

I have provided you with the most comprehensive overview of what NFT is, as well as some frequently asked NFT questions! If you found this article useful, please share it with your friends!

What are your thoughts on the NFT trend's potential and applicability? Let us know what you think in the comments section below!