NFT 101: The Ultimate Beginner’s Guide

NFTs are complicated. Blockchain is complicated. It is a relatively new technology that faces disruption after disruption. It is the place for innovators, but also scammers. What you will find below is my understanding of NFTs, an NFT 101 if you will, a guide to understanding NFTs. What is real and what is fake, the technology, and what it promises.

NFTs and the technology behind them promise to revolutionize the structure of many day-to-day activities on the internet. They are the backbone of Web 3.0. Understanding the basics of these technologies will give us an understanding of how the whole internet will function in the future, and if done smartly, make a good investment in the meantime.

The question is: can a person not working in the field, like me, understand the technology well enough to make smart investment decisions in the future? I believe so.

About the Author

My name is Andy, the author behind many posts on Alternainvest.com I have been investing for over fifteen years. Trained in value investing, my portfolio still consists of 95% of traditional assets, but in the last few years, I got bitten by the blockchain bug, just like everybody else it seems. I started allocating a portion of my portfolio to it. At the moment, the space is too volatile and too unknown for me to devote a higher percentage to it so in this guide, I will not go into investing much.

Instead, I will focus on the technology & help you better understand it. With this information, however, I hope it will help guide you to further research and perhaps investment decisions as well. This guide is for beginners as well as seasoned investors looking to understand NFTs. Not the hype surrounding them today, but the long-term potential and the technological aspects.

What are NFTs?

Before we dive deep into the topic, we must first understand the definitions at a high level. That is what this chapter will achieve.

NFT is an acronym that stands for non-fungible token. Let’s unpack the definition into its two parts, “non-fungible” and “token”.

Non-Fungible

Non-fungible means unique and irreplaceable. Once you own this “token” it is the only one that exists out there. Nobody can make a copy of it. Please note that you can’t make a copy of the token, you can still make a copy of the asset underneath. More on that later. As you can imagine this makes it great for selling anything original. How do we know it is original? Blockchain technology, specifically Ethereum ensures authenticity through something called a token.

Token

Token, in this particular case, refers to an asset that runs on top of an existing blockchain network. NFTs are these “tokens” that most commonly run using Ethereum network. Other currencies besides Ethereum are popping up but Ethereum remains the largest and the most robust.

Okay, great but what are they exactly? At the very base, they are pieces of code that are used to identify something or someone in a unique way.

There are standards to follow if you want to create one. These are called token standards. Standards ensure that whoever creates one of these NFTs has something unique and is different from another token based on its content. Standard that is responsible for that is ERC-721 Non-Fungible Token Standard.

Quote:

The ERC-721 introduces a standard for NFT, in other words, this type of Token is unique and can have different value than another Token from the same Smart Contract, maybe due to its age, rarity or even something else like its visual. Wait, visual? Yes! All NFTs have a uint256 variable called tokenId, so for any ERC-721 Contract, the pair contract address, uint256 tokenId must be globally unique. That said, a dApp can have a “converter” that uses the tokenId as input and outputs an image of something cool, like zombies, weapons, skills or amazing kitties!

Here we get yet another term, Smart Contract. How is that different from a regular contract? What are they really?

Smart Contracts

A smart contract is a computer program written in a specific computer language called Solidity, specifically designed to write these programs that run on the Ethereum blockchain network.

These programs are not controlled by the user, and run as programmed on the network. What’s great about smart contracts is that you can define all the rules & they will be enforced by the contract.

Why is this useful?
Smart contracts are useful because they remove the need for humans in the interactions. There is already talk about how smart contracts will replace the legal system.

Smart contracts being computer programs can be written by anybody and deployed on the network. All you need to do is know how to code them with Solidity and have enough Ethereum to pay for the deployment.

What if I can’t code? We don’t need to code to take advantage of this technology. Just like you don’t need to know how to code to read this article. There are services out there that take care of it for us. Which brings us to the next chapter, how do we actually create an NFT.

How to create NFTs without coding?

Remember NFT itself is a piece of code that verify ownership of a digital or a real-world asset. When I say create an NFT, I don’t mean create an asset behind it. If you are creating a brand new NFT, you will need to own the asset first. That’s where some of the confusion might be. There are services out there that will help you create both. At the time of writing, this most often applies to art. Why art? Digital art is the easiest to create and the most popular asset behind NFTs today.

So assuming you have an asset already created whether that is a piece of art (digital or real), music recording or anything else unique really you can create an NFT for it. So how to do that without code? You’ve got a few options.

Hire somebody to create an NFT for you

This first option is fairly obvious, hire somebody to do it for you. What you are looking for in this situation is a developer. Somebody who will take your asset and code an actual token.

You can find developers on most websites that offer freelance work like Fiverr, Upwork or Toptal. Note the difference between somebody who will design an NFT for you, typically applies to digital art vs. Somebody who will code a smart contract for you.

Here is an example of the difference:

NFT smart contract from Upwork

Vs.

nft collection

So it depends if you have an asset or not. Good developer will also help walk through all the requirements like how much Ethereum you need to have in order to launch your NFT and what’s the best option for your needs.
Executing NFT is not totally free, they require something called gas.

Gas is basically the amount of computational power required to execute your contract. Read up more on gas here.

So all things considered hiring a developer is not necessarily for beginners because after creating an NFT you likely will want to sell it. If that is the case, you might want to consider a service that does both.

Use a marketplace

Marketplaces are full service and allow you to create & sell NFTs on their platform. There are additional services that some of them offer, like curation for example.

Non-curated NFT marketplace

A non-curated marketplace is a marketplace that allows anybody to create and sell NFTs. These platforms do not discriminate between sellers. You don’t need verification, and you can have an NFT up and running in a few minutes.

Here are some of the best & most popular non-curated NFT marketplaces.

OpenSea (Opensea.io)

OpenSea

OpenSea is the largest marketplace out there today. Founded in 2017, they had a first mover advantaged in the space and amassed a large audience and the biggest marketplace.

OpenSea is the largest marketplace out there today. Founded in 2017, they had a first mover advantaged in the space and amassed a large audience and the biggest marketplace.

OpenSea NFT Statistics

OpenSea has over 80 million NFTs which sounds like a lot of competition but also haver over 600,000 users meaning you also get exposure to the largest network. Size has its upsides and downsides.

How to create an NFT on OpenSea? In a few steps you can upload your assets and off you go.

Mintable Mintable.app

Mintable

Mintable is another popular non-curated marketplace that is smaller than OpenSea but offers a number of great features that make it a lot more beginner-friendly.

Gas Free NFTs
One of the attractive features is that Mintable will not charge you gas fees but instead charge a higher commission once you sell your NFT. Meaning there is no upfront cost for you to create and list NFT for sale.

MINTable NFT selling process

Curated NFT marketplace

Curated marketplace is exactly what is sounds like. They do everything a non-curated platform does, but they don’t allow anybody on their platform. If you are interested in selling anything art related like digital art, physical art, music, video, and so on you have to have a portfolio to present to these marketplaces in order to get approved. It helps if you have a strong portfolio of assets and have a somewhat established creator profile.

SuperRare (SuperRare.com)
SuperRare is one of the most “curated” NFT digital art marketplaces out there. It is like a high-end gallery that only the rich and famous can attend. Apparently, they only accept 1% of artists. This of course has its upsides & downsides.

⬆️ Upsides: smaller list of artists, easier to stand out.
⬇️ Downsides: – need to get approved. Competing against a selected group artists. Lower traffic on curated marketplace compared to open.

Is it hard to get approved for a curated NFT Marketplace?
Behind every curated marketplace there is a team of humans that actually go and review submitted artists. They evaluate quality, style and fit for their curate platform. What exactly they look for is hard to identify but things like creativity & uniqueness are definitely part of it.

Don’t get discouraged if you don’t get accepted. These places are somewhat elitist and sometimes it just comes down to luck who gets accepted and who doesn’t. If you don’t get accepted, try another curated marketplace or go to the open one first and then try again at a later date. Remember that this has likely very little to do with you as an artist.

Other curated marketplace worth mentioning:

KnownOrigin(KnownOrigin.io)
Similar to SuperRare, KnownOrigin presents itself as a high-end, exclusive and heavily curated marketplace.

NFT Fees

Nothing in this world is free and so we must expect that somebody is making money behind the scenes, whether people succeed or fail in selling their NFTs.

I already mentioned gas briefly. To reiterate, NFTs are programs on the blockchain and require computing power to run. This computing power costs money or in the case of NFTs, Ethereum’s own currency, Ether (ETH).

If you use a marketplace like OpenSea or SuperRare they will charge you gas but they do not keep it.

Who gets gas fees?

Gas is not for the marketplaces to keep but are for the miners. These marketplaces cannot control how much gas you will need and also cannot refund you gas fees. Nor do they control the price (gas quantity) as these prices can fluctuate wildly.

Who are Ethereum miners?

More technically, what are Ethereum miners? Miners are computers that use their computing power to process transactions. Miners get paid for the service with Ethereum.

Ethereum Average Gas Price

Here is the Ethereum Average Gas Price chart that summarizes just how volatile gas prices are. Swings from 50 to 250+ within days are not uncommon.

Ethereum gas price chart

So, at the time you are launching your NFT, it is hard to say what the gas price will be that you will have to pay.

Marketplaces therefore can’t guarantee that your transaction will succeed. If you want to do a transaction during which a very large NFT collection is being dropped or there is a lot of activity on the network, this will cause gas prices to go up.

One-time and Recurring Gas Fees

There are two types of fees that you will have to pay, one-time setup fee & then recurring fees depending on what type of transactions you do after the setup.

Account Registration Fees
To open an account you will need to pay some gas fees. Why? You need to establish a connection between your wallet and the marketplace of your choice.

How much you pay will depend on what is happening on the Ethereum network at the time of registration

Recurring Fees
Then there are recurring fees that you pay when it actually involves a transaction like:

  • Buying an NFT
  • Accepting an offer for your listing
  • Cancelling a placed bid

For a full list of Gas fees I would encourage you check out the FAQ page of the marketplace of your choosing.

Commission Fees

Then after the gas fees there are actual commissions. These fees only apply if the transaction is actually successful.

Fees differ between marketplaces, OpenSea for example charges 2.5% at the time of writing.

Is NFT a scam?

s NFT a scam in the sense that there is no real value behind an NFT? Not necessarily. NFTs just like cryptocurrency is a technology. NFT is a piece of computer code that is remarkable at executing a certain task (smart contract) on the network where other computers keep track and make sure checks and balances are all in order.

That said, any new technology attracts scammers. How do you know if something is a scam? If the value behind what is being sold is nonexistent. In that case, we can say that about many Art related NFTs. In many cases, they are just created turned into code and sold with heavy marketing. There is a reason why collections with celebrities attached to them sell much quicker and for ridiculous prices. That is why if you are an artist trying to sell your artwork through one of these channels, it requires a lot of marketing because art is subjective.

In the NFT art world, there are also schemes where NFTs are sold and re-sold to artificially pump up prices to show growth that has nothing to do with the uniqueness or quality of the underlying asset.

When it comes to digital art NFTs which at the moment is the most popular use of technology, I would be careful of scams for sure. But NFT is not just art. Smart contract technology will have a lot of applications beyond digital art sales. That is why I set out in the beginning of this post that I will not cover “investing” in NFTs. That requires a lot more in-depth posts that is a task for another time.

Happy NFTing!

Andy

Andy is the author behind most posts AlternaInvest.com, a web site analyzing and simplifying alternative and traditional investment vehicles.

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