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NFT Meaning: The Comprehensive Guide To NFTs For Dummies
The crypto space can be an overwhelming place: there’s a lot of jargon, a lot of know-it-alls, and a lot of coins. To make things easier for all the crypto dummies out there (myself included most of the time), we’ve made learning about NFTs as simple and straightforward as possible.
This is an NFT for dummies guide designed so that even the layman can understand NFTs.
What does NFT stand for?
Let’s start at the beginning: what does NFT stand for?
NFT is an abbreviation for the term non-fungible token.
Still not very clear? Let’s break it down further.
To understand what non-fungible tokens are actually referring to, we need to understand what is meant by fungible.
Nerds Chalk describes ‘fungible’ as follows:
“Fungibility refers to the interchangeability of an asset. Anything fungible is replaceable with something that is of an equal value. For simplicity, associate fungible with replaceable (or interchangeable). A basic example of something fungible is money.”
Essentially, if something is ‘non-fungible’, it is unique and irreplaceable. From collectibles to personalized instruments, autographed books to antiques; if something is not able to be swapped for an equivalent, it is non-fungible.
So what is a non-fungible token?
What are non-fungible tokens?
Non-fungible tokens are unique assets that are digital by nature.
Ever been playing a game and unlocked some special in-game assets to the envy of all your friends? These might be considered non-fungible, but it’s also possible for your friends to unlock the same asset on their own device. More importantly, you do not own these items. You cannot sell them when you’re done with the game. You cannot give them away or keep a copy of them without having the game installed. They do not belong to you in the same way that something physical does, like a book for example.
NFTs are a new type of digital asset that are able to prove ownership. This is why NFTs are associated with cryptocurrencies. Using the same blockchain technology, you are able to trace and track ownership of every single NFT ever minted.
While the Ethereum blockchain is most often used for identifying unique assets, it’s not the only blockchain with NFT capability. You can also find NFTs on Solana, Binance Smart Chain, and Elastos Smart Chain, as well as many others.
NFTs built on Ethereum are known as ERC-721 tokens. This is not to be confused with ERC-20 tokens which represent fungible digital currencies on the Ethereum blockchain. Any fungible cryptographic token built with Ethereum as its base layer is known as an ERC-20 token, while any non-fungible token minted on the same network is an ERC-721 token.
Why do we need NFTs to be non-fungible?
When you look at Bitcoin, it is completely fungible. There is no difference between one Bitcoin and another. In fact, all 21 million (max supply) Bitcoins are the same asset and hold the same value.
NFTs are new assets that are designed to prove ownership. This means that each one is different from the next by design. It also means that non-fungible tokens are indivisible, unlike fungible tokens like Bitcoin.
Bitcoin can be divided into smaller denominations called Satoshis. If you don’t have enough money to buy a full Bitcoin, you can break it into smaller denominations and still own a fraction of a Bitcoin. If you imagine NFTs as a replacement for real world objects, the problem of fungibility will become clearer.
Take a train ticket for example – with a fungible token like Bitcoin, the train ticket would be divisible and replaceable. But nobody wants to buy a fraction of a train ticket. They want the full ticket so that they can complete their journey from A to B. For this, the digital asset representing the ticket has to be non-fungible.
In other words, if Bitcoin was non-fungible, you could only purchase a whole Bitcoin. If NFTs were fungible, you could break them down into smaller denominations and own fractions of them.
With a traditional ERC-20 token, token developers can freely define the supply – depending on the different algorithms and different rules of the blockchain in question. ERC-721 tokens however, are unique assets, each one different from the next. This also makes NFTs great for decentralized identities, one of the reasons they are used in profile pictures so often.
There is one quasi-exception to the rule: some of the best NFT games include virtual land. This can come in the form of terrain, buildings, or some form of stadium. In the NFT horse racing game DeRace for example, players can own a fraction of the stadium and earn passive income from events held there. However, the reason this is not a full exception to the rule is because the stadium itself is not a whole NFT, rather it is a collection of NFTs much like that of the land packages in Decentraland or Sandbox. If you own one seat in the stadium, you can not break that seat down into smaller denominations. While it might be almost identical to the seat next to it, they may sell for different prices and they are not interchangeable in the same way that fungible tokens are.
Are NFTs just digital art?
A common misconception is that NFTs are digital art. While this is what blockchain art is usually called, it’s actually the identification layer that is the NFT.
You can have digital art without it being an NFT, and you can have an NFT without it being digital art. The two are not synonymous.
However, as many NFTs identify digital art, the two terms have become interchangeable in certain contexts.
An NFT empowers you to locate an asset uniquely by providing metadata that differentiates it from other digital assets. In the case of digital art, the metadata consists of the file that the art is stored on. No two NFTs are the same – hence the term non-fungible.
To give an example of why digital ownership is important, take books and ebooks for example.
When you own a book, you have a physical copy (one of a limited batch available worldwide) and can choose what you do with it after you’ve read it. You may want to keep it for reference or to reread in the future. You might want to lend it to a friend, give it away, or sell it. The choice is yours because you own the book.
Now imagine you buy an ebook. As there is no restriction in terms of time and money when it comes to printing the physical editions, ebooks are able to be endlessly created. There is no limit to the supply. In addition to this, you can’t lend it to a friend, give it away, or sell it. Once you’ve bought the book, you are able to read it and that’s it. You don’t own the ebook, you own an account that has access to that specific ebook.
Of course, ebooks come with perks too. You can store hundreds of books on one lightweight device, they’re usually a little cheaper, and you can access them from different devices too.
However, what if we applied non-fungible tokens to ebooks?
In the world of NFTs, you can buy digital books and sell them, give them away, or lend them to a friend when you’re done, just like with regular physical books. This is because when you buy NFTs, you own them. When you buy ebooks and other digital assets available today, you don’t.
To understand a little more about what the metadata consists of, let’s look at a Decentraland example. Decentraland is a metaverse project that allows you to buy, sell, and upgrade virtual land in the form of NFTs.
For these virtual real estate NFTs, the metadata gives virtual coordinates and land properties. Is the virtual land grassy? Hilly? Rural or urban? The metadata will provide this information so that each NFT is distinguished from the next.
Read our article on virtual real estate to learn more about what it is and how it works.
NFT for dummies: a summary
To summarize, NFTs (non-fungible tokens) are unique digital assets that can be used to prove ownership via blockchain technology.
While the NFT itself is a permanent record of ownership, the digital asset that you own could be anything from digital art to real world assets such as property deeds.
This is how non-fungible tokens are set to work in the real estate industry, the supply chain industry, and other industries that merge NFT technology with real world assets.
NFT use cases
If you’re reading our non-fungible tokens guide because you’ve seen that most NFTs are just a profile picture on Twitter and you’re wondering what on earth all the fuss is about, then you’ll be pleasantly surprised to learn that not all NFTs are collectible Cryptokitties or Bored Apes.
There are tangible use cases that give NFTs value beyond the mainstream NFT world of Nifty Gateway, OpenSea, or Rarible. In fact, the only reason that digital artwork NFTs are so popular is because anybody can make them. The more complex NFT use cases are set to change the world in the same way that the internet did at the end of the twentieth century.
One of the biggest benefits of non-fungible tokens is that their smart contract can be programmed to distribute royalties without the need of a middleman. This means that musicians, artists, writers, and other creators can earn NFT royalties in the form of digital currencies every time their NFT is sold online. Currently, they earn a small cut when their centralized publishers decide to pay them. With NFTs, they earn a larger percentage instantly and automatically. There is no reliance on a third party to pay out. The smart contract takes care of it trustlessly and in a peer-to-peer fashion.
Another big use case for NFTs is one that could revolutionize the gaming industry; tokenizing in-game assets. In the digital world of games, there are plenty of opportunities for non-fungible tokens to replace current in-game assets.
How many games have you played where you unlock a digital asset that can improve your experience of the game? Almost every one, right? By introducing non-fungible tokens to the gaming world, you can unlock the same asset but actually prove ownership. When you own NFTs, it’s your decision whether you play with your in-game asset, or sell it for actual money. This game-changing concept has led to the creation of play-to-earn games.
For more detail about the utility that can be applied to NFTs, check out our post on the top 10 NFT use cases.
NFT environmental impact
When covering NFTs for dummies, it’s important to cover the good, the bad, and the ugly.
If your only knowledge of NFTs comes from mainstream news sources, you may be inclined to believe that all NFTs are bad for the environment. But we ask you not to tar all non-fungible tokens with the same brush.
From NFT royalties to NFT gaming, non-fungible tokens aren’t just bragging rights to digital art ownership. They have utility, and advances in smart contract technologies are enhancing this every day. Likewise, not all NFTs are bad for the environment. It completely depends on the blockchain.
The Ethereum blockchain, for example, is notoriously slow and expensive. It’s one of the most secure blockchains for implementing smart contracts, and thus NFTs, and up until recently, it was a huge burden for the environment.
With the success of the Ethereum Merge on Sept 15th 2022, Ethereum transitioned from Proof-of-Work to Proof-of-Stake, cutting energy emissions by more than 99%. In addition to this, some NFT artists are planting trees with their earnings to offset their carbon footprint.
However, there are different blockchains with different consensus mechanisms that are not bad for the environment. Elastos’s mainchain piggybacks off of Bitcoin’s security at no extra cost to the environment, for example. There are other chains with smart contract compatibility that are not bad for the environment either, like Telos whose energy requirements are even lower than Visa and other traditional payment providers.
If you’re looking for a non-fungible tokens guide to find blockchains that do less damage to the environment than Ethereum, Elastos is worth a deeper dive. There are several NFT marketplaces on Elastos Smart Chain right now, including Elacity, Pasar, Vitrim, ODin and MetEast.
How to mint an NFT for dummies
So you know what an NFT is, why it needs to be non-fungible, what type of utility it can hold beyond digital art, and what affects its environmental impact, now you just need to know how to buy NFT art, how to create an NFT, and how to sell NFT art.
We’ve compiled the most common questions about NFTs into a list, with the Elastos Smart Chain being the blockchain of choice.
1. How to buy an NFT
Trying to find where to buy NFT art can feel daunting if you’re not familiar with the crypto space. For Elastos NFTs, you’ll find Elacity a great place to start. Explore the Auction House to find which NFTs are listed for sale. Once you’ve found one you like, connect your Metamask wallet or Elastos Essentials Super Wallet to place an offer – click here for a beginner’s guide to crypto wallets. You must have enough $ELA in your wallet for the purchase and a little extra for gas (a few cents’ worth, unlike Ethereum’s $100+).
If the NFT owner has listed the NFT for auction then the highest bidder will win when the auction time limit expires. You can also send a non-fungible token directly to another user’s wallet if you so desire.
You can buy non-fungible tokens on other Elastos NFT marketplaces too. Vitrim is an NFT marketplace (and more) that has been built from the ground up by the Majestic Labs team. They help community members launch NFT collections and have several offerings to date. In addition to this, the same asset on Elacity is usually portable to Vitrim and vice versa.
Finally, there is Pasar, the first NFT marketplace on Elastos. Like Elacity and Vitrim, you can access the Feeds dApp straight from your Elastos Essentials wallet. Feeds is actually a decentralized social media, similar to Twitter, that also includes Pasar, the NFT marketplace. The team have recently released a desktop version with a bunch of new features.
Unsure what a dApp is? Read our complete guide to dApps here.
Two newer NFT marketplaces on the Elastos Smart Chain are ODin and MetEast. ODin is a Chinese version of SuperRare, while MetEast is a relatively new NFT project that aims to focus around Blind Boxes and producing NFT liquidity. They plan to launch on Ethereum as well as Elastos so that they can port NFTs from ETH to ESC. You can read more about MetEast and their ambitious plans here.
2. How to make an NFT
If you’ve been wondering how to create NFT art for yourself, it’s a lot easier than you might think. As mentioned earlier, anybody can become an NFT artist – all you need is an image file. Of course, if you want to make an NFT that may actually be worth something, it will help to have some artistic talent, or to hire somebody who does.
Once you have the image file, you will need to connect your Metamask wallet or Elastos Essentials wallet to one of our NFT marketplaces: Pasar, Elacity, or Vitrim. Once this is done, select ‘mint’ or ‘create’ depending on which dApp you chose to work with.
This will take you to a screen where you can upload your file, give it a name and a description, and in Elacity and Pasar, you can even set the royalty fee too. With NFT royalties, you will earn a set percentage for every future sale of your NFT.
Click ‘mint’ and Bob’s your uncle.
3 step guide on how to mint an NFT for dummies
- Connect your wallet (Metamask or Elastos Essentials) and choose one of Elastos’ NFT marketplaces mentioned above.
- Have your file that you wish to transform into an NFT ready. Select ‘mint’ or ‘create’, upload your file and fill in the details – Elacity also allows GIFs and MP4 files.
- Click the ‘mint’ button.
Voila! You’ve just made your first NFT.
3. How to sell an NFT
Now you’ve minted your NFT, you might be wondering how to sell NFT art. This is just as simple.
Again, you’ll need to make sure your wallet is connected and that it contains the NFT you wish to sell. Go onto one of the NFT marketplaces mentioned above and locate your NFT in your wallet. Upon clicking on it, you’ll find a few options, one of which being ‘list for sale‘.
Depending on the platform and what you prefer, you can list your NFT for auction, or you can list it for a set price. On this screen you will also have access to the transaction history so you can check out who previously bought and sold the NFT and how much it went for. It’s also possible that you may receive a bid for your NFT even if it’s not listed for sale. If you find the deal agreeable, you can accept and the transaction will go through immediately.
Each of the NFT marketplaces has slightly different rules so check them out individually to find out which is best for you. Remember to check back every now and then as they are updated regularly.
4. How to invest in NFT projects
If you’re wondering how to invest in NFTs, upcoming NFT projects can be found by following the NFT marketplaces on Twitter: @Elacityofficial, @Vit_rim, and @ElastosFeeds. New NFT drops happen all the time so turn on the notification bell to stay tuned.
5. What is the most expensive NFT sold?
A more generic question, but asked a lot, the most expensive NFT created is titled ‘The Merge’. It sold for $91.8 million in December 2021. The NFT artist is known as Pak and he is now the creator of the highest value artwork sold publicly by a living artist.
There are many other ridiculously priced NFTs such as the CryptoPunk NFT collection, almost any Beeple NFT (including the previous record holder, ‘Everydays: The First 5000 Days’ that sold for $69.3 million in March 2021), and Tim Berners Lee’s ‘World Wide Web Source Code’.
As well as creating and selling one of the top ten most expensive NFTs, Tim Berners Lee was one of the first to advocate for a decentralized web 3.0. He is also considered the father of the world wide web.
Are NFTs the future?
What makes NFTs the hottest trend right now is mostly down to hype. However, utility is on the horizon and it seems likely that non-fungible tokens will play a huge role in an upcoming decentralized internet.
NFTs will be a fundamental cog in the data ownership machine too, of that there’s no doubt. But to what extent will their influence spread in an increasingly digital world? Only time will tell.
This article was written by Matt Leppington