Unless you live under a rock or in a cave, you’ve probably heard about NFTs and NFT minting. They’ve become all the rage, not just among crypto investors and traders, but celebrities and their grandmas have jumped on the hype train. But what are NFTs, and what is the fuss surrounding them? Are they a quick money grab, or do they actually provide any utility and value? Well, the answer to these questions is – depends. Some NFTs are meant to be quick money grabs by celebrities, whereas others provide true value. But before you decide to mint your first NFT and throw away your hard-earned money at Floyd Mayweather or Logan Paul, take a moment and do your own research (DYOR) to figure out whether the NFT project you invest in is worth a dime.
What Are NFTs?
NFT is short for Non-Fungible Token. These are unique crypto tokens that have non-interchangeable metadata stored on the blockchain, unlike conventional (fungible crypto tokens), such as Bitcoin, Ethereum or Solana. What this means is that 1 Ethereum equals 1 Ethereum, and it doesn’t matter if it’s the exact same Ethereum that users purchase or sell. On the other hand, every NFT is unique and in most cases, the user cares deeply about whether it’s the exact NFT they’re buying or selling. Let’s take it a step further and explain what the blockchain is.
Blockchains are distributed and decentralized digital ledgers. They’re comprised of data blocks that are chained together in a chronological sequence. The most popular blockchain for NFTs is Ethereum, by a large margin. However, there are new, rising blockchains that are dedicated to NFTs, the Metaverse, and gaming, such as Ronin and Flow.
The metadata for an NFT is in the smart contracts that are stored in the blocks of the blockchain. Many newcomers think that the actual JPEG or image represented is what’s stored on the blockchain. While that may be the case for a small number of projects, most projects store the image on external storage platforms, and the metadata on the blockchain simply contains the link to that storage platform. This is because storing the full image on the blockchain would be costly due to the large size of images, making it uneconomical for the project to be on-chain completely.
What’s the Purpose of NFTs?
The internet has solved a lot of issues by digitizing the physical world. It’s never been easier to connect with people from all over the world and have an infinite scale. Moreover, the cost of distribution has gone down, and people go online to read news rather than rely on newspapers, for instance. However, all of these things still lack the benefits provided by the physical world. Scarcity and ownership are virtually non-existent, and it’s incredibly difficult to authenticate digital assets when compared to physical possessions.
While people will joke about right-clicking and saving your NFT, it’s the reality of the internet. There are zero ownership rights and very little value for having digital assets. And this is exactly what NFTs provide – proof of ownership. It provides you with the best of both (digital and physical) worlds –infinite scale, reduced distribution, global audience, authenticity, and ownership. So, before NFTs, it was almost impossible for digital assets to capture and accrue any value. While this was useful for consumers, it was bad for creators.
It was extremely difficult to trace and attribute ownership on the internet before NFTs, which robbed creators of credit and even revenue for their work. Now, they can get a bigger portion of the value they create with their art. However, this doesn’t mean that it’s all bad for consumers as well. NFTs allow people to easily trade, store and value their digital assets. Being an early fan of the next big thing can be incredibly rewarding, encouraging you to do what you do anyway on a daily basis.
How Do You Choose an NFT Project to Invest In?
There are thousands of different NFT projects, each containing thousands of unique NFTs. So how do you know which NFT to buy, or which project is worth NFT minting? Well, my rule of thumb is – to assess the project holistically. This means you should do your research on the team behind the project. That’s how you can know whether they’ll be able to execute and deliver on time. Take a look at their roadmap and see what their plans are for the foreseeable future.
The community that the project has built is a great indicator of how active the team is. Check them out on Telegram, Discord and Twitter, and you’ll get a general idea on the volume of interest in this project. The value of NFTs more or less comes down to supply and demand. Strong communities will be able to withstand even the coldest of crypto winters. And the best way to get an idea of how strong a community is, is by becoming a part of the community yourself.
It doesn’t matter if the project’s Discord has 10.000 members if there are only 20 people discussing the project every day. Therefore it’s better to join the Discord channel to get an idea of the vibe within the community. If the only talk is about floor price, Lambos and when moon?, it’s probably not a project you want to be a part of.
And with the high number of up and coming projects, it can be impossible to keep up. If you’re a beginner, I’d recommend finding a balance between following smart money, hype, and quality. What you consider quality is up to you, but the aforementioned paragraph should give you a general idea of what to look for.
The Final Word
You’ve hopefully come to the conclusion that NFTs aren’t just monkey JPEGs. Rather, they can provide true value to creators and consumers alike. They provide a way to engage with a community of like-minded individuals. They also allow us to accredit the value of digital assets, and they enable creators to get a share of the value they create.
While the current technology is quite new and far from perfect, the potential is definitely there. And the use cases of NFTs will only go up. It is just the start for virtual economies. And it’s up to all of us to figure out new and exciting ways to make use of NFTs.