Did you just find out about NFTs? Cool. I’m not gonna say you’re late to the party, in fact, you can be early to the next one! Tired of reading NFT beginner guides that leave you with even more questions than answers? It’s because no one gave you a proper NFT introduction! Your search has officially reached an end, as this one article will be your inauguration into the NFT universe. Won’t make big promises, but after reading this NFT initiation manual, the next time NFT, crypto, or blockchain come up in a conversation you will get it – and maybe even participate! Let’s dive in with three important parts: a proper NFT background, Basics of an NFT, and the stages of an NFT on the blockchain.
PART 1: NFT Background Introduction
To understand NFTs you should first understand the consequences that lead up to NFTs. With feeds that have more ads than things we choose to see, Web.2 is no longer an enjoyable web experience. Think of it like 10 companies in the world are making money from 8 billion people’s interests. That’s seen as a centralized internet, the leap is to have a decentralized one where all 8 billion make money from each other instead. This naturally led to the emergence of web.3 which incorporates blockchain technology, De-Fi, and NFTs.
The premise of Web.3 is instead of 10 centralized entities having access to everyone else’s move on the Internet, let everyone’s actions be visible to each other. Instead of large technology companies monopolizing, profiting, and dictating restrictions on the web, Web3 puts all that power in the hands of its users. Check out this guide if you want to know more about web3.
What’s a Blockchain?
Ever wondered how you have access to the internet right now? Long story short, it’s all happening through our computers. The blockchain operates in a similar fashion except there is no centralized source governing the connection between these computers. The series of computers that form a peer-to-peer network.
A ledger is a bank’s way of keeping tabs on everyone’s actions, which no one but the bank’s officials has access to. A blockchain’s digital ledger, however, is visible to everyone at any given time, as it has documentation of every communication between these computers. For example, you can access this digital ledger through a website such as Etherscan. It’s a for-the-people-by-the-people thing. That’s what makes the blockchain decentralized, transparent, accurate, anonymous, and secure. Check out this ultimate blockchain guide to become blockchain pro.
Cryptocurrency and De-Fi
To better understand why human beings evolved to a point where tokens such as cryptocurrency and NFT had to exist, you have to have a proper introduction to the history of trade currencies.
Main Characteristics of Cryptocurrencies:
- Cryptocurrency eliminates the need for banks and their controversies.
- It stores your money in a digital currency such as Bitcoin or Ethereum.
- Cryptocurrencies are kept in cryptowallets.
- Each cryptocurrency is a platform that operates on its own blockchain.
- All of its transactions are highly encrypted, making the exchanges highly secure.
- There is no single authority that governs cryptocurrency, therefore it’s labeled “Decentralized Finance” (De-Fi).
PART 2: NFT Basic Overview
The second part of our NFT introduction manual tries to define the uses and purpose of an NFT. Alas, we reach the part that got you reading this article in the first place. Three letters have the whole world on edge and trust me it’s a bit of an exaggeration. NFTs are a relatively new concept that’s why everyone is freaking out. Once you get the hang of it you’ll look back and smile at your panic-survivor instinct.
What’s an NFT?
NFT stands for Non-Fungible Token (NFTs is just the plural) and any English dictionary defines “fungible” as something replaceable so NFT is non-replaceable. NFTs are cryptographic assets on the blockchain. Our first interaction with an NFT is what we see -its digital image. However, technically it’s a bunch of code in the blockchain that links to a file that could be an image, video, or anything really.
Since NFTs are non-fungible assets one NFT is not equal to another NFT. It’s similar to buying a share in a company where no two assets can ever hold the same value. Therefore, NFTs are digital collectibles that can increase or decrease in value with time and demand. Cryptocurrencies and currencies are fungible therefore, 1 bitcoin equals 1 bitcoin just like 1 dollar is equal to another dollar.
When Did NFT Become A Thing?
A proper NFT introduction is achieved by diving into NFT history. If we go back in virtual time, we notice that attempts to make NFTs started in early 2012. Not many know that Quantum was the first NFT minted in 2014 because the actual NFT boom took off in 2017 with Cryptopunks and the mind-dazzling game CryptoKitties.To be more accurate, the 2019 global pandemic exacerbated the hype over NFTs. Why? People were locked up at home and had nothing to lose by discovering the internet. (To the rare percentage who found spiritual enlightenment in solitude, I feel you).
Now, what’s the relationship between cryptocurrencies, blockchain, and NFTs?
Easy, you buy NFTs using cryptocurrencies which in turn operate on a specific blockchain. The most common, or let’s say famous, cryptocurrencies/blockchains used for NFTs are Ethereum and Solana.
What Do You Get From An NFT?
Understanding what an NFT technically is something and knowing the benefit is entirely something else. Many people troll this technology because you are basically owning a bunch of code -and maybe they are right at times- but the potential that NFTs hold is truly massive. People use NFTs because they add value to the user’s experience. For now, it’s enough to acknowledge these three points:
- NFTs eliminate the middle man and central authority figure.
- NFTs, give you documented ownership that no one could ever dispute.
- Through royalty fees, NFT creators get a stable revenue stream.
To have a better grip on what NFTs get you, check out how NFTs enhance the creator and user’s experience in various industries:
- P2E Games
PART 3: Stages of NFT On the Blockchain
The third part of our NFT introduction journey is all about the NFT action. Up till now, it’s been nothing but a background overview of NFTs. You got the tip of the iceberg but it’s the hidden part that got the Titanic sinking. Not trying to wreak havoc and set you in panic mode. Because, up until now you’re barely scratching the surface with NFTs. To make the process easier, let’s categorize the journey of an NFT into three stages: Creation, Drop, and Trade. Before you read about each stage in detail, overview this keymap. As an NFT beginner, this diagram will become your GPS.
1- NFT Creation
To better understand how NFTs function, you must first have a basic grip on the creation process of an NFT. As an NFT end-user, one often neglects or overlooks knowing about this fundamental stage. It may sound simple – sometimes it can be -but so much work is put into creating an entire NFT collection. It essentially depends on your goals and what you want to achieve with this NFT. We’ve got this all-inclusive guide, that is far more than a basic NFT introduction if you’re interested in knowing the cost to create an NFT.
When we talk about creating an NFT know the difference between creating a single NFT and an entire NFT collection. You can create an NFT right now with zero coding experience for the fun of it, and it could cost you somewhere around $5 to $10. However, if we are to talk about the process that blue-chip NFT collections (such as BAYC and Doodles) went through, it requires a bit more effort and expertise. I’ll sum it up with these points:
1- Concept and Design
The closest thing to a physical interaction we get from an NFT is how it looks. Therefore, really interesting art goes a long way in making the NFT collection successful. Here are some art examples for you:
- Generative 8-bit pixel
- Artistic storytelling: RENGA, StreetMachines
- Art with a message: WoW, Where my Vans Go
- Weird Hype (yes some people make money like that)
2- Marketing Plan
A marketing plan is needed for any product you want to introduce to an audience. It’s very important when you are about to introduce an NFT collection to hype it in the right way. The major key points in the NFT marketing stage are :
- NFT price and royalty fees
- User attraction qualities referred to as NFT Utilities
- How to grow the audience
Royalty fees, now called creator fees, are a very big deal as they enable the creator to track and profit from NFT sales on secondary marketplaces after they sell out during mint. Think of it like ownership rights that keep cash flowing with time. Of course, the NFT must be desirable and successful to provide a solid revenue stream. So one must really put a lot of effort into the design and marketing process. You can set royalty amounts for NFTs from 10-30%, but remember that high royalty fees often discourage buyers. At the same time, a creator deserves to earn money from his or her creation. That’s why you need to find the sweet spot in pricing your NFT.
One essential part of the coding process is smart contracts, which represent the digital deal on the blockchain between the buyer and seller. You must hear the terms ERC-721 and ERC-20 thrown around when talking about such contracts. Well, these terms are basically standards of smart contract deals for each token on the Ethereum blockchain. In a nutshell, the ERC-721 standard deals with NFTs while ERC-20 deals with fungible tokens aka cryptocurrencies (in this case specifically Ethereum).
In all truth, it’s best to assemble a legit coding team when considering a seriously profitable NFT collection. Especially if you plan to drop your NFTs through their own website. Such a website is commonly referred to as a “minting website” because it’s where people go to get the NFT for the first time. I’ll explain what “mint” means in a few paragraphs, so hold that bewildering thought.
In the early stages, prior to the actual release of the NFT collection, whitelists start to form. They call it an “allowlist” these days, because somehow “whitelist” sounds discriminating. Quite ironic because an allowlist is indeed elite and extremely difficult to get into. Let me put it in a real-life context, what are the chances of Apple picking you to try out their unreleased iPhone 15? It’s not exactly impossible but rather least possible, but probably if you were there from the release of the genesis iPhone you have a high chance. Getting whitelisted is one of the best things that can happen to you as an NFT enthusiast because essentially it means you get the NFT at a lower price and you don’t have to get stuck fighting over gas prices.
2- NFT Drop
When an NFT collection drops, it has a limited supply determined at the creation phase. The average supply number varies between 5,000 and 10,000. This means there are 10,000 mint opportunities before the NFTs run out or get listed on a secondary marketplace at a much higher price. An NFT drop is the final stage of NFT introduction to the end users. That’s why the most important aspect of a drop phase is the public mint.
What is NFT Minting?
Minting, in a nutshell, is uniquely publishing your NFT on the blockchain, hence making it purchasable. By English definition, minting is the process of manufacturing coins using a kind of stamping. Since NFTs are unique digital assets, like a coin currency, transforming a digital image into a digital currency is called minting. So without minting, your NFT is without concrete value (money-wise), just a digital file waiting to be linked to its code.
Minting also holds a significant value among the NFT community, and that’s why those who get to mint an NFT profit the most. If you’re familiar with any form of collectible activity, such as comic books or pokemon cards, you hear the phrase “mint condition”. It’s a big deal among collectors to be the FIRST person who buys something in its fresh-from-the-factory condition because (other than sentimental value) they can resell it at insane prices. It’s naturally the same among NFT enthusiasts, I mean obviously, it’s not rocket science just human nature.
So let’s cement it in stone, the first person who buys the NFT when it drops is minting it, hence making it exist on the blockchain. This action, imagine it like embedding the NFT code into the blockchain, logically requires someone to do it, right? That’s where miners come into play, they perform these actions for everyone but of course nothing is for free. Therefore, when you mint an NFT you not only pay its price but also the price to mint it and that’s the link between miners and gas fees and ultimately how the blockchain works.
Minting Bots and Gas Fee Wars
When a highly anticipated NFT collection drops, there is insane demand for it. Let me contextualize the hype for you, DC Collectible Comics announced to its loyal fanbase the launch of its NFTs. Can you imagine the demand for these limited NFTs? Here it’s no longer about first come first served, more like highest tipper first served. Imagine everyone online at the same time yelling to the miners “I want to mint this NFT now!”. This drives gas fee prices to soar so high, why? Because everyone is trying to slip miners a money tip to perform their transactions ahead of others. During a hype NFT drop, the fight to mint an NFT is inevitable and is known as “gas wars”.
Believe it or not, sometimes people pay gas fees twice the price of the NFT they’re trying to mint. Now there should logically be a solution for this, that’s why it is best to secure a whitelist spot. Whitelisters don’t face gas wars, and mint at a very reasonable gas fee, that’s why it’s extremely desirable to get into whitelists. Unfortunately, securing a whitelist spot is really hard and requires high levels of dedication.
Don’t lose all hope yet because there is another solution, minting bots. These bots do all the hard work for you, they can get you several NFTs by using several wallets, and can maneuver through the gas war victorious. Click here to know more about NFT bots.
3- NFT Trade: An Introduction
After covering the basic grounds of NFT creation and NFT drops we arrive at the money-making stage of NFT trade. After minting an NFT fresh from the drop you have three options:
- Keep it as a collectible and flex that you owned it first for life.
- Stake it for more profit in the long run.
- Sell it again at a higher price.
If you choose to sell it again you open a whole other stage of NFT trading, and it’s what most people do. This is where NFT marketplaces come into the picture, they are the eBay of NFTs. Oftentimes, Marketplaces are the place where you start your NFT journey.
Master traders still make tons of profit even when they start buying NFTs at the marketplaces. The key is to find the right NFTs listed at a lower value and buy them, and this is referred to as a sweep. Such mishaps are very common, basically due to a person reselling an NFT at a low price unaware of its value. There are so many NFT Tools to help you in the NFT trading journey. For example, you don’t have to worry much about the manual process of sweeping, because that’s what sniping bot tools are created for.
The NFT Trading stage is full of technical and advanced details, and in this section, I just introduced a few common phrases. You can check this lengthy guide to learn how to make money with NFTs. You definitely earned the NFT beginner crown, now tread carefully into the blockchain!
Let me make it crystal clear that when you purchase an NFT, you are not buying the JPG image but rather the encrypted metadata that represents this JPG on the blockchain. If you want to understand where the judgment of skeptics is coming from, they argue that you are paying money to own a bunch of coded encryption. Also, anyone can right-click-save or screenshot your NFT so it’s a total waste of money. What the hell, right? I know it sounds like a crazy cult initiation, but after reading everything you can’t go on saying that. The true potential of NFTs lies in their utilities and how they can link creators and users without the need for a third party’s interference.
So the final takeaway is, don’t get too excited about knowing the ABCs. You still need to master making meaningful words with the letters. One last imp0ortant note, educate yourself about the possible risks of dealing with NFTs! Chainwitcher got you covered with these two protective guides about NFT scams and rugpulls.