According to CNBC, the NFT trade volume rose by approx 704% between the second and third quarters of 2021.
It was hard to ignore the NFT boom in 2021. Fortunately, this boom is expected to continue in 2022 too. For investors who missed the opportunity to earn from NFTs last year; 2022 can be an amazing year.
However, before investing into NFTs, it’s important to know all the ins and outs of the market. So for all the new investors and traders out there, this NFT guide is a game-changer. Today, we are going to cover all the basic to advanced topics about NFT. By the end of this blog, you’ll be an expert on NFTs. So without any further ado, let’s jump straight to our first topic.
What is an NFT? Complete Overview!
NFT stands for non-fungible token. It’s basically a type of digital asset that’s created and operated through blockchain. “Blockchain” might be a new term for you. To understand NFT, you must first have a basic idea of what “blockchain” is. Assume blockchain as a big “database” of various transactions.
This database is stored on computers across the globe. Coming on NFTs, they are separate entities or digital assets within the blockchain. NFTs contain identification data that are recorded in smart contracts. These contracts are what makes every NFT unique from each other. Unlike cryptocurrencies, these digital assets cannot be exchanged with one another.
So this was an overview of what exactly is an NFT. Now it’s time we understand how these non-fungible tokens work. Understanding about their working will help you a lot in your investment journey.
How do NFTs Work?
NFS, as their name says, are non-fungible. However, tokens such as Ethereum-based ERC and Bitcoins are fungible. Therefore, they are used to purchase non-fungible tokens. In marketplaces like Decentraland and CryptoKitties, ERC-721 is used for trading NFTs. So if someone created an NFT, which has a profitable future, investors can purchase that NFT using Ethereum.
Besides, an NFTs value is mostly calculated on the basis of cryptocurrencies, because that’s what they are traded in. More specifically, Ethereum is one of the major cryptocurrencies, used as a medium of exchange for NFTs. However, with the increasing demand for more exchanges, various marketplaces have started to support other Cryptocurrencies too.
NFTs can be produced through blockchain using proper support and tools. Though Ethereum was the first cryptocurrency to support NFT, the ecosystem is continuously expanding. Blockchain marketplaces such as TRON, Secret Network, Flow, EOS, Tezos, NEO and Solana have also started to support the creation of various NFTs.
NFTs and their smart-contracts offer opportunities for adding detailed attributes such as the owner’s identity, secure file links and rich metadata. The potential of NFTs immutably proves that digital ownership is a crucial progression for today’s high-tech world. Talking about the creation of NFTs, do you want to know how exactly NFTs are created? If yes, then keep reading to discover the detailed process of NFT creation.
Step-By-Step Process of Creating NFTs – Learn And Create Yours
Creating your first NFT isn’t as hard or complex as many people assume it. Let’s have a look at the steps for creating your own NFT. However, remember that this section is not meant to be a comprehensive expert guide in NFT creation. There are many ways to make NFTs, depending upon what tools you use, so consider the following as general steps. Here we go!
Step #1 – Deciding what type of NFT you wish to make
NFTs have a versatile nature. That’s why there are plenty of options to choose from. Your options include virtual tickets, games, music and media, memes, tickets to events, artwork and much more. Moreover, you can also create an NFT of a real-life item such as any collectable figure or a picture signed by some celebrity.
NFTs are often in the form of MP4, PNG, JPG, etc. Many people have this assumption that – “you need to hire or be a developer to create an NFT.” But it’s just another misconception and nothing else. If you decide to create a simple NFT, you will not need a developer’s help.
However, if you want to create complex NFTs, such as a game or some complex smart contract. In that case, you might need to hire a developer. When you are making your first-ever NFT, think of how it can provide value to your target audience.
Ask yourself – why would anyone want to purchase my NFT? If you have an existing business, you can try making NFTs of an exclusive promo code or a loyalty card. If that’s not possible for you, you can always hire artists to create custom artwork. You can further create NFTs for those artworks and sell them at profitable rates.
Step#2 Choose your NFT marketplace
When it’s about creating your NFT, there are plenty of NFT marketplaces you can choose from. Every marketplace has its own advantages and disadvantages. Therefore, before finalising any marketplace, make sure to do proper research. The three most popular and commonly used marketplaces you can consider using are – SolSea, Rarible, and OpenSea.
These platforms make it easier for newbie creators to enter the world of NFTs without any inconvenience. Some of these marketplaces require authentication of your NFT piece on the blockchain before launching it officially. On the other hand, platforms such as Rarible and OpenSea offer shortcuts like lazy minting. Under lazy minting, users can avoid paying certain transaction charges (middleman fees) by launching their NFTs directly to the blockchain, then passing on those charges to the buyer.
For beginners, mining or account initiation fees is one of the most crucial considerations, which is often referred to as “gas.” Every marketplace has unique fees, and they vary depending upon how users plan to launch and sell their NFTs. For example, OpenSea charges account initiation fees, which can cost you up to $100.
Step#3 Set up your cryptocurrency wallet
The next step is setting up a digital crypto wallet where you will store all your NFTs and cryptocurrencies. When you are selecting a crypto wallet, make sure to choose the one that is compatible with your selected marketplace and the blockchain.
Most of the NFT creators prefer using the extension wallet of the MetaMask browser. This wallet is simple and easy to set up. Plus, it can connect with almost all types of blockchains, used for creating and trading NFTs. Other popular options for crypto wallets are Trust Wallet, AlphaWallet, and Enjin.
Step #4 Purchase cryptocurrency through a crypto exchange
Once you are done creating your wallet, it’s time you purchase some cryptocurrencies to pay “fees” to mine your NFT. You should create an account with reputable exchanges such as Crypto.com, Kraken or Binance. The process of creating the account is very simple and you can complete it even on your smartphone. Now when you have your account, you can move on to log in and purchase the cryptocurrency.
For mining an NFT, you need to purchase Solana (SOL) or Ethereum (ETH) coins depending upon which marketplace you have picked to mine your NFT. Once you have purchased your crypto, transfer them to your crypto wallet from your exchange wallet. Following are the steps to transfer cryptos from an exchange to a crypto wallet:
- Log in to your exchange
- Open your Wallets and then tab on bottom “navigation”
- Then tap on the “Withdraw” button and choose the required currency
- Enter your wallet’s address in the “address field”
- Choose the relevant network (Solana for SOL or ERC-20 for ETH)
- Enter the required amount and then hit “Withdraw”
Step #5 Connect your crypto wallet with your NFT marketplace and start mining
After transferring your crypto to your wallet, connect it with your NFT marketplace. Let’s illustrate all the steps that you will need to follow for mining your first NFT. To make you understand everything clearly, we are using an example of Rarible(marketplace).
- Visit your marketplace. In our case, visit Rarible.com and then click on the “Connect wallet” tab.
- Choose your wallet and give your marketplace permission to read all your accounts.
- Then click on “Connect”. You’ll get a popup to accept or deny your platform’s terms & conditions. Click allow.
- Go back to Rarible’s homepage and then click on the “Create button”.
- Now choose between producing your NFT’s single copy or multiple copies.
- Upload the digital file that you want to convert into NFT.
- Next, you will be asked to pick the way you want to trade your NFT file.
- Then you are done choosing the selling currency, choose if you want to provide your NFT’s high-resolution version or add unlockable content via a secret website or the download link
- Choose Rarible as your collection for your first NFT.
- Add a title and then a description for your NFT.
- Specify the royalty percentage that you wish to receive from your secondary sales.
- Specify your art’s properties like its size in pixels or colour.
- Click on “create item”.
- Approve the gas fees transaction in your wallet.
- Click on “Confirm Upload file” and continue mining your token.
- Confirm your contract integration into your crypto wallet
- Click on “Sign” in your wallet.
And that’s all. Your first NFT is now mined. To discover your mined NFT, click on “profile” and then on “My Items”. There, you’ll find the NFT you just mined.
So these were the steps on how to create an NFT, using a marketplace. However, before you move on to mine your first NFT, it’s ideal to educate yourself about your marketplace’s working. A marketplace is where you are going to mine NFT, therefore, understanding it’s working will make the mining process easier for you. Keep reading to discover how an NFT marketplace works.
How Does The NFT Marketplace Work?
By now, you’ll be aware of the fact that NFTs cannot be traded directly. It required dedicated platforms, known as marketplaces, to buy or sell NFTs. Investors or traders can browse through a marketplace and purchase or sell their virtual assets or NFTs using cryptocurrencies like Bitcoin or Ethereum.
Now this question might pop up in your mind – how exactly does a marketplace work? Generally, all the NFT marketplaces have a fixed user funnel. Let’s understand the user funnel of an NFT marketplace in detail:
- User registers/sign up on an NFT marketplace website.
- The users then set up their crypto wallets.
- Now comes the first step of NFT creation. The users convert a digital collectable or artwork into an NFT and then showcase/pitch their work.
- The user chooses from multiple NFT trading options such as auction or setting a certain amount.
- The digital token then undergoes a moderation process
- Once the NFT gets approved, the users browse their assets in their platform’s sales listings.
- The NFT poster starts accepting and then analyzing the bids.
- After the auction is over, the marketplace sends a notification to the NFT owners about the highest bids.
- The platform then verifies and starts the transfer of NFT’s ownership to the buyer.
Once the users become the rightful owners of their NFTs, they sit back and wait for their price to increase. When the price increases, they resell their NFTs and earn profits out of them. There is a wide range of NFT marketplaces through which you can start your NFT journey, such as MakersPlace, OpenSea, etc.
Remember that almost all the marketplaces charge certain mining fees. So make sure you choose a platform after in-depth research, considering all the important factors. Well, now that you know how an NFT marketplace works, it’s time to cover another equally important topic. Keep reading to discover how the price of NFTs increases.
How Does The Price of NFTs Increase?
Profits from NFTs are directly proportional to an increase in their price. Well, it’s obvious that if you want to earn profits from NFTs, you have to sell them when their price increases. But what causes the increase in the price? Well, there are various factors that cause this increase. Let’s understand about a few of them:
If your artwork is unique, the price of its NFT will increase with time. Let’s understand this concept with the example of the Mona Lisa’s painting. We all know that there’s only one Mona Lisa painting in the world. Therefore, it comes under the category of unique artworks. You might not know, but there’s an NFT of Mona Lisa’s painting.
Its price is somewhere around 35 Ethereum, which is equal to 93,297.05 US dollars. And the NFT’s price is to cross the sky over time. The reason is because that NFT is unique. There isn’t any other Mona Nisa NFT in the world. Therefore, its uniqueness is what helped it achieve great value and higher prices in the NFT market.
The demand is one of those factors that highly affects an NFT’s price. Let’s carry forward the example of Mona Lisa’s NFT. So if the demand for this Mona Lisa’s NFT will increase, its owner will obviously increase its price. It’s simple logic – the higher the demand, the more the price will increase.
However, when it comes to demand, only unique and valuable things get demanded. So make sure when you are creating an NFT, it should be something whose demand will increase in a short duration.
Other factors that promote the price of an NFT are –
- Ownership history
- The future value of your NFT
- Liquidity – high liquidity means a higher price
So far we have learned what NFTs are, how they work, steps to create an NFT, how an NFT marketplace works and factors affecting the price of NFTs. Now when you know all the important details about non-fungible tokens, it’s time you start your investment journey.
The earlier you start, the faster and better results you can experience. However, before investing in any NFT, make sure to perform complete research. That way, you will purchase NFTs that provide you with desired returns. Finally, have fun investing in NFTs!
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