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Dating back to 2014, NFT was mentioned by Kevin McCoy, who created and minted his first NFT by the name “Quantum” and sold it on 3rd May 2014. The same NFT today is on the market on sale for US$ 1.47 million. Fast forward seven years and the next thing trending on Twitter was NFT. 2021 was the year when we constantly heard the buying and selling of these Non-Fungible Tokens and this is when it was introduced to the masses on a greater level. Recording a trade of US$ 2.5 Billion in the first half of 2021, it took the market by storm with a reported trade of US$ 25 billion in 2021 (Source - The Ascent). With the rising interest of celebrities and tech aficionados, it is benefiting artists around the world and is not seen to be losing momentum soon. Does this pose numerous questions not just in the minds of the artists and buyers but also a common man as to What they are? How can one make money from them? or How can one buy them? And a lot more. That is what we are going to discuss in this article.
NFT or Non-fungible Token is a digital collectible. It is an asset that represents tangible and intangible objects like music, videos, art, etc. but in a digitalized form. Non-fungible basically means that it is a cryptographic asset that is encrypted on a blockchain and has a unique identity that distinguishes it from another NFT. They cannot be interchanged for other items and thus hold a different price individually. Unlike a cryptocurrency which is a fungible token, it is identical to each other and is of the same value when interchanged with another. NFTs are secured on the Ethereum blockchain and can be owned by only one person at a time. Due to its encryption in the blockchain, it encloses a built-in authentication which serves as proof of ownership. It is a form of digital media that can be seen by anyone but owned by only one person at a time.
NFT on sale on BlockBar against a bottle of Glenfiddich 21 YO Chinese New Year Limited Edition; Image Source - Block bar
Block bar is an NFT platform that deals in luxury liquor brand NFTs.
A blockchain is a distributed public ledger of transactions that records the NFTs. Typically the NFTs are held by Ethereum, which is one of the cryptocurrencies working on a blockchain network, but there are a few other blockchains now that support NFTs. The NFTs are available on many online marketplaces and can be either sold, bought, or transferred by an individual. E.g. If you are an artist, you can sell your painting in a digital form.
If you are a Buyer, you can purchase the digital form of the painting and own the exclusive ownership rights for it. The NFT can be either purchased at a price set by the seller or it is bid for and the highest bidder gets the option to buy it at the price.
NFT Collection on OpenSea; Image Source - Open Sea
For someone to build an NFT portfolio and purchase their first NFT, the only thing they need to have is a digital wallet. The digital wallet is used to hold the NFTs and the cryptocurrency which is required to buy or sell the NFTs. There are numerous digital wallets like Coinbase Wallet or MetaMask that allow you to open a wallet and add cryptocurrency to it. You can purchase cryptocurrency like Etherium, depending on what the NFT provider or marketplace accepts. This can be added to the wallet with the help of a credit card.
Metamask, Digital Crypto Wallet; Image Source - Metamask
A range of NFT is available on different marketplaces like OpenSea, Rarible, Binance, and many more. To purchase an NFT on OpenSea.io, you can simply follow these steps.
Log in to OpenSea with your digital wallet
Select an NFT and Click on Buy
Select the Digital Wallet you want to pay with
Scan the barcode from your phone to sync with the wallet
And simply pay
OpenSea, an NFT Marketplace; Image Source - Opensea
There is no cost involved in opening a digital wallet. However, there is a minimum Transaction Fee that is charged when you add cryptocurrency to your wallet with your credit card. When you purchase an NFT through blockchain, a Gas Fee is charged which is the blockchain transaction fee that covers the cost of powering the blockchain. This fee differs from one NFT to another and is based on blockchain transactions. Usually, it is 5.26% of the purchase price of the NFT.
An NFT can be sold by anyone, be it an artist, a winemaker, or even a realtor as long as they have a digital wallet and a collectible they can sell as an NFT. Today, there are many platforms for you to sell your NFT and you can choose anyone to convert your collectible into one.
Once you have a collectible in the form of art, song, a property, a bottle of wine, etc. in place, you need to mint it. Minting is the process of encrypting the digital art on the blockchain. The below steps can be followed to sell your NFT.
Creating an NFT on Opensea; Image Source - Opensea
Create a digital format of your collectible. This can be either done in Photoshop, Illustrator, or any other software.
Open a digital wallet, add Ethereum cryptocurrency to it
Link the wallet to the marketplace e.g. OpenSea
Initialize your account by paying a fee that ranges between USD 70 to USD 300. This is a one-time cost.
Upload the digital format of the collectible on the marketplace and pay an Access fee that provides OpenSea access to your NFT. This is a nominal one-time fee.
Fill in the details including the logo image, cover image, website URL, and description of the NFT, and mint it.
Pay the Minting Fee which ranges between 2.5% of the sales price.
Set a price for your NFT
Add the details for your payback wallet where you will receive the amount from the buyer and the royalty fee
And simply put it on sale
Once you have uploaded the digital format of your NFT and added in the detail and description, you simply need to follow the steps mentioned below.
Select the collection in which you want your NFT to appear
Fill in the strength or speed levels of your NFT. These levels indicate the value of your collectible. For E.g. An NFT of Château d’Yquem will have a higher strength and speed value due to its value in the market.
Add the numerical stats of your NFT. It is the value of your NFT in numbers.
Choose whether the content is Explicit, Sensitive, or Unlockable i.e. can only be seen by the owner.
Choose the number of copies you would like to create
And simply click Create
Minting an NFT on OpenSea; Image Source - Cryptopotato
Yes, there is a cost involved in transferring an NFT. For someone to be able to resell their NFT, they can put the NFT back on sale and add the demanded value. For this, you have to pay a nominal gas fee for the transaction which is usually 2.5% of the sales price.
Apart from the bragging and ownership rights of owning a collectible, there is no other reason in particular to purchase an NFT.
For an artist, selling NFTs is a great opportunity to make money. However, you need to have some amount of money to build your NFT portfolio considering the gas, transactional and minting fees involved. In the pandemic era, this is a great prospect for anyone to sell their collectible without the need of being physically present. It allows artists to monetize their skills and not rely on galleries or auctions to earn money. Not just this, it also allows the seller to receive a royalty for their NFT. The royalty is a percentage of sales whenever their art is sold to a new owner.
It is possible to copy the media file in the same way a screenshot is taken or a print is produced for an original picture. However, the ownership of the NFT and the original artwork will remain in your name, giving you the right of authenticity.
The buying, selling, and transferring of NFTs have an impact on the environment. The NFTs are tied to cryptocurrencies which create a huge carbon footprint from the power used to mine them. Even minting an NFT on the Ethereum blockchain requires a large amount of electricity which eventually increases its carbon footprint. A single bitcoin transaction uses 2,292.5 kilowatt-hours of electricity and emits 402kg of CO2. However, there are eco-friendly options also that allow the minting and storing of NFTs on Sidechain, a blockchain network linked to the main chain, that effectively reduces the consumption of electricity.
Bitcoin Mining; Image Source - Investment monitor
As the world becomes more educated about the different technological advances in different industries, it becomes interesting to explore them. With NFT used as a term quite often, it is not long ago that it would be linked to every asset we have today. The world of NFTs is vast and there is always more to learn. In case you have any questions or suggestions with respect to this article, please feel free to write to Shreya`s email.
Article by Shreya Kohli, Beverage Trade Network
Header Image Source - NFT Wine Collection of Wine by Trefethen Family Vineyards.