What is NFT? Non-fungible Token Guide

Hey everybody. Before we jump into the article, I invite you all to check out my NFT project, VEEFRIENDS, which launched on Tuesday May 11th! My article, How to Buy Your First VeeFriends, will walk you through the concept behind the project as well as how to make a purchase. I also encourage you to join the Discord community – just a fun place to connect, hang out and ask your questions on all things VeeFriends. Hope to meet you there!

NFT. If you follow me on Instagram, you have heard me using this term a lot over the past few weeks. You may have watched a few videos, liked them and kept scrolling, or you may have asked yourself what has quickly become one of the most popular questions in my comments, DMs, and Twitter mentions: what the hell is an NFT? If that sounds like you, keep reading.

We are in the early days of the NFT world — I’m talking prehistoric — and with that has come both incredible enthusiasm and skepticism. For many, the jury is still out on NFTs and the impact that they will — or won’t — have on society. For me, NFTs represent a revolution that has been a long time coming. Almost ten years ago, I named “virtual currency” as the next big wave. In fact, with the exception of blockchain (which I of course didn’t see coming), I’d even say NFTs were top on my mind back then. Why? — because of Farmville.

On a micro level, Farmville was just a silly game where people planted virtual crops. On a much larger level, however, I watched people spend real dollars to buy virtual sheep, and it flipped a switch in my mind. I understood that our lives were becoming more and more digital and I realized that human beings need to communicate through our purchases. It’s why the fashion industry exists — if we weren’t compelled to send each other messages through the brands and logos we wear, everyone would be dressing the same. What these observations told me was that as technology advances, the things we own in digital form would become the new conversation starters. I knew that many wouldn’t understand because they weren’t able to look past the present moment, but NFTs are a reflection of behavior from a macro human standpoint, and they’re about to cause a bigger wave than anyone could have imagined. 

Like the internet in the 1990’s or social media in the early 2000’s, NFTs will go down in history as one of the most significant things to happen in modern technology and culture at large. Big statement — I know — so let me tell you why I’m so excited. For me, NFTs are the coalescence of many of my lifelong interests: collecting, trading/flipping, business, creativity and building community. Like entrepreneurship, wine, sports cards and social media, they’re going to become another “home” that will allow me to present a side of myself that many of you don’t normally see. Stay tuned for more on that later 😉.

For now, understand that I’ve only just begun talking publicly about NFTs, but I have spent the last few months watching, listening, and learning. There have been countless hours spent discussing and going down rabbit holes with some folks just as amped up as I am — people like Scott Belsky, Kevin Rose, Matty aka DCLBlogger and more. I’m entering the NFT arena with a lot of enthusiasm, but also with tons of humility and respect for those who have truly been in the dirt. I’m here to respect the landscape and learn, first and foremost, and I encourage you to do the same. 

That being said, I truly hope this article will be a foundational guide for any of you who are green to the NFT space, or who simply want to understand my take on just how significant this shift really is. 

via GIPHY

WHAT EXACTLY IS AN NFT?

NFT stands for “non-fungible token,” but what the hell does that actually mean? Check out this comprehensive beginner’s guide from One37, but I’ll give you a breakdown from my own POV here:

NFTs are best understood as unique digital assets, and they exist in a variety of industries from digital art and virtual real estate to collectibles, gaming and more. Basically, any type of media can be minted or tokenized and turned into an NFT: art, trading cards, memes, gifs, video clips, audio clips, tweets, this article — anything. Once tokenized, these assets can be bought, sold and traded using cryptocurrency. 

FUNGIBLE VS. NON-FUNGIBLE

Fungibility basically means interchangeable; any two units that can be evenly exchanged are fungible. For instance, a $5 bill is fungible because two separate $5 bills hold the exact same value, and so for all intents and purposes, they are the same. On the other hand, let’s think about two Jordan Fleer 1986 rookie cards. They may present the same to the outside world, but they are definitely not interchangeable. Even if they look almost identical, there are distinguishing factors that tell them apart — like their centering, the coloring and the sharpness of their corners.

An NFT is a digital certificate representing a one-of-a-kind asset, just like a one-of-a-kind rookie card. Even if two assets appear identical, the metadata on the non-fungible token provides a stamp of authenticity that allows us to tell them apart. Still confused? No problem. Watch me explain NFTs in 60 seconds: 

HOW DO NFTS WORK?

For a detailed overview on how to create, buy and sell NFTs, I highly recommend you do more research. I also encourage you to read my guides on How to Make a Cryptocurrency or NFT Wallet and 4 Steps to Make Sure You Have Ethereum in Your Wallet. For now, allow me to give you the punch line. 

Creating NFTs

It all starts with a piece of content. This could be a photo, a drawing, a video clip…you name it. It can be an original, like a drawing or doodle you make yourself, or something already in existence, like the viral Doggface208 TikTok. 

Ethereum Blockchain

Once created, that piece of content is “minted” on the blockchain — in other words, it is turned into an NFT. A blockchain is an official ledger shared by thousands of computers, in this case storing a record of NFT ownership and transaction history. You can check out this in-depth blockchain guide, but for now, just know that most NFTs are part of the Ethereum blockchain. Once you officially create an NFT, it now lives in your digital wallet. Technically, nothing is stopping anyone from downloading or replicating your NFT from the internet…we drag and drop gifs and memes all the time — BUT the blockchain confirms your provenance aka proves your ownership of the original and authentic NFT. A common comparison is the Mona Lisa. Just like the one-and-only Mona Lisa exists only at the Louvre, your one-and-only NFT exists on the blockchain, and no copy, however exact, holds the same value. 

Once on the blockchain, your NFT is accessed using a wallet. This digital wallet is just the software which decrypts a seed phrase to access the account or address. That account or address is then listed as the owner of the NFT within the NFT contract, and that contract lives on Ethereum.

Selling NFTs

Next, you can choose to place your NFT up for sale. Check out this list of the most popular NFT marketplaces, but some you may have heard of include Nifty Gateway, OpenSea, Rarible and Makersplace. Within these marketplaces, buyers can either place bids or purchase your NFT for a listed price. 

Collecting NFTs

Alternatively, you could choose to buy and collect NFTs that you like or deem to be valuable, like pokemon or sports cards. If you think an NFT will appreciate in value over time, you might even hang onto it and decide to flip it down the line.

THE VALUE OF NFTS

You might still be wondering why NFTs are such a big deal. In my opinion, the value of NFTs comes from three things: utility, access and social currency. If you understand the concept behind membership cards, rewards on credit cards, tickets to VIP access-only events, you understand NFTs. If you’ve ever purchased skins or other virtual items for your video games, you understand NFTs. The reason you wanted that item was to be a utility in a world that you cared about, or to have the clout and bragging rights amongst your friends and others. NFTs are going to extend that same utility and “flex” of social currency to everything else. 

The reason people are buying NFTs is the same reason people wear clothes with designer logos, drive luxury cars or hang pictures on their wall with important people. It’s the same reason people care about blue checks on Instagram. Years down the line, I believe that we will all be checking out each other’s digital wallets and bonding over the mutual interests in our NFT purchases. Everyone will have some kind of NFT project, the same way everyone has a social media account. 

WHAT CAN BE CLASSIFIED AS AN NFT?

Basically anything can be an NFT. If it can exist digitally, it can be tokenized. Right now, much of the NFT buzz is coming from digital artwork. Instead of canvas and paint, many artists who create their works on the computer now have the option of minting their creations into NFTs. For example, “The First 5,000 days” — a piece by digital artist Mike Winkelmann aka Beeple — recently sold for $69 million at renowned auction house, Christie’s. Even memes are becoming art in NFT land, with a token of the popular Nyan Cat meme selling for $590,000. 

The first ever tweet — a 2006 one-liner by Twitter CEO, Jack Dorsey — sold for $2.9 million, and even the NBA is getting in on the action with their NBA Top Shot marketplace. NBA Top Shot allows users to buy, sell and trade video clips of specific NBA highlights, like a LeBron James clip that recently sold for $200,000. 

ARE NFTS A FAD? 

NFTs represent a major cultural change, and history teaches us that with change comes mass skepticism and confusion. Many who have scoffed at the idea or viability of NFTs have simply not yet understood the larger implications. Like the concept of online dating in the ‘90s or riding in cars with strangers (Uber and Lyft), every idea is “crazy” until it’s not. NFTs will continue to be viewed as a “fad” by those who haven’t yet made the mindset switch to embrace where the world is headed. 

SHOULD YOU INVEST IN NFTS? 

That being said, NFTs are still an incredibly new market, and I implore you to exercise extreme caution with investing, especially in these early days. In fact, I believe that the vast majority of current or upcoming NFT projects are vulnerable to not being successful investments down the line. Why? People right now are very motivated by the quick buck. Many will rush in and buy projects just because someone has told them something will be worth lots of money later. The truth is that we are looking at a major supply and demand issue — there is going to be more supply over the next six months in NFT projects than anyone can comprehend, and most of it will be short-term transactions. If you take one piece of advice from me, it would be to only go for projects you truly believe to be long term plays.

Let me say this again one more time to make sure it’s super clear. Please do not act like NFTs are now a land grab to some quick cash. Many are going to end up getting burned from their purchases when a few months later their NFTs are down 80%. Instead, educate yourself and decide what projects or individuals you truly believe in. 

Horses & Jockeys

So, how do you evaluate your choices? I think of it as horses and jockeys. The underlying data, my personal enjoyment of the NFT and subjective opinion on its creative value — that’s the horse, but it’s also crucial to look at the jockey…aka who is the human behind this project? Do you believe in them and their ability to cultivate a real community with real excitement behind their work? I think it’s the artists that genuinely care about their communities that will win, and those will be the projects that stick around for the long haul. 

IS ALL THIS A BUBBLE?

As for those worried the bubble will pop, I say to sit tight. NFTs right now are in the same place that the internet stocks were in ‘98 to 2000. When the dot-com bubble burst and the stock market collapsed in March of 2000, everyone dismissed the internet, but that’s when I tripled down and it changed my life. Will there be a crash of NFT projects that are selling for lots of money right now? Absolutely. Will it eliminate the NFT market? I really doubt it. On a micro level, we’re looking at lots of risk, but if you zoom out, we’re looking at revolution. 

PROS AND CONS OF NFTS

When it comes to cons, there is going to be a lot of short term thinking, money lost, and high emotions. It’s also important to note the ongoing discussion surrounding the adverse effects of NFTs on the environment. Still, I am bullish on NFTs because I believe they represent a culture shift that will positively impact society in a number of ways. 

For one, NFTs will help everyday people realize their true destiny as artists. The same way that social media and the influencer space turned many into personalities and experts, NFTs will open the door for so many people with artistic inclinations to explore avenues they never saw coming or thought possible. I am confident that we’ll see many teachers, salespeople and accountants making the transition to a happy, healthy career in this space. 

Secondly, NFTs are a major shift for IP ownership. The fact that artists will continue to get royalties from the resale of their digital works will empower creators in a way we haven’t seen before. I think this will lead to a shift in the way art is perceived in general. Art will start to be viewed as a practical life path, and actually encouraged by skeptics and parents of creatives. 

TAKEAWAYS

1. NFTs represent a major shift in culture and modern technology akin to the introduction of the internet or web 2.0 and social. 
2. Wild over-supply will lead to the collapse of a majority of NFT projects launched in the next few years, but the market will remain long-term.
3. Crypto art will create immense opportunity for artists to capitalize on their IP, and for everyday people to discover their artistic callings.

When it comes to the world of NFTs — or anything, really — I say, have conviction, don’t convince. In other words, I’m not here to persuade you why NFTs matter or to push you to make any purchases. I’m just a consumer of human behavior who is massively excited to see where this takes us. Keep your eyes open 👀. 

I hope you were able to find some value in this article. If so, do me a favor and consider sharing on your favorite platform!