What are NFTs?

NFTs stand for non-fungible tokens. They are unique digital assets that represent ownership of unique physical or digital items like art, collectibles, real estate, music, and more.

NFTs have unique identifying codes and metadata that distinguish them from each other. This makes them verifiably scarce and not interchangeable like cryptocurrencies. NFTs are stored on blockchains like Ethereum and allow decentralized proof of ownership that doesn’t require third parties.

Some key properties of NFTs:

• Scarcity - Each NFT is one-of-a-kind with unique attributes unlike fungible assets like cryptocurrencies which are identical and interchangeable. This provable scarcity creates value.
• Indivisibility - An NFT acts as an indivisible asset that cannot be divided into smaller denominations.
• Indestructibility - Stored on blockchains, NFT ownership records cannot be lost or destroyed.
• Verifiable authenticity - Blockchains allow buyers to verify and validate ownership, rarity, and scarcity.
• Programmability - NFTs can be programmed with additional functionality like unlocking content, rewards, voting rights, etc.
• Liquidity and marketability - NFTs can be readily traded on marketplaces for cryptocurrencies like Ether.
• Creator royalty structures - Creators can build in ongoing royalty rights each time their NFT changes hands.

Some major NFT use cases today include digital art, gaming assets, metaverse land/avatars, collectibles, investment assets, event tickets, domain names, luxury items and more.

How do NFTs work?

NFTs work by leveraging blockchain technology to establish proof of ownership and authenticity for unique digital assets. Here’s a quick overview:

• Creating an NFT starts with digitally encoding metadata that describes and identifies the asset. This includes properties like ownership, rich media representing it, edition numbers for collectibles, etc.
• This metadata is hashed to generate a unique identifier that gets stored as a token on a blockchain like Ethereum. This token represents the NFT and acts as a deed of ownership for the underlying asset.
• As the token is registered on public blockchains, ownership changes get recorded and timestamped in each new block. This allows buyers to verify past ownership and transfer history.
• NFT platforms and marketplaces use smart contracts to manage the NFT trade process including metadata storage, bids, final sale price, and transfer of ownership to the highest bidder.
• Once sold, the NFT acts as the new owner’s immutable certificate of authenticity and ownership rights. The metadata can be publicly viewed but ownership can only be changed by the holder via their private keys.

NFTs establish provenance via tokenized metadata that tracks ownership histories on tamper-proof blockchains. This gives buyers confidence in the authenticity and scarcity of owned assets.

ERC-721 and ERC-1155 NFT Standards

There are currently two major technical standards used to issue NFTs:

ERC-721

• Created in 2018, ERC-721 introduced the concept of non-fungible tokens to represent unique assets on Ethereum.
• ERC-721 enforces indivisibility of tokens, ensuring NFTs cannot be subdivided. Each token represents exactly 1 NFT asset.
• Supports rich customizable metadata, extensibility via inheritance, and enumeration for discoverability.
• Widely adopted standard for NFTs like crypto art, collectibles, metaverse assets, etc.
• Examples - CryptoPunks, Bored Ape Yacht Club, Decentraland, Sorare etc.

ERC-1155

• Introduced in 2019 to improve upon ERC-721’s limitations around supporting multiple asset classes in one contract.
• Allows semi-fungibility (mixing fungible + non-fungible asset classes). Eg. an NFT game may have fungible assets like game tokens alongside unique NFT items and characters.
• Batches minting of multiple NFTs to save on gas fees.
• Uses ID-based minting and transfers instead of sequential enumeration which allows more flexibility.
• Seeing adoption in NFT gaming assets, metaverse land plots tied to other assets etc.
• Examples – Axie Infinity, Illuvium, Ember Sword etc.

ERC-721 pioneered NFTs for crypto collectibles while ERC-1155 builds on it by supporting multiple asset types and batch operations.

How are NFTs created?

NFT creation involves technically representing a unique asset on a blockchain by:

Uploading or creating the original digital asset

First, the original creator uploads a digital representation of the asset to IPFS (InterPlanetary File System) which returns a hash acting as that file’s unique address. Common file formats can be images, 3D models, music, video, text or any other format that digitally captures the asset’s details.

Adding descriptive metadata

Next, metadata gets written that describes critical info about the NFT such as:

• Title and description
• Digital asset format eg. PNG, GLB file
• Date of creation
• Owner details
• Accessibility of materials eg. offline vs online
• Rights usage permissions This metadata allows for discoverability and identification.

1. Choosing blockchain & standards The asset creator picks an NFT-compatible blockchain like Ethereum, Polygon etc. along with token standards like ERC-721 or ERC-1155 that implement specific behaviors and functionality logic tailored to the use case.
2. Minting the NFT Finally, the metadata & asset data gets hashed to generate the NFT’s unique ID which gets permanently recorded on the chosen blockchain as an immutable ownership record and authenticity certificate.

Once minted, the NFT gets a traceable creator-defined supply cap and can be traded freely on NFT marketplaces.

How to buy, sell and store NFTs

Buying, selling and collecting NFTs shares similarities with dealing in traditional asset classes like art and securities. Here’s a quick guide:

Getting set up:

• To start, you’ll need a Web3 crypto wallet like MetaMask installed as a browser extension to hold NFTs and crypto. Wallets give you key pairs – public wallet addresses others can send crypto/NFTs to and private keys that grant access to make transfers out from your wallet.

• You’ll need Ethereum or other cryptocurrencies like WETH (Wrapped Ether) to make purchases. Crypto can be purchased on exchanges like Coinbase before withdrawing into your wallet.

Finding and Evaluating NFTs:

• NFT marketplaces like OpenSea allow exploration of different collections with filters like categories, popularity, recent listings etc. Evaluating factors include art style, community engagement, floor price history and volume traded to gauge market demand.
• Following influencers and communities on Discord and Twitter allows you to discover promising projects early. Joining allowlists via DAOs and other clubs also provides exclusive access to projects.

Bidding or Buying Outright:

• If bidding for an NFT, you’ll need to set the bid amount along with expiration duration. Or alternatively, you can buy outright if listings have a set buyout price.
• Use historical price data on volume and activity to inform your bids. Higher activity likely signals more engaged communities that value the works.
• Smart contracts handle the atomic exchange of crypto from your wallet for the ownership transfer once an offer matches and gets accepted.

Holding your NFTs:

• Once purchased, NFTs enter your wallet address with no additional steps needed. Wallets like MetaMask have galleries to view owned NFTs.
• You can showcase them as profile pictures on Twitter and Discord too. Some next-gen wallets like MoonPay even allow 3D AR viewing.
• Offline hardware wallets provide cold storage alternatives to avoid risk of exploits with online hot wallets.

Reselling NFTs:

• Connect your wallet to a marketplace, head to the “Sell” tab and pick the NFT, set a sell price and listing duration.
• You can also opt for timed auctions, set a reserve price as your minimum sell target and specify royalties to receive a cut of secondary sales.

Evaluating, buying, storing and selling NFTs mirrors traditional collecting but instead relies on crypto wallets and trustless exchange via the blockchain instead of middlemen.

How much does it cost to create and buy NFTs?

NFT costs for creation and subsequent purchases comprise:

Minting (First-time creation)

This involves contract deployment and on-chain registration thus requiring transaction fees usually denominated in Ethereum’s native currency ETH:

• Depends on blockchain chosen and complexity of smart contract functions, but averages ~$40-$90 currently on Ethereum.
• Relatively higher first-time setup costs but mitigated for large volume collections that batch mint assets.
• Significantly lower on layer 2 chains built atop Ethereum like Polygon (~$0.01 vs $40 on Ethereum L1 base layer) but smaller audience reach presently.

Buying Fees

This comprises blockchain transaction fees and marketplace listing costs:

• Blockchain fees (~$20-100+) involved for bid listing, sale conclusion, and transfer steps based on network congestion. Again, cheaper on Layer 2 chains.
• Marketplaces charge 2.5-5% commissions on sales. Some also add listing fees depending on asset type and sale format (fixed-price vs timed auction)

So while upfront creation costs are relatively stable, buyer costs can fluctuate more widely depending on Ethereum’s unpredictable gas fee market. Steps are being made via layer 2 scaling solutions to address costs and latency issues for better mainstream viability.

How do you sell an NFT?

Selling and trading NFTs relies on marketplaces like OpenSea, LooksRare etc. They allow you to easily list your NFT for auction or at a set price for buyers to purchase just like traditional ecommerce storefronts. Steps include:

1. Set up a Web3 wallet First buy some crypto like ETH and transfer it into a personal crypto wallet like MetaMask that supports NFTs. This allows direct ownership without needing an intermediary custodian.
2. Connect your wallet to a marketplace Head over to a leading NFT marketplace like OpenSea and connect your wallet by signing a one-time message to prove wallet ownership. This allows you to transact directly after listing rather than via an intermediary.
3. Select your NFT and sale method Browse your wallet gallery to pick the specific NFT. Then pick timed auction or fixed-price sale. You can even opt for declining price auctions that get cheaper over time if unsold.
4. Fill out listing details This includes setting the reserve bid price for auctions or buyout price for fixed-price listings. You can also choose an expiration duration before it closes and whether you want to set a royalty percentage to receive from secondary sales.
5. Sign the transaction to list
6. Use your wallet to digitally sign the transaction confirming the listing details to post it publically for buyers to view and bid on. This gets recorded on-chain.

Once purchased, the ownership automatically gets transferred to the buyer in an atomic transaction handled via smart contracts on the blockchain itself without middlemen. It’s a fast, efficient way to exchange assets peer-to-peer for cryptocurrency value.

Solana NFTs (Solana presents a viable alternative today for anyone seeking to join the NFT revolution on a budget)

Solana has emerged as a leading blockchain for fast, low-cost NFT projects due to key innovations:

Proof of History - This optimized timestamping of transactions enables much faster processing without compromising decentralization.

Low Fees – At less than $0.01 per transaction, minting and trading NFTs costs 99% less than Ethereum currently hampered by congestion.

Speed – Solana handles over 50,000 TPS creating seamless user experiences far quicker than 10-30 TPS speeds on most other chains.

No Gas Wars – First-come, first-served transaction ordering eliminates volatile gas fee races making usage simpler.

On Solana, the standard NFT format is SPL Tokens (Solana Program Library Tokens).

Some key things to know about Solana NFTs (SPL Tokens):

• They are created following the SPL Token standard, which defines a common interface for tokens
• It allows easy integration with client apps like wallets and marketplaces
• Transactions use the fast and affordable Solana blockchain with SOL tokens
• Popular SPL NFT projects include Degenerate Ape Academy, Sol Punks etc
• Top marketplaces include Magic Eden, Solanart, Alpha Art

Future Growth and Outlook

Solana NFT adoption outlook seems robust as ecosystem expands:

Gaming & Metaverses - Illuvium zero-knowledge rollups bring gasless minting for blockchain games. Upcoming launches like Star Atlas metaverse, Socket Face battle arena and others will drive new users.

Influencers and Brands - Celebrity collections like the DeGods from Steve Aoki launched on Solana introducing fans to web3 via NFTs for the first time. Similarly big brands like Adidas, Porsche and others are releasing branded collectibles targeting mainstream buyers.

Markets - Dedicated NFT marketplaces like Magic Eden have funded by a16z signaling confidence. Over 700k monthly active users shows strong organic pull highlighting benefits over ETH.

So with rapid pace of innovation across gaming, metaverses and influencer NFTs, Solana provides a next-gen platform for brands and builders to onboard the next billion users into web3 leveraging NFTs as the gateway.

How to create Solana NFTs with a step-by-step example:

Pre-Requisites

You'll first need:

1. Solana CLI tools installed to interact with network
2. A Phantom wallet to fund accounts
3. Some SOL tokens in your wallet for transaction fees
4. Code editor like VS Code
5. Images or 3D files you want to turn into NFTs

Step 1 - Setup Folder Structure

Create a new folder for your NFT project with these sub-folders:

• src (to hold source code files)
• bills (generated bills folder)
• images (asset files like jpg etc)
• json (metadata json files)

Step 2 - Add NPM Dependencies

Run below to install solana web3.js sdk into node_modules folder:

Copy code
npm install @solana/web3.js

Step 3 - Import Modules

Add below in main index.js file to import necessary modules:

js

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const web3 = require('@solana/web3.js');
const fs = require('fs');

Step 4 - Define Connection

Instantiate connection to Devnet with wallet keypair:

js

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const connection = new web3.Connection(web3.clusterApiUrl('devnet'));

const keypair = web3.Keypair.generate();

Step 5 - Create Mint Accounts

This creates NFT mint address programmatically:

js

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const mint = web3.Keypair.generate()

Step 6 - Create Metadata

This defines metadata of NFT attributes to store on chain:

js

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const metadata = {
  name: "NFT Name", 
  image: "nft.jpg", 
  properties: {
    color: "Blue", 
    size: 32  
  }
}

Step 7 - Stringify Data

Convert metadata into string format using JSON.stringify for uploading:

js

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const data = Buffer.from(JSON.stringify(metadata));

Step 8 - Upload and Mint

Finally upload asset and mint NFT using web3.js methods:

js

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await connection.getRecentBlockhash()
await web3.SystemProgram.transfer({...}) 

const tx = await web3.TransactionInstruction.from({...})
 
const signature = await web3.sendAndConfirmTransaction(
  connection,
  tx, 
  [mint, keypair]   
)

Now your NFT is minted! Customize further as needed for your use case!

What Can You Create an NFT For?

You can tokenise almost any original digital asset as an NFT - examples include:

• Personal Content - Selfies, tweets, website domains can be converted to NFTs
• Creative Works - Art, GIFs, Collectibles, Music
• Virtual Land/Goods in Metaverse games
• Event tickets/memberships
• Official certificates and licenses
• Physical Asset Fractional Ownerships
• Financial Instruments

There are a variety of benefits that NFTs enable across different industries and use cases:

Digital Collectibles

NFTs allow fans and hobbyists to collect rare digital items like artwork, sports moments as a Display of Pride or Sportsmanship. It unlocks social capital.

Proof of Ownership

Legal certification of ownership, authenticity and provenance for creators protects Brand Value and Scarcity. Prevents Chinese counterfeit products.

Unlocking Liquidity

Creators can access secondary sales value, not just primary sales. International buyer access also improves. Provides potential Revenue Streams through smart contracts taking royalties automatically each time their works trade hands.

Community Access and Engagement

Owning certain exclusive NFTs grants Community Membership and Access Privileges like private groups, events, early access etc. Builds loyalty.

Interoperability and Transferability

As open standards, NFTs can move more seamlessly cross-chain across different platforms and metaverses vs closed ecosystems. Resilience through decentralization. 

Unlocking Web3 Social Experiences

Profile pictures, identities, statements, content can be embedded as NFTs across web3 social media platforms in an interoperable decentralized internet (Social Tokens, Reputation Rings, POAPS etc) 

Embedding Rich Metadata

NFTs allow associated descriptive data, authentication sigs, licenses, unlockable content permissions etc to travel with digital items Smart Contracts enabling Automated Conditional Access

Fractional Ownership

Expensive basket assets can be portioned into more affordable NFT chunks allowing fractionalized ownership Distributed Investment Opportunities

Gamification and Engagements

Collecting and strategizing around NFTs in GameFi contexts like Axie Infinity incentivizes Participation while players earn from skilled gameplay. Creates Positive Feedback Loops.

These show the wide scope of novel utilities NFTs offer - which will only grow as technology and imagination progresses!

For creative works, ensure you have full ownership rights before minting to prevent disputes. Having dated evidence of past ownership also establishes provenance if needed.

And for physical assets, legal arrangements must be watertight when tokenizing fractional ownerships as NFTs to prevent misunderstandings.

Overall, assess whether converting an asset into an NFT unlocks real additional utility, transparency or liquidity based on the intrinsic qualities. Avoid creating NFTs loosely without a clear purpose just to cash in on hype trends.

But executed properly for suitable assets, almost anything can be meaningfully converted into an NFT.

Top NFT Collections

Let’s look at some highly sought after bluechip NFT collections by market capitalization as tracked on platforms like CryptoSlam:

CryptoPunks – Algorithmically generated retro 8-bit characters from Larva Labs that pioneered early NFTs. 10,000 supply cap.

Bored Ape Yacht Club – Trendsetting collection of 10,000 funky apes layered with attributes boasting a thriving community.

Mutant Ape Yacht Club – Derivative 20,000 supply offshoot of BAYC with fantastical mutations.

Azuki – Cute anime avatars forged by community votes via DAO with big names like Justin Bieber owning it.

CloneX - Animated armored avatar NFTs created by celebrity digital artist Takashi Murakami. Highly influential.

Moonbirds – Quirky owl legends collection of 10,000 NFTs from PROOF collective making web3 inroads.

Doodles – Adorable hand-drawn noodle-armed creatures crafted by Burnt Toast with merchandise IP.

Top NFT Artists and Key Opinion Leaders             

Given the artistic nature of NFTs, many renowned digital artists produce cutting-edge conceptual art in this medium. Some trailblazing names include:

1. Beeple - Mike Winkelmann sold an NFT collage for $69M at Christie's auction house, the 3rd most valuable piece by a living artist ever sold.

2. Pak - Created the famous The Merge NFT series valued at $91.8 million collectively. Also innovated mass-collaborative NFTs through experiments like Mass Masons.

3. Xavier Cussó - Prominent 3D fantasy artist known for vibrant, surreal Cuboart NFT series.

4. Krista Kim - Combines AI and emotional resonance into dreamlike technicolor art including Mars House, the first NFT digital home sold for $500k.

5. Mad Dog Jones - Pioneering figurative/abstract artist in the application of cryptographic art concepts predating the NFT boom.

There are also influencer celebrities driving cultural conversations around NFT adoption:

1. Gary Vaynerchuk - High-profile entrepreneur/investor and vocal NFT advocate arguing for their longevity. He also launched successful personal token $GARYVEE.

2. Paris Hilton - Early celebrity adopter promoting NFTs among wider pop culture audiences and spent $300k+ on Bored Apes.

3. Logan Paul - YouTube mega-star who believes NFT gaming and collectibles are the future. He's invested heavily in multiple projects.

Such artists and influencers provide validation, raise curiosity and accelerate mainstream understanding of new technology like NFTs through their cultural cachet.

Risks and Challenges With NFTs                   

While NFTs represent an exciting new paradigm, there are still some key risks to consider:

1. Highly Speculative Value

 NFT valuations can fluctuate wildly based on trends and perceived desirability. Making prudent investments requires deeper analysis into sustainability beyond hype cycles. 

2. Smart Contract Bugs

 Code glitches in NFT smart contracts could result in unintended behaviors. This can lead to loss or freezing of assets through exploits. Proper audits required for mission-critical transactions. 

3. Volatile Fees

 Transaction fees on some chains like Ethereum can vary sharply depending on congestion, pricing out smaller investors temporarily. Solutions exist but usability affects ecosystem growth.   

4. Fraud or Intellectual Property Issues

 Rare instances of fakes, unauthorized NFTs, stolen content get listed occasionally. Provenance tracking improving but still buyer beware.

5. Platform Risks like Hacks

 Centralized exchanges holding users’ funds have been vulnerable to hacks historically in crypto. Cold storage and decentralization best for managing large positions. 

6. Regulatory Uncertainty

 Policymakers are still evaluating appropriate guardrails for NFTs and crypto. Rules around securities treatment, taxes etc still in flux, creating uncertainty.

While these risks do exist, the decentralization, transparency and encryption properties of blockchains help mitigate them significantly compared to alternatives.

Tips for Beginners Getting Started with NFTs

Some pieces of advice for those looking to explore NFTs: 

1. Move carefully in the beginning

Start by investing smaller amounts as you learn the ropes before increasing exposure. Research extensively before big purchases

2. Prioritize access over ownership at first

Rather than focusing on buying expensive bluechip NFTs out of reach, participate in more affordable projects to join communities and learn firsthand.

3. Explore different ecosystem corners

Each subsector offers different value propositions - art NFTs offer individuality while metaverse land evolves with open-ended creativity. Compare use cases.

4. Follow both trends and fundamentals

Track both macro hype cycles and project-specific developments circulating in forums. Temper both momentum and fundamentals analysis wisely. 

5. Play the long game

The most prudent mindset is holding quality NFT assets for long timeframes for compounding royalty income. Short term flips riskier.

6. Protect your assets

Use hardware wallets, be paranoid about clicking links, don't flash assets publicly etc. Self-education around security critical.

NFTs represent an exciting digitization of ownership records, credentials, collectibles and financial assets through an open standard.

Thank you for reading! If you found this content valuable, please consider supporting my work

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