Nearly everyone that is knowledgeable about digital assets would tell you that NFTs are presently the most popular assets. We will readily agree with this assertion because collectors are spending millions of dollars to own them.
However, not everyone understands what NFTs are and what they represent. The fact that there is money to be made by investing in them leaves many wondering. The opportunity exists not just for investors but for creators as well. So what are NFTs and how do you make money with them?
What is A Token?
NFT is an acronym for non fungible token. We have to understand what a token is and what they’re used for at this time. We shall also explain what fungible tokens are and which ones are non fungible to help us understand the subject that we are discussing.
In the original sense, tokens are means of exchange within specific environments. We can simply say that a token is money that is designed to work within a particular area. This means that people can use tokens to transact businesses with others who have similar interests as they and place some value on the token being used.
In a cryptocurrency sense, a token is a form of currency that can be used within a specific environment. This ecosystem where it is used is usually built on blockchain.
Just as money is used as a means of exchange within a country, a token is a means of exchange within a cryptocurrency business or concern.
However, the ecosystem for which a cryptocurrency token is designed for may not necessarily be a business. It could be a project built by volunteers to accomplish a particular objective. In such cases, the token is used as the “money” within the community of that project.
The technology behind cryptocurrency tokens is called blockchain or distributed ledger technology. Cryptocurrency projects entail building something on blockchain.
Since anything of value has to have a way of passing that value to those who need it, a token has to be minted as well to enable users to benefit from the project. So tokens in essence represent value that a community gets from an ecosystem of a blockchain-based project.
This means that tokens represent value within the blockchain platform for which they were minted.
Blockchain is a technology that stores information in a manner that makes it impossible to alter them. This makes blockchain desirable since it eliminates the need for third-parties in transactions. The information or data on the blockchain is unalterable. Beyond that, it is also safe because it is protected by cryptography.
The blockchain is protected by several computers called nodes. These computers accomplish this because each of them have a full copy of the transactions made on the distributed ledger technology (blockchain). So someone trying to change the data on the network would have a tough time doing that in all the computers protecting it.
Other features that confer desirability on blockchain-based projects apart from immutability is transparency. One party can easily see transactions made on the blockchain. This means that it is a medium that actually eliminates the need for trust. If one party sends an item on the blockchain, the receiving party will easily see that such item has been sent.
History of Cryptocurrency Tokens
Digital asset tokens became popular through the initial coin offerings (ICOs), the crowdfunding mechanism developed by the cryptocurrency industry. During an initial coin offering, a project team offers their internal currency (tokens) to investors and other contributors who help in financing the project or in promoting it as the case may be.
The internal currency of these blockchain projects are called tokens prior and during the ICO. These cryptocurrency tokens are usually used within the ecosystem of the project for which it was built. However, over time, they can be bought and sold in the secondary market such as exchanges.
Cryptocurrency tokens are valuable because of the economics and technology behind them. They are designed to be in demand within the platform where they’re used. Another tokenomics principle that is applied in making them of value is their total supply.
The team behind a project would generally limit the number of tokens that can be minted. This ensures that the market is not flooded with the token leading to their devaluation. Most importantly, tokens that are useful will always be valuable because of the use cases associated with them.
Fungible And Non Fungible Tokens
Tokens initially built on the blockchain were generally fungible. The implication of this is that one token is exchangeable with another because they are exactly the same in terms of value and configuration.
For example, even though Bitcoin is the first coin that made the blockchain popular, it is clear that one bitcoin can be exchanged with another just the way you can swap a dollar bill for another dollar bill. You accept one bill for another because they have equal value. No one feels cheated if they lent a dollar without usury and got back a dollar. This means that cash or fiat is fungible.
However, the concept of non fungible tokens was developed as use cases of the distributed ledger technology (blockchain) expanded. Despite some limitations, it has been found that a wide range of assets can be placed on the blockchain.
The fact that whatever has been registered on the blockchain cannot be changed makes it possible to create unique and peculiar items on it.The uniqueness of these items imply that one cannot be swapped with another based on exactitude of features and equality of value.
Since the features of these assets vary it became obvious that one asset would not be of the same value with another. If this is the case, the items or assets are non fungible tokens. One is not exactly like the other, so the owner of a non fungible token possesses an item that is unique, unalterable and maybe very valuable. The value of the NFT depends on a lot of factors such as the work put into it, its origin and how rare the item is.
In other words, a NFT is a unique asset that is placed on a blockchain. None of these is exactly like the other and the origin and the ownership of such assets is known. These can be verified on the blockchain.
Why Place Items On Blockchain?
Why would anyone want to place their assets on distributed ledger technology? There are several benefits to this. As we are aware, collectibles have hitherto been in the form of digital assets. People love to collect items mainly because they perceive them to be rare and valuable. The collector can afford to pay a lot of money for these items because they’re original works from their creators. Works of arts by Leonardo Da Vinci for instance, are prized because they were created by an artist of repute.
Non fungible tokens (NFTs) represent originality placed on a new technology. The perception of people is that digital items are the trend of the future. For instance, the fact that Bitcoin, the first digital currency, may be poised to be worth hundreds of thousands in the future has made many investors and collectors to become aware of the potentials of digital items such as NFTs.
The essence of minting an NFT on a blockchain is to create a digital version that cannot be altered. It means that the work of the creator as an intellectual property is protected. Furthermore, there is a large network of potential collectors or buyers that can access the item through the marketplace of the minting platform.
We talked about tokenomics of the digital asset earlier on. This has been applied successfully to non fungible tokens to ensure that they are scarce commodities. There are many collectibles that their creators produce in very limited numbers to see to it that they have high demand. This is why you would hear of NFTs that are sold for millions of dollars. The collectors are aware of the fact that they’re buying digital items that are scarce, in-demand and valuable. That is why they’re willing to pay a lot for them. You may have heard of the digital video by Grimes that sold for $390,000 and the digital image that was sold on Christie’s for $69 million. These are just examples of the effect of tokenomics when people strive to collect rare and unique items such as these that have been placed on blockchain.
You may be wondering why anyone would pay for such money for digital images or videos. The reason is that these are no ordinary downloadable works. Being on the blockchain and NFTs means that they are original and unique items that only the collector owns. Others may download the web versions but those are not blockchain-based. Neither are they unique or exclusively owned unlike the NFT that the owner holds their private key and can actually prove ownership via blockchain. In fact, the more popular the item becomes through web downloads results in the appreciation of its value as an NFT.
What Can Be Placed On Blockchain As NFTs?
There are several projects that strive to create NFTs that are representative of physical items. If this is done, it becomes easy to have digital versions of luxury goods such as diamonds. However, this has not become widespread due to the challenges associated with it. However, there are many items that have successfully been created as NFTs.
Games, art, videos, documents, autographs and even tweets by popular persons such as Jack Dorsey, the founder of Twitter have all been created as non fungible tokens. Virtual estates have been reproduced in gaming platforms or as investment concepts through NFTs. This makes it possible for people to collect items such as gaming cards in the form of NFTs. Also, it is possible to invest in virtual land as a prospector or a baron and even lease or rent such virtual estates to tenants through virtual metaverses that are increasingly being built on the distributed ledger technology by gaming and investment businesses. Animal lovers have a wide range of digital versions to select from. You may have heard of CryptoKitties, the popular NFT that was launched on the Ethereum blockchain in 2017. The platform created virtual cats that collectors can buy and sell. They can also mate cats to produce offspring with desirable traits.
How Do You Make Money With NFTs?
Having known about NFTs, what next? You’d want to know how to make money through non fungible tokens. There are several options available in making money through NFTs. Some of them are:
If you’re skilled in creating things, you can build your own NFT and have it deployed on a blockchain platform. Most of these platforms partner with NFT marketplaces so if your NFT is worthwhile, you can make quite a lot of money by selling them to collectors.
Some NFT minting blockchain platforms that a creator can use are Ethereum ERC-721, Binance Smart Chain BEP-20, EOS, Tron, WAX, Tezos, Cosmos, Polkadot, etc. Some of the marketplaces associated with NFT are Mintable, Rarible and OpenSea.
Buy And Sell Later
You can also invest in NFT to make money. This works well if you come across a good NFT that has recently been launched. Creators sometimes give away some of their new products to the first few collectors. Also, making money through NFTs in this manner involves buying the NFT and reselling later when the value has increased. Be sure that you know how to select a good digital product that will likely have greater value in the future. All NFTs are not created equal.
Gaming for NFTs
If you’re an ardent player of games, going for NFT gaming platforms gives you the opportunity to collect in-game NFTs. These gaming platforms give the players the opportunity to collect as well as invest in virtual estates such as land. Contests available on these gaming platforms are also an opportunity to earn NFTs. Some gaming platforms you should consider are Alien Worlds, Axie Infinity, The Sandbox 3D, Gold Fever, Gods Unchained, etc.
Staking The Assets
NFTs can also be staked on some platforms. Staking involves storing your NFT assets in a platform where they yield interest after a period of time. Alien Worlds and Axie Infinity are not just gaming platforms for NFT collection, they also have staking features where the game player can stake NFTs for rewards.
Invest in NFT Startups
NFT startups have proven to be very viable. When you factor in the fact that the very rich are putting down a lot of money to purchase these works, you would agree that this concept of building unique items on the blockchain isn’t going away anytime soon, However, getting the right NFT startup to invest in requires due diligence. Understanding what collectors are interested in and the pedigree of the founders is essential in determining the viability of a NFT startup. Keying in on the outset would likely be beneficial to the investor.