I’m not always an early adopter of new technologies. Although, within my own circles, I do tend to be the first person to adopt them. I bought an iPhone early on. I had the first version of the iPad (and took it back because I didn’t see the use case at the time; I eventually bought one again shortly after). A perfect example would be cryptocurrencies. I took me a little while to get interested in learning more about Bitcoin once I started hearing about it. If my memory serves me well, I had been hearing about Bitcoin when it’s value was in the few hundred dollar range. I made my first purchases in the low thousand dollar range (and subsequently sold it; then bought back in around three-thousand).
I’ve treated NFTs in much the same way. I’ve been hearing about them for a while now. How can you not? They are everywhere. So, to learn more about what they are, how they work, and if I should integrate them into my life, I decided to do a deep dive into NFTs.
What is an NFT?
Let’s tackle this first. What is a non-fungible token? Remember the tokens you used to buy when you wanted to play an arcade game at your local store? No? Ok, I'm old. Anyway...back in the day my older brother and I would be dropped off at the local arcade every Saturday morning. We paid a flat fee and got to play any arcade game we wanted to, like Pac-Man, for two hours. The arcade tokens they gave us gave us the right to play a video game.
NFT tokens are similar in that owning one gives you ownership of a unique item. When you own an NFT there is literally only one version of the NFT you own. Side note - the creator of the NFT may have created multiple copies. But they are still different. Think of it like how hand crafted tables, art, etc. work. You and I may have asked the creator to design a piece of art the exact same way. But there is zero chance, since it is painted by hand, that the art will be truly, one hundred percent identical. One small turn of the artists hand or different brush stroke and we have similar looking, but completely unique pieces.
Once created, NFTs cannot be copied or modified.
What’s the technology behind NFTs?
NFTs are built on top of modern technology. By now you should be familiar with the blockchain since cryptocurrencies, such as Bitcoin, are built on top of a blockchain. NFTs are as well.
What are the use cases for NFTs?
Much in a similar vein to how cryptocurrencies can be used as a storage of value, speculative investment, or payment method, one of the great things about NFTs is that they have all kinds of different use cases.
For example, NFTs work great for any type of collectible. Gary Vaynerchuk is such a believer in the technology that he built an entire collectibles marketplace around NFTs. You can find it at VeeFriends.com. He has also used NFTs as a pre-sale mechanism for future access to his annual conference.
You might be thinking that a digital collectible is silly. After all, you can't really touch it. I still own a fee collectible cards (baseball, as well as for a trading card game called Magic). A few years ago now, Magic created an online video game. I now own more of their trading cards in digital format than I do in real life. The crazy thing is that people will buy them using real money.
The difference that NFTs add is that if I own Don Mattingly's 1984 Topps rookie card in NFT token form I am the only person that owns it.
Eventually I anticipate the title to your car will be an NFT. Or even the deed to your house. These aren't far fetched ideas. They are already in flight. In fact, instead of paying an attorney to legally incorporate your new business you can own start an online business that is owned and managed by its members. These are called Decentralized Autonomous Organizations (DAOs). A group recently formed a DAO for the express purpose of purchasing the United States Constitution NFT.
Where can you buy NFTs?
NFTs are already wide spread enough that there are plenty of companies that will facilitate the buying and selling of the tokens. The largest NFT marketplace at the moment is called OpenSea.That said, since they are so popular more and more companies are going online to support the process. So, you will want to do your own research when selecting a company to use.
When I started researching how the whole thing works I found two resources that I felt the most comfortable with.
The first company is Coinbase. If you are aware of cryptocurrencies its likely that you know about Coinbase. I like the idea of using Coinbase to help me buy any NFTs I am interested in because I already use and trust them for buying cryptos. But, you need to understand that you can't use the same Coinbase mobile app that you use for cryptos to buy NFTs. That is because you need a Wallet where your NFTs can be securely stored. Here is the link to it on the Apple store. The good news is that you can connect your Coinbase account to the Coinbase Wallet in order to move cryptos in between the two. More on that in a moment.
Another Wallet that was referred to me by some folks in a Slack group I am part of was MetaMask. Just to test out their offering I opened an account with them as well. One thing I liked about MetaMask is their security encryption process. It was very robust. Just to get my account open I had to memorize ten keywords and then put them in a set order to get the account started. It wasn't easy. In fact, I had to take a photo of my security words, that I deleted later, in order to get the sequence correct.
How to pay for NFTs
Ok, opening a Wallet is not only about storing your NFTs. It is also necessary so that you can buy them in the first place. For this part I will use Coinbase as the example.
Because NFTs are securely managed and transferred through the blockchain you have to use cryptocurrencies in order to buy them. Most NFTs are bought using Ethereum. So, to be ready to buy your first NFT (I haven't pulled the trigger yet) you will need to have Ethereum in your Wallet. You make the purchase and the NFT is transferred to your Wallet for storage. I have multiple purposes for Ethereum (as a speculative investment, I have staked some of my ETH, and I will use some to buy NFTs). So, I actually like that I have two separate places to manage my ETH. My normal Coinbase account and my new Coinbase Wallet which I will use exclusively for NFTs.
Where is the NFT market headed?
It is going to take some time for NFTs to reach mass market adoption. But it is going to happen. Just like the use of cryptocurrencies as an investment vehicle is not widespread, so too will the use of NFTs.
I do personally believe we are going to see the use cases for NFTs expand. For example, I can see just about every physical collectible being digitized into an NFT. I also think we will see NFTs continue to expand to use cases in the business world. Most notably I see NFTs being used in the gaming world. For example, no more buying skins (what the character looks like; i.e. an avatar) for your character in a first-person shooter (FPS) game that you can't resell to someone else. In the near future you will buy that skin as an NFT token and be able to resell it.
One last thought. Just as social media platforms have allowed more and more people to act as their media outlet, NFTs will empower more and more people to be artists. Those artists will create digital art and sell them as NFTs. Plenty of artists are already doing that, I just see it becoming more prevalent in the near future.
Addition: 7/12/22
Emma, a reader of this blog, sent me the following resource to share. She said, "it really helped me figure everything out..."