NFTs have taken the world by storm – once a fringe movement associated with crypto, today, NFTs have become a global innovation that everyone wants to be a part of. So many people are learning how to invest in NFTs, and many are even starting to create their own NFT collections and minting them to the blockchain through an NFT marketplace – like OpenSea.
So what actually is an NFT and how do NFT marketplaces work?
NFT stands for non-fungible token. When something is “fungible”, it means that it is replaceable. For example, if you and a friend each had one US dollar bill, you could swap them, and you’d still have something of the same value. Dollar bills are fungible – Bitcoin is fungible. However, “non-fungible” is the opposite.
It’s an asset that is completely unique and irreplaceable.
For example, if you had the real version of the Mona Lisa, and your friend had a copy of the Mona Lisa – you probably wouldn’t swap it like you would a dollar bill. The original Mona Lisa is unique and worth far more than a copy of it, even if they look the same. Therefore, The Mona Lisa is considered “non-fungible”.
When you buy an NFT, it is embedded with a unique code that identifies the owner of the product. This code is what distinguishes the digital product as the original, and differentiates it from any copies. It is non-fungible.
Uploading and selling NFTs is called “minting”. You can sell NFTs you already own by trading, or you can mint your own NFT, and then sell it.
But whenever you mint an NFT, you get charged a service fee. These fees are paid through your crypto wallet – which needs to have cryptocurrency in it before you can buy and sell any NFTs on the blockchain.
Many hidden costs also come with minting your own NFTs – which is something artists need to consider as well. These costs can add up fast, and be worth more than what you would get from selling your NFT. This means that you’ll need to have some form of capital to begin with before participating in the blockchain.
NFT marketplaces are where you put your NFTs up for sale. They are a lot like auction houses. NFTs are bidded for, just like real artwork, and the highest bidder gets the prize. The more people bidding, the higher the price will go. This is why collections sell very easily – it creates scarcity which increases the value of the NFT, and then raises the price.
There are countless NFT marketplaces out there – from OpenSea, to Rarible, Axie Marketplace and many more. OpenSea in particular has earned its status as the “go-to” marketplace because it’s user-friendly and supports 150 payment tokens. Other marketplaces are more niche, such as the Axie Marketplace which only deals in NFTs from the NFT crypto game Axie Infinity.
NFTs have become a household name because of the extremely high sales attached to them. Beeple’s NFT artwork was sold for a record-breaking $69 million through the auction house, Christie’s. This gave NFTs legitimacy, and gained the attention of the world.
Other popular NFTs are the Bored Ape Yacht Club, and CryptoPunks, which sell for an average of $45,000 a piece.
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