A beginners guide to NFTs
The concept of cryptocurrencies has somewhat been a mystery to me. We’ve all of course heard of Bitcoin, Ethereum, Doge Coin, etc., but if you were to ask a random person on the street would they know what they actually are or what they represent? I would say only a handful of them would give you a tangible answer.
As a naturally curious person with a lot of time on his hands due to current lockdown restrictions I decided to educate myself on the topic. But where to start? I began my journey by reading “The Bitcoin Standard” by Saifedean Ammous. This was a great introduction into the cryptocurrency world and gave me a grasp of the core concepts. However, I wanted to learn about something new and exciting in the crypto space. During my research the phrase NFT kept popping up. Especially, since the start of March this year NFTs seem to be exploding all over the internet, so I decided to delve deeper into the topic. To do this I decided to learn how to create my very own NFT.
So what is an NFT?
Like any good researcher my first port of call was Wikipedia to see their definition of an NFT, which is;
“A Non-Fungible Token (NFT) is a digital file whose unique identity and ownership are verified on a blockchain”
This definition left me with more questions than answers like what exactly does non-fungible mean? After further research I learned that non-fungible is something that is unique and can’t be replaced with something else. For example, money is fungible, you can trade a $10 dollar bill for two $5 dollar bills as both are worth the same amount. A priceless work of art would be non-fungible, you cannot replace the Mona Lisa with some random print or divide it into separate sections. The Mona Lisa is a once-off masterpiece that is irreplaceable.
An NFT in the crypto sphere is defined as a unique cryptographic token that exist on a blockchain and cannot be replicated. They can however be used to represent real-world items like artwork or a digital file, but they are not the files/assets themselves. Currently the most popular formats NFTs represent are the following;
- Image Files: JPEGs, PNGs, GIFs, etc.
- Video Files
- Music Files
So now we know what NFTs are, how did they originate?
A brief history of NFTs
Although NFTs appear to be a more recent development in the crypto space, they actually emerged first back in 2012 in the form of coloured coins.
The term coloured coins loosely describe a class of methods for representing and managing real world assets on top of the Bitcoin Blockchain. Use cases of coloured coins include;
- Issuing stocks
- Coupons
- Digital collectables
Fast forward to 2017 where CryptoKitties began to make ripples in the mainstream media. So, what exactly is a CryptoKitty? Well, it’s pretty self-explanatory, it is an Ethereum blockchain game developed by Dapper Labs that allows players to purchase, collect and breed virtual cats! A CryptoKitty’s ownership is tracked via a smart contract stored using the ERC-721 token standard on the Ethereum blockchain. Each CryptoKitty is unique and therefore an NFT. New CryptoKitties are created by breeding existing ones. Now this all sounds like a fun game but CryptoKitties are serious business! The most expensive CryptoKitty ever sold is called Dragon. She sold for the mind-blowing figure of 600 Eth (or around $1,075,770.00, today)!
Skipping to present day, famous artists/musicians are releasing their own NFTs. A prime example would be Grimes, the musician and partner of Elon Musk, has so far sold $6 million dollars of NFT digital art. Kings of Leon have also announced that they are going to be releasing their next album, “When You See Yourself”, on NFT making them the first band in history to do so.
NFTs are not only reserved for the famous artists of the world. Graphic designers, photographers, and amateur artists (like myself) are profiting from this boom! My artistic abilities are much to be desired for but I wanted a slice of this pie so I decided to create my very own NFT.
How I made my first NFT
My first step was deciding what medium I wanted to create my NFT in. I’m not much of a photographer, I’m definitely not a musician but I do dabble in a bit of graphic design so I decided to create a GIF. I cracked open Photoshop, watched a few YouTube tutorials and after an hour of so I produced this;
Now that I had created my first NFT my next step was to find out where and how to put it up for sale.
How and where to sell NFTs?
Currently Ethereum is the leading blockchain service for NFT insurance. The main Ethereum NFT marketplaces are;
There are pros and cons to each marketplace but I decided to use Rariable as it is one of the most accessible platforms with no invite required.
To list my newly created NFT I first needed to get myself a crypto wallet and buy some Ethereum. You need Ethereum to pay the gas fees for listing your NFT on Rariable (I will explain gas fees in greater detail in a later section). A crypto wallet is a device, program, mobile app, or a service which stores the public and or private keys for cryptocurrency transactions.
You cannot purchase cryptocurrency with a crypto wallet but some crypto wallet providers also give you access to a crypto exchange where cryptocurrency can be purchased. There are many different crypto wallets available, its down to personal preference as of which one you want to use. An example of a well known browser based crypto wallet would be MetaMask. I personally wanted to use a mobile app so I opted for Rainbow, due to its ease of use, good security measures, and the ability to purchase cryptocurrency through a crypto exchange in app. Once I downloaded Rainbow I purchased and transferred $100 worth of Ethereum and I was ready to go.
The next step was to link my Rainbow wallet to Rariable. This process was very easy. I simply pressed the connect button on the top right corner of the page.
I then selected the WalletConnect option. There are a number of other connection options available but Rainbow uses WalletConnect. Be sure to research what connection option to use if you are using a different crypto wallet provider.
Once I selected the WalletConnect option a QR code appeared on screen. I opened my Rainbow wallet app and scanned it.
I tapped connect and it automatically created a Rariable account for me that is linked to my Rainbow wallet.
After the successful creation of my Rariable account I could now mint and list my newly created NFT. To do this I selected the create option on the Rariable homepage. A new page popped up and I was asked if I want to create a single NFT or multiple.
The difference between a single NFT and multiple is that a single NFT is 1 of 1 i.e. It’s the only version of the reference to the digital file on the blockchain to be bought and sold, while selecting multiple allows you to mint a collection e.g. 5, 10, 15, of the same NFT. I chose to create a single NFT.
Once I decided to create a single NFT, I was brought to a new page where I was prompted to upload my NFT digital file, name it, and provide a brief description. One of the more interesting fields on this page is royalties. This field enable you to set a custom royalty’s percentage. This means that anytime your NFT is bought and sold in the future you will receive the percentage you specified in royalties from the sale. I decided to set my royalty to 15%.
Once I filled all the required fields, I selected create item. This sent a request to my Rainbow wallet where I was prompted to accept this transaction and mint my NFT. This is how I learnt the hard way about gas fees!
Gas refers to the unit that measures the amount of computational effort required to execute specific operations on the Ethereum network. Since each Ethereum transaction requires computational resources to execute, each transaction requires a fee. If the gas price limit is too low, miners can choose to ignore such transactions. As such, the price of gas fluctuates (priced in ETH) with supply and demand for processing power.
The gas fees for minting an NFT is currently quite high due to congestion on the Ethereum network. The recent boom in NFTs may be part of this but there are many other factors that increase congestion on the network. This can be a slight barrier to entry for some people who want to mint their artwork.
But there is light at the end of the tunnel with the future launch of Ethereum 2 as its switching from Ethereum’s current proof-of-work consensus system to proof-of-stake (PoS). Etherum 2’s developers aim to reduce the high-power consumption and reliance of specialist hardware by switching to PoS thus hopefully reducing gas fees.
There are also tools available that tell you the best time to carry out the transaction to get the best price and some NFT marketplaces only require buyers to pay gas fees. Unfortunately, I only found out about these options after I spent $80 on gas fees to mint my NFT.
Once I paid my gas fees, my newly created NFT was live on Rariable. The link to my NFT can be found below;
So what did I learn?
- Gas fees are expensive right now!
- What NFTs are.
- How to create and list an NFT for sale.
- That the crypto space is an exciting and ever evolving sphere that we are only on the cusp off.
So has my NFT sold and am I swimming in Ethereum? Unfortunately, not. Just like everything else in life, you have to put the work in to get results. NFTs aren’t a get rich quick scheme, you have to convey the value of your work to attract potential buyers. It is a fantastic opportunity for talented artists. Just as cryptocurrencies are the decentralised alternative to central banking, NFTs are the decentralised alternative to Gallery’s and Auction Houses. NFT’s empower artists to sell their artwork without relying on these intuitions who usually charge a commission and eat into the Artist’s profits.
Are NFTs a bubble? At this stage who knows, but I am excited for the medium’s future and I will be keeping a keen eye on it to see where it goes.
References
https://en.wikipedia.org/wiki/Non-fungible_token
https://www.investopedia.com/non-fungible-tokens-nft-5115211
https://cryptoadventure.org/a-brief-history-of-colored-coins-what-made-them-special/
https://medium.com/@Andrew.Steinwold/the-history-of-non-fungible-tokens-nfts-f362ca57ae10
https://www.investopedia.com/terms/g/gas-ethereum.asp
https://blog.makerdao.com/how-ethereum-2-0-will-address-gas-issues-and-enable-dai-and-defi-to-scale/
