Bit.com Blog

NFTs in 2022: A Crypto Game Changer?

NFTs in 2022: A Crypto Game Changer?

2021 was the year of NFTs in many respects. With an extraordinary rise, creators and artists could readily commercialize their work, and collectors could buy and store value efficiently. So what are NFTs?

What is an NFT?

Non-fungible tokens – or simply NFTs – are unique or non-interchangeable units of data. Just like cryptocurrencies, NFTs are stored on blockchain and are frequently traded online. Unlike cryptocurrencies, NFTs are non-fungible, that is, you cannot replace one for another. Blockchain technology ensures that when you own an NFT, the ownership is exclusive to you and you alone. An NFT could be made from anything from digital art to music, videos or real estate.  So basically, the fundamental purpose behind NFTs is to invest in anything of value without physically possessing or storing the item in question. This makes buying and selling NFTs on the open market very easy. But before that, we need to understand what we are dealing with.

Although NFTs appear to have appeared overnight, this wasn't the case. This would bring us to talk about the origin story, beginning, and rise of NFTs.

The history of NFTs

It is common or uncommon knowledge that NFTs are built on the Ethereum blockchain. But the launch of Ethereum dates back to 2015. Well, guess what?. NFTs have existed way before then!. So now, let's get into the budding question. How and when did they start living?

Dating back to 2012, Meni Rosenfeld published a paper on December 4 that established the notion of "Colored Coins," issued on the Bitcoin blockchain. Colored Coins are techniques for expressing and maintaining real-world assets on the Bitcoin blockchain, which can be used to prove asset ownership. They're regular Bitcoins with a tag on them that determines what they can be used for.

Even though the concept of Colored Coins was never fulfilled due to Bitcoin's constraints, it provided the framework for future NFT experiments.

So who was the first to invent the NFT?

The first NFT was minted in 2014

So in 2014, Kevin McCoy, a digital artist, minted the first-known NFT "Quantum." Quantum is a pixelated octagon with a variety of shapes that pulse fascinatingly. This one-of-a-kind Quantum art sculpture sold for almost $1.4 million at a Sotheby auction on November 28, 2021.

Over the last several years, platforms built on the Bitcoin blockchain have seen growth and experimentation. It was the beginning of Ethereum's initial dominance over NFTs. The Counterparty platform (Bitcoin 2.0) is the most notable, as it permitted the creation of digital assets. Later on, Spells of Genesis followed in Counterparty's footsteps and pioneered the issuance of game assets through their platform. Finally, the meme era began in 2016 with the Counterparty platform's release of Rare Pepes NFTs.

However, it should be noted that it was never meant to serve as storage for these alternative tokens. Many Bitcoin users objected to using valuable block space to store tokens that indicated image ownership. That marked the start of NFTs migrating to the Ethereum blockchain, thereby keeping a new age for NFTs.

What are NFT marketplaces?

Trading NFTs is quite an easy thing to do. You can seamlessly purchase or sell your NFT from the comfort of your home. This is possible because of NFT marketplaces which are platforms where you can exhibit, exchange, and mint (create) your NFT. NFT marketplaces are similar to crypto exchanges in that they connect buyers and sellers. But, to put it differently, if you want to acquire NFT tokens immediately, you'll need to find a good marketplace. Popular NFT marketplaces include OpenSea, Rarible, SuperRare, Foundation, and AtomicMarket.

How to mint NFTs

When looking for the best NFT tokens to buy, the term 'minting' will come up frequently. Minting, in its most basic form, is the process of producing a new NFT token that does not yet exist. When you acquire NFT tokens, you're buying a digital asset that someone else has already generated.

Importantly, if you have a one-of-a-kind item that you'd like to symbolize with a one-of-a-kind crypto-asset, NFT minting is well worth investigating further.

Consider the following scenario:

You may have conducted a remarkable study on your own and want to keep your findings private. Minting an NFT on top of a blockchain network like Ethereum or the Binance Smart Chain is a simple way to do this. Your NFT certifies beyond a reasonable doubt that you are the rightful owner of the study in this way.

Before you mint your NFT, you must know that each NFT marketplace has a unique minting method. For simplicity, we shall consider how to mint an NFT on the largest NFT marketplace, Opensea.

1. Connect your wallet: The first step is to get a crypto wallet and connect it to the marketplace. Crypto wallets help you to manage and store your digital tokens. The most popular ones are Metamask and Coinbase. Depending on your choice of wallet and the device you're using, you may be asked to download your wallet on your computer or connect your wallet using a QR code scanner. Once you're done connecting your wallet, you can further set up your profile by telling the NFT community about yourself and giving information such as your preferred crypto payment option.

2. Create your first item: There is a "create" button in the upper right corner of the homepage of the marketplace. When you click the button, you'll be asked to upload a digital file and name your NFT. You could also include a brief description of your work and a link to other info, such as your website. This is also where you set up how much you'll get paid in royalties on secondary sales. A secondary sale is a term for a future sale of your NFT, say by a collector. The standard royalty payout is considered to be around 5-10%. Click "Complete," and viola, your NFT has been minted!

3. Ensure your wallet is funded: To complete an NFT sale, you have to pay gas fees. Because most marketplaces run on the Ethereum network, you will most likely need to purchase some Ethereum and deposit it in your wallet. OpenSea allows you to set up payment methods such as credit cards, making it possible to buy crypto directly from your marketplace profile.

4. List your NFT for sale: Minting your NFT means it can now be sold on the open market. You have to click on the "sell" button on your NFT's description page. After that, you can choose your preferred type of sale-fixed price or a timed auction. The marketplace will also inform you of its service fees for selling. The service fee on OpenSea is 2.5% of the NFT selling price

After you are done with the above-listed steps, the next thing is to manage your NFT collection by building rapport with users and collectors on the marketplace. You also have to constantly monitor activity on your creations and await feedback.

How to mint NFTs?

What makes an NFT valuable?

So now that we know how NFTs work, let's take a look at what makes them valuable.

Scarcity of NFTs

NFTs are valuable because they ensure that a non-fungible asset is genuine. This distinguishes these assets as one-of-a-kind. Picasso's works, for example, are non-transferable. So while everyone can copy his paintings, the originals are irreplaceable and one-of-a-kind. As a result of NFTs, digital content becomes irreplaceable and thus valuable. This is where "fungibility" comes in. Now cryptocurrencies such as Bitcoins are fungible, which means they can be broken down into smaller pieces, but NFTs, unlike Bitcoins, cannot be broken down into smaller pieces. So is it possible for an artwork to be copied and shared? Of course, yes, but one of the benefits of NFT is that it can be turned into a token, which means it has a digital certificate of ownership that can be purchased and sold with the artwork.

This establishes the validity and reliability of the work's source or the type of NFT you're purchasing.

Going back to the Picasso example, even if many fake replicas of the original Picasso are manufactured, sold, and put in homes and businesses, the original Picasso will be valued. If the original's authenticity can be established, it will retain its worth.

What determines the value of an NFT?

We've discussed how the uniqueness of an NFT makes it valuable compared to other similar items. Now the big question is "is the value of an NFT defined only by its scarcity?" The answer is a big NO. Scarcity is only one of many elements that determine the value of an NFT. The other factors include reputation, utility, and liquidity.

Reputation: The value of an NFT depends on its popularity and its status. For example, one could imagine that if a well-known figure or brand were to own some NFT collections, then there would be higher demand for them than say someone without any fame whatsoever holding them up as their prized possessions; after all we know people care about what other famous folks think! In March 2021, former Twitter CEO Jack Dorsey sold his first tweet as an NFT for about $3million. You'd agree this would have been almost impossible for someone less popular.

Utility: The utility value of an NFT refers to how much it can be used. It is the degree of ease and what you can do with an NFT. A utility NFT can be a real piece of art that corresponds to the purchased NFT; it could also be the exclusive entrance to an event, in-person memberships, or future usage in the digital world.

Let's say there is a game asset available only through purchasing these items - think about all your options open up because they have exclusive access to some upcoming release from whatever company might've created them. Now imagine if this game had collectibles that were also physical fashion pieces like Nike's metaverse items! These would drive up the price tags because you're getting two amenities out at once instead of just accessing things through your computer screen alone

Liquidity: Liquidity is the lifeblood of any trading system. It can be defined as the ease of trading an asset. Liquid markets are more desirable than illiquid ones because you are unlikely to get stuck with the investment. Therefore, it is crucial to find NFTs with high liquidity so that you can easily sell them if need be. Even if an NFT loses its utility, the value can remain high as long as people continue buying and selling it.

Types of NFTs

Now that we've covered how NFTs work, we can look at the types of NFTs readily available.

Virtual real estate in the Metaverse

NFTs and the Metaverse are two phrases that are frequently used interchangeably in discussions about virtual real estate in the Metaverse. The Metaverse is a digital replica of the natural world, and interest in it is predicted to skyrocket in the coming years.

Decentraland, a 3D gaming world where users may acquire virtual land and create fundamental properties, is an excellent illustration. Each piece of land is assigned a unique NFT token, which can be sold on the open market.

Given that virtual real estate NFTs are currently producing millions of dollars for every transaction, this is unquestionably a market to watch.

Real Estate in its Physical Form

The most intriguing part of the NFT marketplace is real estate, which encompasses both physical and virtual property.

To begin with, physical real estate is an excellent example of an asset that an NFT token might represent. After all, no two properties are alike, making each home or condo a one-of-a-kind piece of real estate. Part-ownership may be an even more extensive use case for NFTs in the real estate sector.

Moments in Sports

'Sporting moments' is another rapidly expanding segment of the NFT business. This means that big sporting brands, such as the NBA and US Open, are now selling ownership of critical in-game video snippets.

The notion here is that the value of these sports moment NFTs will continue to climb over time.

ACCORDING TO BLOOMBERG BUSINESS, the NFT Market rose to approximately $40 billion in 2021. We expect it to grow even more as blockchain technology improves and the world adopts NFTs as the future fine art market. The trends launched in the NFT Market in 2022 are discussed below.

Branding for the community

We don't imply that the entire world will begin to create brands for their communities; that is already happening. However, community branding suggests that the brand will be controlled by the community rather than by the people who operate it. This will allow designers to infuse a piece of their creative genius into a design or brand that they care about. As a result, they'll be able to come up with bold designs that the original brand would never have considered.

NFTs and Web 3.0

The Metaverse is one of the first examples of Web 3.0, a new digital world. However, in a digital world like the Metaverse, one complication that can arise is ownership. People are already purchasing virtual real estate to promote their businesses worldwide. This is where NFTs come in. Through NFTs, in a collection of potentially trillions and billions of digital assets, the computer can determine the ownership of every one of these assets, thereby keeping track of fakes without human interaction.

Music and NFTs

One of the groups who will profit the most from the introduction of NFTs is artists. Because NFTs allow you to leave an indelible stamp on your work, music creators will benefit from the implications NFTs will have on online music piracy. As a result, music composers will get paid exactly what they are owed every time their recordings are played.

Tokens for gaming

Major game developers have already invested in blockchain technology, allowing their players to buy and unlock goods with monetary worth. Furthermore, various opportunities for people who desire to make money by playing games have been created. Once they've been opened and assigned an NFT, allowing them to sell their accumulated virtual assets online will provide them with this possibility.

Personalized NFTs

We may be confident that, with the advancement of interactive characters like Apple's Animoji, the entire digital world will begin generating virtual characters for its consumers. Creating personalized NFTs that display while playing is one approach to make them unique for premium performers.

Many market analysts anticipate that the popularity of NFTs will continue to rise in the future years. After all, as stated earlier, NFT trading volume exceeded $40 billion in 2021 alone, with several tokens selling for more than a million dollars. While NFTs may have numerous practical applications in the future, they are currently used mainly in digital art.

Learn more on Bit.com

If you're keen on learning more about NFTs and other blockchain-related topics, check out other articles.