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A Simple Guide To NFT's

Alex M Jul 26, 2022 Scroll to read in 12 minutes

Technology has given us creatives loads of growth opportunities, with features championing accessibility and convenience in production to promotion. One of the more recent tech buzzwords for creative success is NFTs.

It's All About Provenance

Our journey begins in Paris, in the Louvre – the most-visited museum on the planet. The main attraction for many visitors is the 'enigmatic' portrait in oil of Leonardo da Vinci's Mona Lisa. Currently, insurers value the work at over £900 million.

Where does that number come from – why is this 30-by-20-inch painting so valuable?

There's only one Mona Lisa. Sure, we can reproduce the painting as a poster, but even the best reproduction doesn't come close to the original. There's something special about one-off work. It has a unique existence in the place it happens to be; it's the only one of its kind. When we hang reproductions of famous paintings on our walls, it just doesn't feel the same as looking at the originals in museums. One reason for that is that replicas don't have the same provenance. A long line of documentation about ownership lets us trace the Mona Lisa back to the early sixteenth century. We know it's the work of Leonardo da Vinci, one of the most influential figures in the history of Western art. That knowledge gives the original painting great cultural significance.

The tech world uses a different words to describe one-offs. That word is non-fungible.

"Fungible" means that something is mutually interchangeable. A £5 note is a good example. Nothing happens if you and I have £5 notes and decide to swap them. Both notes have the same spending power; no one who accepts GBP for things they sell cares which note they receive.

The Mona Lisa sits at the other end of the spectrum: it's incredibly non-fungible. If you happen to own the painting (marry me?), you're not going to trade it for a poster. Even a high-end forgery isn't worth much because it doesn't have the original's provenance.

The key point is that provenance establishes uniqueness. Unique things are, by their nature, rare. And basic economics tells us that high demand plus scarcity drives value up.

So that's how we get to that £900 million valuation. Everyone wants to own a culturally significant work that's changed how we see the world, but there's only one Mona Lisa. If you can prove that you own the real thing, you've got it made. It's a seller's market.

But what's all that got to do with NFTs? Well, it's easier to establish ownership and provenance – to trace what belongs to whom and who made what – in the analogue world than in the digital world. That's the problem NFTs solve.

Mona Lisa by Leonardo da Vinci from C2 RMF retouched

The Blockchain Revolution

Readers over 35 will remember that music used to be sold on vinyl, tapes, and CDs. To own a song, you had to own the physical product. There were bootlegs and black markets, but reproducing music was reasonably tricky. The internet changed everything. In digitised form like MP3 files, music was suddenly infinitely copyable. All it took was a few clicks, and you had endless copies of songs that were impossible to tell apart from the original. Add in people's urge to share, and music became virtually free overnight. (Side note – I'm still angry that Apple forced a U2 album on me)

It was the same story with digitised products, from films to photographs to artwork. The issue for producers and creators was as simple to state as it was hard to solve: How do you establish ownership of easily copyable digital assets?

Legal clampdowns on file-sharing services are one answer. Streaming services like Spotify provide another model. But the most revolutionary answer of all is blockchain.

Blockchain is the technology on which the world's first major digital currency was built – Bitcoin.

Like all digital currencies, Bitcoin faced a massive potential issue known as the double-spending problem. When you spend a £5 note, it's gone. Two people can't simultaneously spend the same £5. You could try counterfeiting, of course, but the obstacles are HUGE. Copying digital money and spending it twice is like copying and sharing MP3s: you hit "control" plus "c."

A blockchain is a global network of thousands or even millions of computers or "nodes." Each node in the network tracks and records every Bitcoin transaction. Every time you buy or sell Bitcoin, the transaction is recorded in a shared database known as a ledger. Before a "block" of encrypted data can be added to the ledger, most computers in the network have to solve complex mathematical puzzles to verify the accuracy of the data. Once that's happened, the block is "chained" to previous blocks recording earlier transactions, all the way back to the very first transaction.

Because the computing work needed to verify transactions is so great, no individual or group can add fraudulent transactions to the blockchain. That's how Bitcoin solved the double-spend problem. The result is a currency which can't be manipulated, making it inherently trustworthy.

Blockchain technology can also be used for other things, though. Say you wanted to establish who owns which media. You could record who created unique digital work and every time it changed hands going forward. In other words, you could create an inherently trustworthy – because unfalsifiable – a record of a work's provenance. That's the blockchain revolution. Suddenly, it becomes possible to create scarce and valuable digital assets. And that's what makes NFTs possible.

Pokemon card number 1 trainer

How do NFTs work in the real world?

Naysayers will point out that NFTs are certificates of ownership – there's no tangible asset. When a digital artist sells an NFT of their work, the buyer pays for a token, saying they own it. That's it. The image itself remains online. Anyone can download it, print it out, and put it on their wall. So, why would you pay good money for an NFT?!

Here's another way of defining NFTs: they're unique digital collectables secured by the blockchain. So what we're really looking at here is the psychology behind collecting.

From stamps to trainers, Pokémon cards to mid-century chairs, people collect all kinds of things in various formats. Different factors drive people to collect. Some see collections as investments; others have FOMO. But the core of all collecting is scarcity. The rarer the desired good is, the more valuable it becomes. Just ask the collector who paid $900,000 for an ultra-rare Pokémon card.

It's documented ownership of the real thing that's valuable. So, to answer the naysayer's question, why would anyone pay good money for an NFT even though you can download digital art with a mouse click? Because people want to own scarce collectables, blockchain technology guarantees ownership as solid as any contract drawn up by analogue auction houses.

NFTs, in other words, bring collecting online. But the desire to own NFTs is rooted in a much older, pre-digital human instinct – the desire to hoard rare, status-enhancing goods.

What Kind of Digital Assets are People Collecting?

The answer is that anything can be an NFT, but let's start with digital art.

The best-known works of the NFT era don't look like Renaissance paintings, but they've been selling for prices that rival those of old-school canvases. Take the digital artist Beeple.

In 2007, Beeple started a project called Everydays. The goal was to create a new digital artwork daily and hone his skills. He slowly developed the unique style for which he's now known: surreal collages of presidents, celebrities, and pop-culture touchstones like Buzz Lightyear. Other pieces, like his image of a pixelated Mona Lisa, ironically reference his lack of conventional artistic training.

Beeple made history in 2019 by becoming the first artist to sell an NFT through Christie's. Beeple's work, which featured images from the first 5,000 days of the Everydays project, sold for $69 million.

His aren't the only digital artworks which are highly sought after. CryptoPunks, a limited edition run of 10,000 randomly generated pixelated punks, regularly sell for hundreds of thousands of dollars. A collection of 10,000 cartoon apes known as the Bored Ape Yacht Club sells for as much.

But it's not just digital art that's being sold via blockchain. NFT project Clay Nation announced their NFT collection in collaboration with Snoop Dogg and Champ Medici, which features digital characters with algorithmically assembled, handcrafted clay traits, unreleased music, and limited edition clay nation plots on the Cardano blockchain.

Online culture is a treasure trove of potential collectables. An NFT of one of the first Vine videos ever made sold for over $16,000. So is music. When (yawn) Kings of Leon released an album as an NFT, it generated over $2 million in sales. Video are another popular format. Collectors of highlight videos featuring famous moments in American basketball history have spent over half a billion dollars on NBA Top Shots NFTs.

NFTs are also changing the way digital work is funded. Selling ownership tokens for essays, newsletters, or even tweets allows creators to monetise their work without putting it behind a paywall.

Another emerging trend is to combine NFTs with "social tokens" that give buyers special privileges. For example, when you buy a Bored Ape, you get access to a members-only community – think Soho House, but online. Other brands' NFTs provide access to exclusive merchandise no one else can buy. Add all that together, and it's easy to see why the NFT market is booming.

24beeple 2 medium Square At3 X

Making NFTs

NFTs are "minted." Don't let the terminology put you off, though – all it means is that the NFT must be added to the blockchain. If you're using OpenSea, you'll be adding your NFT to the Ethereum blockchain.

Here's how to do it.

  • Head over to the OpenSea platform and look for the "create" menu in the top right corner. When you click on that, you'll be asked to connect your cryptocurrency wallet and verify ownership of the wallet.

  • Click "My Collections." Before minting an NFT, you have to create a collection. That's a folder for your NFT. You can also choose a name and an image to represent the collection at this stage.

  • Click "Add New Item" and verify your wallet a second time.

  • The next step is to upload the file you want to turn into an NFT. Now all you need to do is name the NFT and add a description.

  • Finally, hit "Create" to begin the minting process. After confirming this step, the NFT will appear in your wallet. And that's it – you've just made your first NFT!

You can make an NFT from pretty much anything – a GIF, a video, a picture, or a digital artwork. The only limitation is copyright: you have to own the material or have a right to use it.

You'll need to scan or photograph if you're using traditional materials like a Plasticine model. If you're using digital tools, upload the file directly. Images should be as high resolution as possible, but they can't exceed OpenSea's maximum file size, which is 100 MB. That limit also means your video content can't be too long.

Getting the name of your NFT right is vital: the name, after all, is the first thing potential buyers are going to see. Think of it as your chance to stand out in a crowded marketplace. There are a couple of routes you can take here. You can take a leaf from conceptual artist Sarah Meyohas's book and pick something attention-grabbing like her project's name – Bitchcoin. Or you use the file name to emphasise your NFT's uniqueness by adding descriptors like "one of a kind" or adding series numbers like "1 of 1" or "1 of 50."

Adidas nft voguebus adidas nft dec 21 story

How To Sell NFTs.

There are three ways to sell an NFT on OpenSea. You can set a price, wait for potential buyers to send you an offer, or start an auction.

Setting a price bypasses one of the risks of auctions – selling an NFT for less than you think it's worth. But that's the rub. How valuable is your NFT anyway?

When you want to know how much something is worth, you look at the sale price of similar goods. If a three-bedroom house in the same neighbourhood as your three-bedroom house sells for X, you have a pretty good idea of how much your home is worth.

That approach also works with certain kinds of NFTs. If your NFT is part of a series like CryptoPunks, recent sales of similar CryptoPunks will help you set a realistic price for your NFT.

But say you've created a unique, single-edition NFT – how much is that worth? Well, it's worth as much as people say it's worth. It's all about demand. How well known are you? How excited are people about what you're making? How aggressively are you promoting your product?

If you're generating a good amount of demand, set your price. Set it a little higher than you think reasonable and see if anyone bites. You can always lower it later.

Can't put a number to your NFT? No problem – you don't have to set a price. Instead, you can put your NFT onto the market and wait for people to send you offers, which you're free to accept or decline.

That said, it's best to act fast if you like an offer. On OpenSea, an offer typically expires after ten days and the person placing it can cancel at any time. You don't need to worry about missing offers, either – OpenSea will send you an email notification every time you receive one.

If you're highly confident about the demand for your NFT, you might not mind taking a risk. In that case, a Dutch Auction could be the best way to go.

Dutch Auctions start with a high price that gradually decreases over time—the first person to accept the price wins. Because the chance of missing out is high, participants tend to have itchy trigger fingers. Of course, the risk for you, the seller, is that the price sinks too far.

Now you know how to buy, create, and sell NFTs. Future Antiques Roadshow is going to be pretty wild, huh? 

Happy NFT'in