Nonfungible tokens (NFTs) are digital assets that can be used to represent real-world objects like comics, artwork, films, video clips, memorabilia, books, and even real-world real estate. NFTs are nonfungible as opposed to bitcoins which are fungible. This means that NFTs are not interchangeable and no two NFTs will be exactly similar. You cannot exchange an NFT with any token that exists on another blockchain.
NFTs are often stored on the blockchain. They and the associated metadata can be saved “on-chain” on the blockchain with a unique code that shows the NFT’s provenance, ownership information, and transaction history. Nonfungible tokens can also be stored off-chain in which case they are stored outside the blockchain. Onchain NFT storage is usually preferred as it allows users to easily verify every facet of the token.
The popularity of NFTs grew during and post-pandemic so their value soared into the millions of dollars in some instances. While the market may have plunged in 2022, NFTs are still considered a good investment and hundreds of millions of dollars are still being spent in the multiple NFT marketplaces.
Let’s take a look at the NFT market and offer you a guide on how you can buy your first NFT in 2023.
According to data by CoinMarketCap, the NFT market is currently worth about $1.8 billion.
Where Can You Buy NFTs?
When an NFT collection is launched, the first purchase is referred to as minting.
The minting of an NFT does not involve the creation of an NFT. Rather, it entails merely activating a smart contract that has already been created and placing the NFT in a specific place on the blockchain.
This makes the nonfungible tokens a form of a nonfungible cryptocurrency. Normal cryptocurrencies like Bitcoin and Ethereum are fungible.
Nonfungible tokens exhibit the same characteristics as other blockchain technologies. An NFT is immutable on the blockchain which means every transaction is recorded on the blockchain ledger and can be seen by everyone.
It is possible for a particular NFT creator to build their own blockchain to create and mint NFTs. However, most will opt for NFT marketplaces to mint their nonfungible tokens.
NFT marketplaces fall into two main categories: –
- Centralized NFT marketplaces
- Decentralized NFT marketplaces
Centralized NFT Marketplaces
Centralized marketplaces put constraints on what users do, unlike decentralized marketplaces which are more of a laissez-faire affair.
Most of the NFT marketplaces are centralized. These include leading marketplaces such as OpenSea, MetaMask, and Coinbase.
Decentralized NFT marketplaces are just the antithesis of centralized marketplaces in that users don’t have to grapple with the rules, constraints, and requirements imposed by the centralized marketplaces.
Since there are centralized guiding rules, terms, and conditions, anyone will be able to list just about anything in decentralized NFT marketplaces.
There are drawbacks to such a laissez-faire approach. For instance, there are likely to be cases of token theft, copyright infringement, and fraudulent NFTs being sold in such marketplaces and these could end up watering down the user’s investments.
A feature in all NFT marketplaces and NFT transactions is the gas fees.
On top of the proposed prices of the NFTs when they are first minted, users must also pay the gas fee.
The gas fee is what the blockchain network on which the NFT is hosted, such as Ethereum, charges for the computational resources used in the NFT transaction.
Most NFT projects are currently hosted on Ethereum (ETH) which is the biggest blockchain network for nonfungible tokens. There are other blockchain networks that host NFTs such as Flow (FLOW), Solana (SOL), and Cardano (ADA) among others.
Not all blockchain networks are the same. Each of the blockchains has its strengths and weaknesses that you should consider when planning to host an NFT project.
There are blockchain networks that levy gas fees to mint NFTs. Of the many cryptocurrencies supporting nonfungible tokens, Solana has some of the lowest gas fees compared to the majority of the other cryptos.
If you are planning to mint NFTs, check out the gas fees for the network as these prices can really skyrocket as seen in the Otherside launch that nearly crashed the Ethereum blockchain with gas fees running into thousands of dollars.
Guide to Buying NFTs
Following the minting of an NFT, a user usually has freedom of action with the NFTs that they own. The NFT can be sold on a preferred NFT marketplace or traded with another person. They can also decide to gift away the NFTs.
There are NFT marketplaces like Nifty Gateway and NBA Top Shot that even accept credit card payments rather than cryptocurrencies for NFTs. However, a good number of NFT marketplaces keep it strictly cryptocurrencies for NFT transactions.
On all platforms, however, you must have a crypto wallet to begin buying NFTs.
The crypto wallet stores the keys to your NFTs after you have purchased the NFT. You can store your crypto wallet online or offline. Offline storage of wallets is usually more secure as it is virtually impossible to hack.
After the minting of an NFT or after it is purchased from an NFT marketplace or transferred to another user from the current holder, the NFT will appear in the recipient’s wallet.
Keep in mind that when you purchase an NFT, you are purchasing a token ID that points to where the token is stored.
In case the nonfungible token is an art piece, its physical copies can be printed or it can merely be stored as a digital image. However, the NFT that you will own will simply be the token ID.
You will not be owning the rights to the image nor will you own the original image itself unless you are granted these ownership rights in your contract.
Do NFTs Still Hold Any Value?
Following the plunge in the value and the bankruptcy of a number of leading crypto companies in 2022, many investors are now jittery about putting their money in nonfungible tokens and cryptos in general.
Like rare artwork in the real world, the value of a nonfungible token is usually determined by the potential buyer. Beauty is in the eye of the beholder, so they say.
NFTs are still fetching a fortune in many marketplaces. The value of nonfungible tokens emanates from their uniqueness and authentication.
The value can range from a few dollars to millions of dollars. According to data from CryptoSlam on some $647 million worth of NFT sales in July 2022, the average price of an NFT was just $115.15.
2022 was mostly a year of low fortunes for the NFT ecosystem, particularly for the “blue-chip” NFTs that were fetching a premium at the beginning of the NFT wave. Prices plunged from the highs of thousands of dollars following the plummeting in values of cryptocurrencies. The NFT market lost a whopping $9 billion in market cap.
To highlight just how much the fortunes of NFTs fell in the year in 2022, it is important to look at the trading volume of NFTs throughout the year. In January 2022, $17 billion in NFTs changed hands. By November of the same year, that figure had fallen to just $400 million.
That’s a dismal plunge. But the silver lining is that hundreds of millions of dollars worth of NFTs is still being traded every month. NFTs haven’t hit a rock bottom yet.
Besides, the NFT tokens have expanded over the years. While they were associated with cartoony avatars or digital artwork in the early heady days of the phenomenon, there are now other forms of NFTs that offer good value.
There are sports NFTs that range from highlight reels to variations on trading cards. Sports NFTs have fetched a premium in the marketplace with some selling for tens of millions of dollars.
Virtual land or virtual real estate is also being sold as NFTs. The Otherside virtual land sale netted roughly $300 million. However, like other NFTs, the value of virtual land plunged 66% through 2022.
NFTs are also taking the form of accessories for users’ virtual avatars in various virtual games and experiences. Such accessories can include shoes, clothing, and jewelry among others.
Recently, we have seen various cities across the globe building digital twins and even metaverse municipalities. This means that in this increasingly digitized environment, NFTs will eventually even represent deeds for physical properties, proof of attendance, medical records, or proof of ownership. Even if some of these representations, such as medical records, may not be transferable, they will hold a unique space on the blockchain and the metaverse.
Like with every investment, you shouldn’t plow all your savings in NFTs, more so with NFTs. NFTs aren’t stock or high-interest accounts. They are more collectibles and their perceived value often depends on the whims, interests, or inclinations of the collector.
NFT prices are currently at rock bottom and there is no guarantee that these prices will go up in 2023. If you are planning to invest in NFTs in 2023, take time to learn about what you are buying and what makes it valuable.