5 Minute NFT Crash Course: All You NEED to Know
NFTs have risen to prominence in recent years, attracting both die-hard fans and staunch critics. Starting in 2021, we have seen an explosion in NFT collections and marketplaces, and NFTs have even made their way into mainstream media through various endorsements—for example, you might have seen celebrities change their social media profile pictures to various NFTs from collections such as CryptoPunks and Bored Ape Yacht Club.
Even though NFTs are enjoying a lot of attention, the concept of NFTs is not exactly intuitive to understand for the average person, and there are still many common misconceptions about NFTs. In this NFT crash course, we’ll provide you with a crash course that will get you up to speed with everything you need to know about NFTs and clear up the most common misconceptions people have about them.
What are NFTs?
The term NFT is an abbreviation for “non-fungible token”. An NFT is a digital token with a unique identifier that’s issued on a blockchain.
A blockchain is a unique type of distributed ledger that keeps track of transactions and balances and is very difficult for anyone to alter in a way that bypasses the protocol’s rules. This makes it easy to determine an NFT’s provenance and difficult for anyone to pass off a copy of an NFT as genuine. Some popular examples of blockchains that are used to issue NFTs include Ethereum, Solana and Polygon.
NFTs can be used to represent digital collectibles and artwork, where uniqueness and scarcity is of the utmost importance. They can also be used to represent other types of digital objects where protection against counterfeiting is important, for example event tickets or passes that provide access to exclusive communities.
Another advantage of NFTs is that since they are issued on a blockchain, they can be freely transacted with on a peer-to-peer basis at any time. You can send NFTs to another user on a 24/7 basis, regardless of where they’re located geographically.
In practice, the most common use of NFTs is to represent digital media such as images, videos and audio. In most cases, however, the media is not actually stored in the NFT itself. Instead, the NFT usually contains a reference that points to the media it is supposed to represent.
PFP NFTs and the collection that started it all
The most popular type of NFTs are profile picture or “PFP” NFTs, which are often used by their owners as avatars to represent themselves on the internet. PFP NFTs are usually released in collections containing a large number of unique digital images that share a common theme.
The most influential collection in the PFP NFT genre is CryptoPunks, as it introduced the blueprint which is now used by hundreds, if not thousands of other NFT collections. If you go to any NFT marketplace and look up the NFT collections that are seeing the most trading activity, practically all of the top collections are heavily influenced by CryptoPunks.
The CryptoPunks collection consists of 10,000 unique avatars that were generated automatically through code. There is a pool of possible attributes that each CryptoPunk can have, and these attributes were chosen randomly during the generation process. Attributes include things such as gender, skin color, hairstyle and accessories, and each CryptoPunk has a unique combination of attributes so that no two CryptoPunks look identical.
Each attribute has its own rarity—some attributes appear on a large number of CryptoPunks, while others only appear on a handful of them. For example, the “Earring” attribute appears on over 2,400 CryptoPunks, while the “Alien” attribute only appears on 9 CryptoPunks.
Typically, CryptoPunks with rare attributes will fetch a higher price compared to CryptoPunks adorned with more common attributes. In fact, some of the most expensive NFTs of all time are from the CryptoPunks collection.
As we’ve mentioned, the concept introduced by CryptoPunks has been imitated by countless other NFT projects, to varying success. The most successful CryptoPunks-inspired collection by far is Bored Ape Yacht Club, which rivals CryptoPunks in terms of total value. Other examples of successful PFP NFT collections include Azuki, DeGods, CloneX and Doodles.
NFT marketplaces
NFT marketplaces are online platforms that allow users to buy NFTs from other users or list their own NFTs for sale. NFT marketplaces are also a great way to explore new NFT collections and track which collections are gaining or losing popularity.
The most widely used NFT marketplace at the moment is OpenSea. The OpenSea marketplace can be used for trading NFTs on many different blockchains, which is one of its biggest strengths. There’s a wide variety of NFTs that are listed on OpenSea, including PFP NFTs, art NFTs, gaming NFTs, metaverse NFTs, photography NFTs, membership NFTs and more.
The great thing about NFTs is that they are based on open source technology, so anyone can create their own NFT marketplace and release it to the public. Other examples of popular NFT marketplaces include Blur, Magic Eden and LooksRare.
In order to buy or sell NFTs on an NFT marketplace, you will need an NFT wallet. Let’s go ahead and explain what you need to know about NFT wallets.
NFT wallets
An NFT wallet is a piece of software that allows you to store, receive and send NFTs. In most cases, normal cryptocurrency wallets also double as NFT wallets. For example, if you want to collect NFTs on the Ethereum blockchain, you can use the MetaMask wallet software as your NFT wallet. You’ll also likely be using MetaMask to store ETH, which is used as the currency for buying and selling NFTs and paying for transaction fees on the Ethereum blockchain.
When setting up a cryptocurrency wallet to store NFTs, it’s very important to securely back up your recovery phrase. This will allow you to access your NFTs and cryptocurrencies even if you forget your wallet password or lose the device you installed your wallet on. You should never share your recovery phrase with anyone, as it provides full access to everything that’s stored in your wallet.
You should also apply a lot of caution when transferring NFTs or cryptocurrencies, as these transactions cannot be reversed. If you send your NFTs to the wrong address or if they are stolen, the chances of getting them back are slim to none.
Investing in NFTs
If you’re looking at NFTs as an investment, there’s a couple of things you should keep in mind.
The term “blue chip NFTs” is used to refer to NFT collections which have significant valuations and trading volume, and are expected to retain a lot of their value (or even grow) over the long term. While these are certainly the most attractive NFTs to own, the barrier to entry is usually very high.
When it comes to crypto assets like Bitcoin or Ethereum, you can invest as little as you want. For example, you can easily buy $10 worth of Bitcoin or Ethereum. NFTs, on the other hand, generally can’t be split into smaller denominations, so they are not a great option for people who are just looking to make a small investment.
If you want to invest in a blue chip collection like CryptoPunks, you’ll have to spend a significant amount—at the time of writing, the cheapest CryptoPunk on the market is listed at 62.38 ETH, which translates to $112,000. The lowest listed price for an NFT is called the collection’s “floor price”.
You can buy an NFT from other blue chip collections like Azuki and Pudgy Penguins for less, but you’ll generally have to spend a couple of thousand of dollars at least to get an NFT from a collection that’s considered a blue chip. Here are the floor prices for the 10 largest NFT collections by market capitalization:
If you are investing in less established NFT collections, you might have issues with liquidity when you want to sell. Such collections also tend to be much more volatile than blue chips and they can lose a lot of value quickly.
Still, investing in NFTs could certainly turn out to be lucrative for savvy investors. The NFT sector still has a lot of potential upside, as it has only been around for a relatively short period of time. In addition, the prices of NFTs from leading collections have dropped in the cryptocurrency bear market, so there could be some good buying opportunities at the moment.
Overall, we can safely say that investing in NFTs carries more risk than investing in crypto. In some cases, you can get NFTs through free NFT drops, which can be a way of getting into NFTs without taking on risk.
The bottom line — NFTs are an exciting new sector that could grow in surprising directions
NFTs are a very new technology that’s still finding its footing. Even though the prices of most top NFTs declined alongside cryptocurrencies during the crypto crash of 2022, it’s safe to say that NFTs are certainly not dead.
While it’s possible to make money with NFTs, new investors need to be careful as NFTs usually display a lot of price volatility. In addition, the most established “blue chip” NFT collections tend to have a high barrier to entry, while less popular NFT collections can struggle with liquidity and even greater price volatility.
Still, there is a lot to explore in the NFT space, and NFTs don’t necessarily have to be viewed as investments. For example, collecting NFTs can be a great way to support your favorite artists.