NFTs have exploded in popularity over the last year. Black creators in particular have started embracing the technology as the market for digital art continues to grow.
But what is it about NFTs that make them so popular among creatives? This guide provides a detailed overview.
What is an NFT?
NFT stands for Non-Fungible Token. These are one-of-a-kind digital assets and not interchangeable with something of equal value. They have been around for quite a while, but the hype surrounding them has recently take them mainstream.
NFTs contain details of ownership and additional information such as the date of creation, date of sale, value, and the buyer. They also represent real-world objects like art, music, in-game items, video game skins, videos, and sports highlights. Other examples include collectibles, virtual avatars and designer sneakers.
Why NFTs are Different From Bitcoin
Fungible tokens (i.e. Bitcoin) are identical. This is important because it means that, unlike NFTs, these tokens can be easily exchanged with other tokens for equal value.
The best illustration for how this works in the real world is to think about cash. You can easily go the bank and exchange one $100 bill to get two $50 bills. Fungible tokens work like this. So for example, you can easily exchange one Bitcoin to get another Bitcoin.
NFTs do not work like this. You cannot easily exchange one NFT to get another NFT simply because it is equal in value. Sure, you could bargain with the other owner and ultimately make a trade. But you are cannot automatically trade it in the way you could with cash or Bitcoin. This is what makes these tokens so valuable.
How NFTs Work
An NFT allows the buyer to own the original item, as it has built-in authentication that serves as proof of ownership. For example, artists can sign their artwork by adding their signature in an NFT’s metadata.
NFTs are compatible with anything built using Ethereum and can trade on every Ethereum marketplace for an entirely different NFT. Ethereum is a cryptocurrency, like Bitcoin or Dogecoin. For instance, it’s possible to exchange a piece of art for another item like a concert ticket.
Why Creators Are Flocking to NFTs
Some benefits of owning an NFT are:
- It’s easy to verify ownership.
- It’s impossible to manipulate an NFT in any way.
- An asset secured by a wallet on Ethereum can last forever.
- Artists can determine the scarcity of NFTs to manipulate the market.
1. Access to Global Markets
NFTs give content creators access to a global market. They provide artists and content creators a unique platform to monetize their products.
Artists don’t have to rely on galleries to sell their art. They can sell directly to buyers as NFTs, giving them a more considerable profit margin.
There’s also room for new unrealized revenue streams.
The creator of an NFT decides the scarcity of their asset. Think of it as a ticket to a concert, for example, where the organizer chooses how many tickets to sell and determines the price based on the limit.
The creator of an NFT gets to decide how many replicas exist. They can make each NFT unique to create scarcity or produce many replicas.
Artists can receive a percentage of sales whenever their art sells to a new owner through program royalties.
Some NFTs automatically pay out royalties to their creators whenever they sell. This concept is very appealing, as the original owners earn a percentage of royalty every time the NFT sells to a new buyer.
The process is automatic, so creators can never miss out on royalties.
4. Boosting Earnings for Creators
Currently, most profits made by content creators go to publishing platforms. For example, an artist publishing work on a social network earns the platform money. The platform sells ads to the artist’s followers, and they get exposure in return.
With NFTs, funds from content sales go directly to artists. Brands can also auction-themed NFT art to raise funds for charity. For example, Charmin with non-fungible toilet paper, Nyan Cat, the GIF of a cat with a pop-tart body, sold for nearly $600,000.
The NBA Top Shot generated more than $500 million in sales. A single LeBron James highlight NFT sold for more than $200,000.
Celebrities such as Snoop Dogg and Soulja Boy have released unique memories, artwork, and moments as securitized NFTs.
5. Replication Issue
Modifying the metadata on an NFT is impossible, so owning the real asset is valuable based on the current market. Once a piece of content is screen-grabbed, shared, and used, its value increases.
Therefore, owning the verifiable asset has more value.
6. Increasing the Gaming Potential
For game developers, NFTs provide records of ownership for in-game items. They can fuel in-game economies and offer many benefits to the players.
In a regular game, it’s possible to buy items to use in the game. With NFTs, it’s possible to sell them after the game at a profit to recover the money spent.
Game developers can earn a royalty every time an item is resold in an open market. This creates a business that benefits both players and developers from the secondary NFT market.
In-game items that become digital memorabilia are valuable outside of the game.
7. NFT-Backed Loans
The use of NFTs is wide. For instance, it’s possible to use digital artwork as collateral in a decentralized loan.
Decentralized finance applications make it possible to borrow money by using collateral. They guarantee payment to the lender. If not paid, the collateral goes to the lender.
8. Fractional Ownership
NFT creators can create shares that allow investors to own part of an NFT without purchasing the entire item. The price of its fractions drives the overall cost, adding more opportunities for NFT minters and collectors.
While investing in crypto may not be for everyone, it does have its merits. If you’re considering investing, it’s important to do your research.