NFTs: a Basics explanation and understanding its use cases

Updated: Feb 21

Welcome to SafeMoon Labs, a laboratory think tank held on Twitter Spaces by SafeMoon Educators!

Today's think tank was held by Scholar and Educator Gandalf, who looks to bring you a basic understanding NFTs and how they play into the real world.

What is an NFT?

NFT stands for non-fungible token and is a unique digital asset that represents ownership of digitally crafted and real-world items like art, video clips, music, and more. It is a crypto asset and is represented as a unique certificate of authenticity of a specific item in your wallet, bound to your Seed phrase on the blockchain.


NFT emerged out of the idea of "colored coin" which is a term for a class of methods (so basically programming parameters) representation of real-world assets on the blockchain used to prove real ownership between 2012 and 2013. Originally, Bitcoin's blockchain was set to have the idea of having assets like digital collectibles, coupons, property, company shares, ids, and more, provided by these asset classes called "colored coins."


The first-ever NFT has been created by Kevin McCoy on May 3rd, 2014. It was a test of a picture called "Quantum," a pixelated image of an octagon filled with denoting circles that he put on the blockchain and is now for sale with a worth approximately 7 million USD.



Why is this important for current times in the crypto market?

NFTs are allowing people to buy and sell digital assets with unique ownership. While cryptocurrencies can be interchanged, NFTs remain the same and are limited to a specific number of unique smart contracts and can develop a value of rarity over time.


While people could assume that you can copy pictures, download music, and create other assets without buying them, NFTs give people with a collector's urge a sense of value, which increases the price even further. Most of the time, NFTs are only highly valued because they are rare, given out in promotions, or have been handed out in a specific time event as a unique chance to get them, e.g. Christmas giveaways.


Also, people claim that NFTs are the biggest money-laundering possibility on the planet as decentralized units can not be tracked down and money laundering could be done easily. While there is some truth to each story, for most purposes this is unlikely to be the case, as reporting to local tax offices is required as this is also a traded crypto asset. For security reasons, I will not go into further detail here, as I do not want to advertise the possibilities for this.



What is the biggest place to buy or build NFTs?

The biggest place to buy or create your NFTs and mint them (I will explain the term in the building segment later on) is OpenSea with a volume of over 6.5 billion USD floating around in NFTs. Axie Marketplace and CryptoPunks are following the cases, as well as Rarible and SuperRare are valid alternatives to OpenSea.


How do I start with NFTs? What wallet should I use? How do I create NFTs?

You need an idea, a fitting theme, or maybe just a beautiful picture or piece of music. It can be everything, but you should also reconsider not to upload copyrighted content as that could potentially get you into trouble if the company itself sees the object on the distributed NFT store.


You need a wallet to have the possibility to create, mint, and pay the fees for your NFTs. Minting describes the process of how digital art becomes a blockchain by paying fitting fees to set your digital art on the blockchain with something like a footprint, a unique address set to your specific NFT art will be stored on the platform. For an easy explanation, in this case, I would use Rarible as it provides an easy way for new NFT lovers to try out and test their art on the vast crypto space.


You would need your wallet (Metamask is a good option) and log into the website with your account. Your art, music, or diverse digital asset should be ready at this point to put it on the blockchain. You can then navigate to create a collectible and decide whether you want a single, unique NFT or a multiple NFT which has a certain amount of the same item in-store until it's bought out. Then, you have to put in information like the name and a description of your art. In the end, you can use the rarible, tokens from Rarible which may be used as a platform currency, to mint your item. Be advised that most of the platforms have ETH, as Rarible has the same possibilities to use ETH for the minting process, while the fees are currently extremely high.


You can also use other services to create NFTs, for example, the new Solana Blockchain. In that case, you would need to contact the Solana Devnet via console in NodeJS, which is more advanced than the simple process through a website, but the fees are extremely low (as low as $0.00025). Many tutorials explain it well and can help out, but the visual presentation would be much advised as the lines of code to be put up are easily replicated.


Are NFTs taxable?

Yes. They are crypto assets in which case have a fee between 10-37%, which varies due to your location and the considered income. For further information, I would highly suggest you talk to a local tax adviser as this can not be regarded as a piece of financial advice due to the unclear regulation on this subject. Also, we have people from all nations here, so there is no answer to be given which can suit everyone here, unfortunately. But we all know the game: If you have gained, the state will be your pain.


The future of NFTs

NFTs are already more than just pictures of pixelated apes, aliens, and dots. They can be used as a crypto asset to store money and even get a rising, passive value due to the factor of holding and storing an NFT. They rise in their popularity and will become rarer, which will also increase the value of your basic investment and may bring you a fortune. There will be more digital assets to be looked at in the future.


There are already companies out there digitalizing everything they can, whether it's players cards, card games, collectibles of athletes, or pictures and soundtracks of bands and events. Even games come forward with play2earn and possibilities to gain low NFTs during normal gameplay and combine them to higher NFTs which might be rare, super rare, or epic in their quality and gain a huge amount of value. Most likely, we will see a potential rise of personal information stored on the blockchain, e.g. driver's licenses, personal IDs, credit card information, or anything regarded to be private and unique. The use cases are nearly endless; everything you can imagine can be put on an NFT.


Is it something you should consider thinking about now? Maybe, if you are not only invested in cryptocurrencies but also want to expand your portfolio and possible, long-term graphical or musical assets. If you tend to go the way of day trading, it is also possible to think about NFTs because some of them will be published in special events and are worth way more after they are deployed on the market.


However, be aware: More and more companies start to step afoot into the NFT scene and request regulations for copyrighted stuff they own. Because of this, there might be a big change in the future regarding the possibilities of what you are allowed to mint or not. Therefore, always do your research before you act.

 

Credit:

Gandalf - SafeMoon Educator CatsRus - SafeMoon Manager

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