NFT 101: A Practical Guide to NFTs for Beginners
It’s 2022 and it’s fair to mention that NFTs are one of the most important and foundational technological revolutions of our history.
If that sounds exaggerated, I guarantee you — it’s not.
In 2022 (tens of) thousands of people quit their day jobs or include side hustles to their schedules in order to dedicate extra time to the wondrous world of NFTs. University students turning into single-day millionaires, monkey jpegs are being sold for millions of dollars and people are continuously sharing how NFTs modified their lives for good and how grateful they are to this technology. The testimonies are wild and intriguing.
But I’m aware it might feel intimidating and confusing if you’re very new to all of this. The platforms, technical terminology and the lingo that’s unique to NFT & crypto communities don’t make it very easy for ‘noobs’ or ‘normies’ (aka newbies or normal people).
So, let’s make this your one-stop guide to finding answers to the most common questions about NFTs. We’ll cover everything from NFT basics, evaluating NFT projects, buying and selling NFTs, prices, and more.
Let’s dive in!
NFT BASICS
What is an NFT?
NFT stands for a non-fungible token, an individually unique asset, which means each item isn’t like every other of its kind. These can’t be broken down into smaller value units like fungible assets which include cash or gold bars. In a nutshell, non-fungible tokens are specific items that can be sold and traded independently.
An NFT is minted with smart contracts, which allows the network to keep the information that is indicated in an NFT transaction.
The code of the contract exists throughout a blockchain network. The most extensively used smart contract blockchain for NFTs is Ethereum.
But what can an NFT be?
The most famous form of NFTs we recognize is digital art. But NFTs can be anything digital, which includes music, courses, drawings, tweets, photography, and more.
When did all of it start?
In January 2018, the Ethereum blockchain introduced a support system for NFTs by the creators of ERC-721 (Ethereum Request for Comments 721), which intended that NFTs could be hosted on the Ethereum blockchain from this point onwards.
So, who became the FIRST to capture the NFT train? CryptoKitties.
Each kitty’s possession was tracked through a smart contract on the Ethereum blockchain, and each of them is an NFT under the ERC-721 standard.
What is blockchain?
A blockchain is a ledger of all public cryptocurrency transactions. Blocks are individual pieces of data, and the chain is essentially the database they’re stored in.
Blockchain doesn’t require trusting one central entity considering it is a decentralized system. This means, getting rid of the need for a middleman — such as a bank — to process transactions.
The blockchain records each transaction that happens on its network. And due to the fact every block in the chain contains data about the previous block, it’s absolutely impossible to tamper with any records or data in the chain without breaking or hacking every single block on the chain!
What is minting?
You’ll hear this phrase SO much. Minting means developing an NFT and generating a record for it on the blockchain for the very first time. It is frequently used to describe when a person becomes the first owner of an NFT upon completing a transaction on the blockchain. The minting procedure turns a digital file right into crypto collectable on the Ethereum blockchain.
Each NFT is unique — this means that it can’t be replaced through any other token or swapped. On the alternative hand, banknotes or bitcoin (that’s a fungible token) can. If they maintain the same value, you could effortlessly replace them with one another. Think about it as an artwork piece such as Mona Lisa. There is only one Mona Lisa and all others are replicas and imitations. She is one of a kind and unique!
What is gas fee?
If you’re about to buy your first NFT, that is something that could come as a surprise. This is likewise something you’ll notice people complain or inquire about in Discord chats as they need to make a transaction when gas fees are probably at their lowest rate. (You’ll discover more info on when it’s low in the PRICES section)
Gas fee is the amount of money that customers need to pay to complete their purchase of an NFT. This fee is introduced to every transaction right before you checkout. You recognise how when you’re on the checkout step to your online shopping cart and you see tax or service fees added on your final bill? You can consider it as gas fees.
In this situation though, the gas fee is charged for the mining service, to account for the computational power required to process transactions and secure the blockchain. Miners validate your transaction even though it fails or succeeds, taking computational power. So, a gas fee must be paid even though a transaction fails.
What is metadata?
If you think of NFT as a cell, an NFT metadata is the cell’s nucleus. It holds the info of the NFT. Usually, metadata consists of the name or description of an NFT.
What is an airdrop?
AirDrop is an advertising and marketing method that allows a company to distribute a brand new cryptocurrency into the world quickly and effectively. When blockchain projects give away tokens, NFTs, or different crypto-associated merchandise to their users for free, it is referred to as an Airdrop.
You would possibly see some collections doing airdrops to certain holders to reward them or celebrate a seasonal holiday like Christmas.
What is a wallet?
An NFT wallet is a crypto wallet that helps the protocol for blockchain-based NFTs. An NFT wallet is a secure manner to store your digital assets. Not only does it will let you buy, sell and trade your assets on the blockchain, however it additionally provides you with a secure platform in which you could store them offline.
Some known NFT wallets are Metamask, Coinbase Wallet, AlphaWallet and Enjin.
What is floor price?
The floor price of an NFT refers to the lowest viable price you may buy it at. It seems in commodity trading reflects the lowest as opposed to common market fees to make sure there’s a constant demand and stability.
(On September 14, 2021, the floor price of NFTs reached a whooping 1.1 ETH! — It became 10X higher than June 2021.)
What is HODL?
HODL? Yes, it is genuinely a thing. The phrase Hodl comes from a misspelling of the phrase “Hold,” and it is a cryptocurrency buying and selling strategy. Hodl in brief stands for “hold on for dear life” and means hold on and wait, instead of selling off in a panic.
This phrase turned into coined through an anonymous person who published it as a comment on Reddit in 2013 and has since become a web meme.
Who is a paper hand? 📄🙌🏼
Paper hands are those who quickly promote their NFTs while market prices drop. This is a derogatory term due to the fact they’re considered “weak hands.”
Who is a diamond hand? 💎🙌🏼
Diamond hands are those who plan to hold an NFT long-term. Therefore, they have no concern about the market conditions within the short term and are in the game for the long run.
EVALUATING NFT PROJECTS
What makes NFTs precious?
I can simply right click and save as, right? :)
Well, sure you can. But you won’t have possession of that NFT nor the utility that comes along with it. It simply means you’ve got access to the artwork since it is public.
Let’s consider any JPEG you downloaded and set it as your Twitter profile picture. Without asking permission from the owner or without purchasing it. Initially, it was impossible to show the authenticity or value of digital items. Now, the possession is signed and seen on the blockchain. Well, who cares, you may ask. You’ll be aware that major platforms will soon bring verification criteria before you use an NFT artwork as your profile picture. We hear Twitter is operating on this.
But there’s lots more than possession that make NFTs valuable.
#1 rule in economics: Law of supply and demand. This means the more people who need to buy a product, the more valuable that product will become! Scarcity and FOMO (fear of missing out) that’s what make everything valuable.
#2 is the utility that comes with the possession of an NFT. This might be becoming part of a community, access to certain information or benefits that’s distinctive to members, and many more. Think of yourself as an early investor in a startup project which you believe has the potential to succeed and grow. You get to have a say in how that project unrolls, benefits from its growth, in addition to gaining access to the perks of being in that community from the beginning, whether or not that translates into network, money or different perks.
How can I discover good NFT projects?
Glad you asked because that is where most people get stuck! There are so many alternatives, how do you know which one to pick and what value you’ll get from investing in this?
Here are a few key things we recommend looking at to filter the alternatives and pick out what makes the most sense for you and your wallet:
Check out the Community
The key driver of success for an NFT project is the community. Take a look at the size, the kind of conversations, engagement, and enthusiasm from the community to get a feel of the potential of the project. See if the conversations align with you and evaluate if this community could assist the project in the long run.
Spy on Twitter
There’s not one NFT project that doesn’t have a Twitter account due to the fact this is where things show up in the NFT-verse. Check out the project’s Twitter handle, their content material, the engagement they get, how people communicate about them, etc. You’re looking to see if this project is legit. Browse through the team and their accounts too. Next, take it a step further and observe different content creators in the NFT space and check out what form of projects they’re speaking about these days. Is there a positive fashion that’s extra overrated for example? Quick research could go a long way!
Join Discord servers and Listen to the conversation
Every NFT project has a Discord server for its community members to allow the flow of information. Check out the conversations on the channels, and see how involved the members are. What topics are being discussed and what do you find in there that makes sense for you? In my opinion, check out the tone of voice and transparency of the team and ensure to ask questions about what it’s like to be a verified member. This is your due diligence before making an investment in the project!
Check the Roadmap
Most NFT projects have a roadmap this is open to the public. This is where you’ll discover the short and long-term goals of the team and where they need to take the project. In other words, what will you get via being a member and investing in the project in the long run. Feel free to ask questions on the roadmaps on their Discord or during AMA(Ask me Anything) sessions which most teams hold on Twitter Spaces. The roadmaps can commonly be found on the project website or on social media accounts.
Finally, check the rarity of an NFT as you select which one to invest in
Rare is precious. Right? In NFTs, the price of an NFT was additionally determined by a bunch of factors such as background colour, eye colour, clothes, etc. So let’s say, the NFT collection has 0.6% of red backgrounded NFTs, which means they’re valuable. So keep a watch on the rarity of these projects and try to figure out how the NFT makers make their work rare.
If you’re up for extra technical analysis to determine which project to invest in, here’s a guide we suggest that is very useful.
How can I study the benefits of a project?
NFT Whitepaper
An NFT whitepaper is a document this is written to inform readers of the benefits and uses of the NTFs. It is an authoritative report that attempts to convince readers about something, generally through the use of facts and statistics.
A white paper can be used as a part of their advertising and marketing strategy, specifically, once they promote services or products that require a little education to sell effectively.
BUY & SELL
What is MetaMask?
MetaMask is a software cryptocurrency wallet used to engage with the Ethereum blockchain and DApps. The MetaMask extension is currently available for Google Chrome and you could download it on iOS and Android devices.
MetaMask is a bridge that permits you to visit the distributed web of tomorrow in your browser today. In addition, it will allow you to run Ethereum dApps right in your browser.
MetaMask is more than just an extension — it’s a whole ecosystem for decentralized apps built on the pinnacle of the Ethereum Network.
How do I install a MetaMask wallet?
Go to https://metamask.io/ on your browser, click on Download now and pick the browser you use.
Create a wallet.
Set a username and password.
This step is essential! You will get a recovery phrase to your wallet. Click to Reveal the secret phrases and you will see 12 words. Write these phrases on a piece of paper and keep it someplace safe. You will now no longer be able to access your wallet in case you lose it.
Verify your secret phrase by selecting the previously generated phrase in order. Click Confirm. Now! You have yourself a MetaMask wallet!
How do I realize an NFT is original?
Browse through the creator’s social media. If the NFT is initially from the creator you’re expected to be, they should have shared something! They usually actively publish about the listing and related content about their work. See if they’re credible or not. Check other people’s feedback on the posts they shared too.
Research the image on Google
You can do a research for the image on Google’s search engine. See if there are any versions of the same image when it is uploaded.
Check if the NFT is been sold on various platforms
This might be another red flag for you. If the NFT you’re interested in is likewise selling on different marketplaces, they’re likely not reliable sellers.
How can I buy NFTs?
NFTs can be purchased through several NFT marketplaces such as OpenSea or Rarible.
Open the marketplace in your browser, connect your wallet using the connect button at the top of the web page and voila. You’re geared up to start browsing through collections and NFTs.
Once you pick out the NFT you need to purchase, ensure you’ve got sufficient ETH in your wallet for the transaction. Click buy now (unless you’re bidding, that’s another case), check the gas fees and confirm the transaction as soon as you are ready.
Once the transaction is processed on EtherScan, you may be able to see your NFT in your wallet.
Tip: You want to keep an eye on the gas fees; there are times when gas fees are really high. You might also additionally need to look for the best possible time! :-)
Where can I sell my NFT?
Here are the top 3 NFT marketplaces for creators & collectors:
OpenSea
Rarible
SuperRare
How to sell NFTs (without getting rekt-wrecked)?
This is a big concern that deserves its own guide. But here are a few key guidelines to keep in mind.
Rule #1: Do not accept any bot offers
Rule #2: Remember to calculate royalties & fees before listing (these royalties are unique for every project and could impact your final payout)
Rule #3: Have an exit point in mind, don’t hesitate while selling. Profits are earnings!
Rule #4: Selling when price moves upward. Once the price hits a high, undercutting (panic sellers selling below the floor price) will start to do its work. It could be difficult to sell at this point.
Rule #5: Unless you’ve got a rare NFT, don’t list at an unreasonable price, understand that price moves slowly, and all of the sell orders before you need to be filled before yours sells!
Rule #6: Also don’t undercut the floor by too much, even in case you want to sell fast! You’ll be hurting your potential profits and might begin a race to the bottom if a person has a similar goal. Move the price down slowly and you may just maximize profits.
When to sell NFTs (without getting rekt)?
NFTs aren’t black and white. Some projects will see big peaks close to the mint date due to FOMO and hype, and different projects will shine in the longer run.
This is why fundamental evaluation is a must! If the developers are solid, they’ll deliver a product so that it will best move up in value. If there’s little development, there won’t be anything to aid the price.
Again, the great strategy is to have an exit point in mind. If you’re satisfied with the profits exit and don’t look back. For projects which you believe in to have massive goals, buy and never panic sell. Price fluctuations are natural, don’t allow them to shake you out of a moon bag!
How do I know what to buy?
There aren’t any particular rules when deciding what to buy in the NFT world. The first thing you want to do is pick out the NFTs that interest you. Everyone has a distinctive taste. I may need to buy A, however, you would hate buying A. You want to build up the skills to evaluate something for yourself. Therefore, first, consider what might excite you and match your interest.
After you find the projects which excite you, do your research. Do a bit of research about the creator of the NFT project. Ask yourself questions about what you need to learn about them, which includes their credibility, social status, etc. Focus on the community of the NFT project. You should have learned by now that community is the important thing for NFTs! Find an engaged and helpful community packed with positive people. Join their Discord servers, ask questions, observe, and be a part of discussions.
Another issue while making decisions is that it is perfectly okay to pay attention to other people’s thoughts and feedback or be a part of discussions however always keep in mind that it is your decision. Therefore, make your personal decision in the end primarily based on your judgment so that you don’t end up blaming anyone else! :)
Which website/platforms can I use to stay up to date with upcoming projects?
1. Twitter
Twitter is an essential place for brand new NFT projects to share their work, while not having to pay for any additional promotion. Twitter has a massive gain in terms of organic reach, with people sharing posts right away. However, this also means that posts will disappear quickly if they don’t get a lot of engagements.
2. Reddit
Reddit is another suitable source to keep up with upcoming NFT projects. You can use the /r/NFT/ extension to look at the news on NFT.
3. OpenSea
OpenSea is the biggest NFT marketplace. There are over 20 million listings on OpenSea, but you still have a chance to come across exceptional projects which are upcoming! Use the filters to look at new projects, NFT categories, chain, price range, etc.
4. Discord
Discord is an open-source chat app, generally designed for video gaming communities. It is famous among gamers as it gives both text and voice communication. You can use Discord to discover NFT gems. Discord isn’t only useful for locating trading gems but also to discover new friends within the crypto space. You can without problem find people with similar interests and learn from them or they could learn from you!
What is listing and delisting an NFT mean?
listing means that an NFT is available to trade on a specific platform. Delisting means the contrary.
Prices
What is the average minting price?
The price of minting non-fungible tokens can vary a lot, from below $1 to over $1000. Common minting prices on Ethereum are 0.05–0.08. For Solana, you could expect to see a range of 0.5–2.
NFTs on the Ethereum blockchain cost a lot extra due to the fact that it is more expensive to use this network. Solana is a much more low-cost network to mint and trade on. However, Ethereum has the most important share of the marketplace with better platforms. Your budget will decide which blockchain you want to prioritize.
If the supply is at or around 10,000 — ensure that the price isn’t too high (i.e. >0.08 Ethereum) this normally indicates that the developers are being greedy.
How is the minting price decided?
NFT creators decide their own prices. For the right project, the proceeds from the sales should go to funding the development and marketing for the project. Therefore, the scale of the project additionally determines the minting price.
How the floor price of a collection be determined?
The collectors are those that determine the floor price. Floor price simply means the cheapest listing for any given collection, typically for the most common NFTs. However, the floor price is likewise influenced by many different factors.
If the trade volume for a project is low, collectors might also start to lower the price so that you can sell their NFTs. Also, if there are plenty of sell orders at a certain price, the floor price could have a difficult time surpassing this barrier unless there is an outstanding amount of volume.
Additionally, the mint price of the NFT may even affect the floor price — there can be exceptions. If an NFT costs very little to mint, the upside can be smaller since the risk for the buyers was relatively small. More highly-priced NFTs (with a good team, of course!) will possibly have more upside.
How are gas fees determined?
It is determined by the quantity of traffic on the network and the computation power taken to execute a transaction. You are genuinely paying gas fees for the pc power that was needed for the creation of the NFT.
When are gas fees low?
The lowest Ethereum fees are between 1 am and 3 am UTC. If you need to save a few cash, carry out your transactions either in the early morning (1 am — 3 am) or late at night (9 pm-11 pm).
What is a bull market?
A time frame in financial markets when the prices are rising continuously. The bull market is a period of relatively high stock prices and volatility in the international financial markets. The contrary of a bull market is called a bear market.
What is a bear market?
The bear market is an extended period of low stock prices.
Why do people sell their NFTs below mint price?
So many reasons for this. Losing interest or trust within the project, needing cash, purpose to make an income with the change of exchange rates. Or simply due to the fact they’re amateur investors and don’t understand what they’re doing. All cases occur all the time. :)
Can I list my NFT for free?
When you want to list your NFT, you need to pay a certain amount of gas fee in case you are using the Ethereum blockchain. In the OpenSea marketplace, there’s another option: Polygon.
You can sell your NFTs by paying very little gas fees if you use Polygon. This isn’t recommended since the demand for Ethereum-backed NFTs is tons better than Polygon. There is a cost for doing business on the Ethereum blockchain. If the fees are too highly-priced for you, it’s far better to work your way up by focusing on inexpensive networks like Solana or Avalanche.
Can a person copy my NFT?
Yes and no. Every NFT is unique and can be tracked on the blockchain and because of this that no one can copy it. A lot of people find the idea of owning something digitally strange and sense like they don’t have control over their purchases. But with NFTs, there’s no need to fear about potential piracy — because every time you purchase an NFT, it is recorded on the blockchain and will become un-copyable! You can’t have the “actual” Mona Lisa, however you could have the replicas.
As we come across more FAQs or when new information becomes available, we will keep updating this post.
Hope your questions are answered!
