In the past year, NFTs have caused quite the big media hoo-ha. Bored Ape Yacht Club, CryptoPunks, Doodles…unless you’ve been living under a rock or stranded without a phone on a remote island, at least one of these NFT projects would ring a bell.
There are plenty of theories floating around the internet about NFTs. Some say it’s a cash grab, some say it’s a get rich quick scheme, but Phua Chu Kang says don’t play, play. I’m on Phua Chu Kang with this. Before you decide to dip your toes into NFTs or ignore it completely, it’s always a good idea to gather information first. Read along!
What is an NFT?
You’ll be surprised – NFTs are not just photos of monkeys.
The meaning of NFT is non-fungible token which probably still doesn’t mean anything to you. Essentially, an NFT is a unique digital asset. It can be a photo, a video, and even a song but it can also represent physical assets like an actual house or a piece of artwork in real life.
You can think of it this way: It’s a digital certificate of authenticity that proves ownership of an asset. Most NFTs are traded on the Ethereum blockchain – a digital ledger where transactions are recorded in a way that is nearly impossible to change, or hack the system.
So, while anyone might be able to right-click-save or screenshot any NFT online, the digital receipt of ownership stored in the blockchain cannot be replicated. The same way you could have a photo of the Mona Lisa, but that doesn’t mean it is yours.
Think of it this way, when you buy an NFT, you’re not buying a picture, you’re buying the property rights to the picture.
How do NFTs work?
NFTs are non-fungible tokens. This means that it’s unique and cannot be replaced by something else. You cannot trade one NFT for another NFT.
Now, compare that to bitcoin which is a fungible token. You can exchange one bitcoin for another and you’ll have exactly the same thing you started out with. However, if you trade a one-of-a-kind Pokemon card for another card, you will end up with a different card.
Other characteristics of NFTs include:
NFTs can also only have one owner at a time. So while you can buy Bitcoin in smaller denominations, the same does not apply to NFTs.
Each NFT has a unique identifier that is linked to one address in the blockchain. However, once you have acquired an NFT, you can sell it back to the NFT marketplace.
How much are NFTs worth?
Just like cryptocurrencies, the price of NFTs sit on a very broad spectrum. It could be anywhere from millions to thousands to down to hundreds.
The most expensive NFT sold to date is called The Merge by famed artist who goes by the pseudonym Pak. The fragmented artwork which was listed as 266,445 units rather than a singular piece of digital artwork fetched a hefty USD$91.8 million when it went on sale in December 2021.
To get up to speed, here are 10 of the biggest NFT projects by market cap according to CoinMarketCap. Market cap refers to the market value of the NFT project in total – essentially, how much money people have already put in. The floor price, on the other hand, is the lowest price for an NFT from a particular project.
It’s…a lot of money. Do note that the above are values representative of the time of writing. The floor price and market cap of respective NFTs are bound to fluctuate with time.
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A post shared by Bored Ape Yacht Club (@boredapeyachtclub) on Apr 23, 2021 at 6:58pm PDT
While the floor price and the market cap are reflective of the monetary value of an NFT, it is just as important to understand the factors that ultimately contribute to the numbers. Some of these key factors affecting an NFT’s price include but are not limited to:
For example, you can think of Bored Ape Yacht Club (BAYC) is the Supreme of the NFT world. At the time of writing, you’d have to spend a whopping US$333,000 to own the rights to a seemingly disinterested cartoon ape. FYI, that’s the price of a BTO in Yishun. When it first launched in April 2021, the price of a Bored Ape was around a measly US$190. The big question: What has driven its prices through the roof?
For one, owning a Bored Ape does not only reserve the proof of ownership to the art, it also grants you commercial usage rights. Besides re-selling the NFT for a profit, Bored Ape owners can also sell spinoff products based on the art. There is also a limited supply of 10,000 Bored Apes to be traded in the marketplace. Given that it’s the object of desire of even celebrities like Justin Bieber, Jimmy Fallon, Eminem and Snoop Dogg, you’re up against a tough crowd with deep pockets if you’re on the hunt for a Bored Ape.
On top of that, Bored Ape owners are also privy to membership in the exclusive BAYC which of course has its perks. For example, in August 2021, BAYC created 20,o00 mutant Apes. Of that, 10,000 mutant Apes were released to Bored Ape owners for free. They could then make a profit from selling the mutant Ape on the secondary market. Ka-ching!
How to buy NFTs?
If you’re looking to dip your toes into the NFT market, there are various reputable platforms you can consider. The more popular NFT marketplaces are: OpenSea, Rarible, and Foundation. Bear in mind that these marketplaces usually charge a fee for each transaction and each marketplace has a different fee structure.
Alternatively, you can also mint NFTs directly on a project’s website. Minting an NFT is the process of converting a digital file into non-fungible tokens. Don’t worry, it’s actually far less complicated than it sounds. Here’s a step-by-step guide on exactly how you can go about minting an NFT. The only catch, though, is that you have to be early to the project.
Step 1: Find a new NFT project that allows new investors to mint NFTs.
Step 2: Install a cryptocurrency wallet. The most popular wallet is MetaMask. You can download it directly from the official MetaMask website and add it as an extension on your internet browser.
Step 3: Create a MetaMask account. It’s pretty fool-proof. Follow the steps and make sure to write down (on paper) the seed phrase, which will be required to recover your wallet.
Step 4: Fund your MetaMask with crypto. The blockchain the NFT exists on determines the cryptocurrency you’ll need to purchase the NFT and hence, the cryptocurrency you’ll have to transfer to your wallet. In most cases, it’s Ethereum. The amount you’re transferring will also have to take into account the gas fees which is additional charges for the computational work that happens during minting.
Step 5: Connect your MetaMask wallet to the project’s website, select the number of NFTs you want to mint and you’re set!
The main difference between minting on the project’s website rather than getting it from the secondary market is that during the former, you cannot choose your NFT. If your project skyrockets in the open market, you would also have the satisfaction of having snagged it at one of its lower prices.
What else should you research before buying NFTs?
It can be rather tempting to get into NFTs to make a quick buck. But if you’re a beginner, finding the right project is going to take plenty of research. To make sure you don’t end up getting scammed out of your life savings, here are some pointers to take note.
First, the founders. If the project is backed by creators who already have previous accomplishments in the tech or art space under their belt, it would be far more probable that their subsequent endeavours would be a success. Or even if it weren’t, you can trust that it wouldn’t be a rug pull.
Second, the community. NFT marketplaces are built by communities. Having a strong community behind a project signals higher chances of success. It is safe to say that NFTs with a strong community is bound to fare well in the market as people are not in it to pump and dump. The Bored Ape Yacht Club is a prime example.
Third, the social media presence and reach. Having a healthy following and engagement on social media like Twitter, Instagram, and Discord is a sign of interest in the project. Therefore, the demand for the project is there.
Last, but definitely not the least, the roadmap. An NFT roadmap is a document that details the goals and objectives of the project. It is an indication of a project’s trajectory in the long-term. As your Asian parent would tell you, when you fail to plan, you plan to fail. A detailed roadmap presents a hopeful future.
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Original article: What is an NFT? And How to Buy NFTs in Singapore (Beginner’s Guide 2022).
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