NFT's have been super hype for the past couple of months, and you've probably seen marketplaces like NBA Top Shot and want a simple breakdown.
What are NFT's?
NFT's (Non Fungible Tokens) are a type of smart contract that allow you to verify ownership of a digital asset. Let's breakdown the key terms behind this definition:
Smart contract: A "digital" contract between you and me, where the terms of the contract can't be changed. This means that once terms are agreed upon between you and me, it can't be reversed. For example, smart contracts are often used for decentralized exchanges such as Uniswap. If I trade or swap a crypto token with you (for example, trading a Uniswap token with Ethereum), a smart contract is automatically generated and makes it impossible for me steal your crypto through this facilitation.
Ownership: In the case of NFT's, there's a digital cryptographic signature. Your digital signature can't be forged because you have a unique token code generated which cannot be replicated. With an NFT specifically, your "digital signature" is printed on the smart contract - which basically proves that you've owned the NFT at a certain period of time. (Note: This is what makes "ownership" powerful).
Digital Asset: This can refer to anything: a document, file, video, image, an Instagram post that lives on the cloud, an Instagram post, podcasts, websites - anything.
TLDR: A foolproof mechanism of digital ownership certification on a blockchain.
Alright - but couldn't I just "save" the image or video to my phone? What's the hype?
Anybody can make, save, or replicate anything that's digital or physical nowadays.
Key learning: People still purchase items for a couple of reasons outside of functional utility:
This doesn't change with digital assets.
Let's bring it back with another example.
Social media profiles are digital assets. They're not physical, and you can't touch them. But they're valuable, and that's why you have one. You not only just have one, but you customize it, optimize it, want the best username (ie. I'm kaito on clubhouse and cunninghamkaito on Twitter), and constantly update your social assets. You even get a blue checkmark when you're poppin to prove authenticity when there are "clones/bots/fakes" of your profile.
But, the problem is that you don't truly "own" your social media profiles, and they're the property of Facebook/Twitter etc.
NFT ownership is similar - it connects with human wants and needs at the deepest level.
In fact, we're even seeing the CEO of Twitter selling his Tweets as an NFT:
P.S: We're working on an NFT marketplace project that allows you to sell your Instagram posts back to your audience. Sell your Instagram posts on the blockchain by applying here: https://forms.gle/V8bL3kZpyEaRdApd6
What makes a "good" NFT purchase?
Here's how you can have a good idea that the NFT you're buying is actually "worth it." When I say worth it, it doesn't mean that it's worth reselling, but optimizing for a degree of sustainable sentimental value.
Things you should look for in your NFT's:
Scarcity: You want to know that there's a finite amount, and marketplaces usually tell you the number of serial numbers that have been minted (which just means "created").
Sustainability: You want to know that the artist/marketplace will be relevant to you for a long time. Really what's important is the sentimental value, so don't buy NFT's purely for the hype (if you're expecting a return); support your creators, support the vision, and the future "price" of the NFT won't really matter.
Open Source Future: Even if the marketplace shuts down, you want to be able to retain ownership over the NFT's that you purchased. Make sure that you're familiar with what you have to do if the marketplace shuts down.
Licensing Structure: Know the terms/rules that apply to owning the NFT. For example, are you allowed to open up your NFT for fractional ownership after you own it? One of my friends have been thinking of an idea that allows fractional ownership over the expensive NBA Top Shot Moments, and that's something worth asking the Flow team before building it.
Who are the people behind 1) the NFT and 2) the marketplace/protocol? Anonymous founders in crypto are common, so vetting the people is important. Look at their track record (most crypto people are on Twitter, lurk their Discords, LinkedIn, etc). Usually, a good indicator is seeing venture firms invest as they usually do the due diligence for you to be able to trust the company or marketplace.
Brands: Similar to people, I personally believe that NFT's are valuable when there's a brand (whether it's a personal brand or a company) that's behind the NFT being minted. Brands are sustainable, and investing in brands can optimize, but not guarantee, that your NFT's are worth something for the long haul. There's a reason why investors like Warren Buffett invest in strong brands such as Coke; because of the intangible value that they present.
NFT Marketplace that You Should Check Out
Here are three NFT's/marketplaces that I've bought or looked in to: