Over the past year, NFTs have caused quite the 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 many theories circulating on the internet about NFTs. Some say it’s a money grab, some say it’s a get-rich-quick scheme, but Phua Chu Kang says don’t gamble, gamble. I’m on Phua Chu Kang with this. Before deciding to dip your toes into NFTs or ignore them altogether, it’s always a good idea to gather some information first. Read along!
What is an NFT?
You’ll be surprised – NFTs aren’t just pictures of monkeys.
The meaning of NFT is a non-fungible token that probably still means nothing to you. Essentially, an NFT is a unique digital asset. It can be a photo, video, and even a song, but it can also represent physical assets like an actual house or real-life artwork.
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 it is almost impossible to modify or hack the system.
So while anyone can right-click to register or capture any NFT online, the digital receipt of ownership stored in the blockchain cannot be replicated. Similarly, you might have a picture of the Mona Lisa, but that doesn’t mean it’s yours.
Think of it this way, when you buy an NFT, you’re not buying an image, you’re buying the ownership rights to the image.
How do NFTs work?
NFTs are non-fungible tokens. This means that it is unique and cannot be replaced by anything else. You cannot exchange one NFT for another NFT.
Now compare that to bitcoin which is a fungible token. You can trade one bitcoin for another and you’ll have exactly the same thing you started with. However, if you trade a one-of-a-kind Pokemon card for another card, you’ll 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 is not true for NFTs.
- Each NFT has a unique identifier which is linked to an address in the blockchain. However, once you have acquired an NFT, you can resell it on the NFT market.
How much are NFTs worth?
Just like cryptocurrencies, the price of NFTs falls on a very broad spectrum. It can range from millions to thousands or even hundreds.
The most expensive NFT sold to date is called The Merge by a famous artist who goes by the pseudonym of Pak. The fragmented artwork which was listed as 266,445 units rather than a singular digital artwork fetched US$91.8 million (S$125 million) when it went on sale in December 2021.
To bring you up to speed, here are 10 of the biggest NFT projects by market capitalization according to CoinMarketCap. Market cap refers to the total market value of the NFT project – basically, how much money people have already invested. The floor price, on the other hand, is the lowest price for an NFT of a particular project.
|NFT||Assets||Floor price||Market capitalization|
|Bored Ape Yacht Club||9,999||~$333,000||~US$96.2 billion|
|WIN THE NFT HORSE||10,000||~$275||~$2.3 billion|
|Mutant Monkey Yacht Club||18,593||~$78,000||~US$1.7 billion|
|CLONE X||19,193||~$53,600||~US$1.3 billion|
|space doodles||5,125||~$44,600||~$33 million|
|NFT Worlds||20,000||~$23,400||~$32 million|
It’s a lot of
While floor price and market capitalization reflect the monetary value of an NFT, it is equally important to understand the factors that ultimately contribute to the numbers. Some of these key factors affecting the price of an NFT include, but are not limited to:
- Creator popularity
- Market demand
- Ownership history
- Investment potential
For example, you may think that Bored Ape Yacht Club (BAYC) is the Supreme of the NFT world. At the time of this writing, you’d have to spend US$333,000 to own the rights to a seemingly disinterested cartoon monkey. FYI, this is the price of a BTO in Yishun. When launched in April 2021, the price of a Bored Ape was around US$190. The big question: What pushed its prices through the roof?
For one thing, owning a Bored Ape not only reserves proof of ownership to the art, it also grants you commercial use rights. In addition to reselling the NFT for a profit, Bored Ape owners can also sell art-based derivatives.
There is also a limited amount of 10,000 Bored Apes to trade in the market. Given that it’s the object of desire for 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.
In addition to this, Bored Ape owners are also aware of the exclusive BAYC membership which of course has its benefits. For example, in August 2021, BAYC created 20,000 mutant monkeys. Of these, 10,000 Mutant Apes were given free to Bored Ape owners. They could then profit from selling the Mutant Ape on the secondary market. Ka-ching!
How to buy NFTs?
If you are looking to dip your toes into the NFT market, there are various reputable platforms you can consider. The most popular NFT marketplaces are: OpenSea, Rarible and Foundation. Keep in mind that these marketplaces generally charge a fee for each transaction and each marketplace has a different fee structure.
Alternatively, you can also create 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 a lot less complicated than it looks. Here’s a step-by-step guide on exactly how you can go about hitting an NFT. The only catch, however, is that you have to be ahead of the project.
Step 1: Find a new NFT project that allows new investors to create NFTs.
Step 2: Install a cryptocurrency wallet. The most popular wallet is MetaMask. You can download it directly from MetaMask official website and add it as an extension on your internet browser.
Step 3: Create a MetaMask account. It’s pretty foolproof. Follow the steps and be sure to write down (on paper) the seed phrase, which will be needed to get your wallet back.
Step 4: Fund your MetaMask with crypto. The blockchain on which the NFT exists determines the cryptocurrency you will need to purchase the NFT and therefore the cryptocurrency you will need to transfer to your wallet. In most cases, it’s Ethereum. The amount you transfer will also need to take into account gas charges which are additional charges for the computational work that occurs during the minting.
Step 5: Connect your MetaMask wallet to the project website, select the number of NFTs you want to mint and you are ready!
The main difference between minting on the project website versus getting it from the secondary market is that during the former, you can’t choose your NFT. If your project skyrockets in the open market, you would also have the satisfaction of having landed it at one of its lowest prices.
What else should you look for 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 will take a lot of research. To make sure you don’t get ripped off with your savings, here are some tips to consider.
First, the founders. If the project is backed by creators who already have previous accomplishments in technology or art to their credit, their subsequent endeavors would be much more likely to be successful. Or even if it wasn’t, you can be sure it wouldn’t be a draw.
Second, the community. NFT marketplaces are built by communities. Having a strong community behind a project indicates a better chance of success. It’s safe to say that NFTs with a strong community will do well in the market because people aren’t there to pump and dump. The Bored Ape Yacht Club is a prime example.
Third, 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 not least, the roadmap. An NFT roadmap is a document that details the goals and objectives of the project. It is an indication of the trajectory of a long-term project. As your Asian parent would tell you, when you don’t plan, you plan to fail. A detailed roadmap presents a hopeful future.
This article was first published in MoneySmart.