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Everything You Need to Know About Non-Fungible Tokens (NFTs) and Their Use in Art

Sumit is an experienced content marketer and editor with hands-on expertise in writing articles, blogs, and social media posts.

Our world has taken the digital route for sure, especially after the pandemic in 2020 wreaked havoc and shut down physical business outlets for nearly a year.

Amid that mayhem, the crypto market stood tall and witnessed exceptional growth due to rapid digitization across industries.

Now, there is a new twist in the crypto market called NFT, and it is virtually taking the world of art by storm. Other than art, NFTs are making waves in the industries such as online casinos, video games, and eSports.

Stories of celebrities that have been doing rounds for some time on NFTs are making things more interesting. For example, Ashton Kutcher’s investment in the online platform OpenSea, since its beginning in 2017, raised $23 million.

Also, Jay-Z’s big stake in Bitski, a San Francisco-based startup, has set its eyes to become the Shopify for NFTs.

Also, the rapper Snoop Dogg and actor Lindsay Lohan have joined the NFT bandwagon by releasing securitized NFTs.

Who knew when the digital artist Kevin McCoy created the first NFT called “Quantum” in 2014, it will eventually become a major mode of digital transaction?

In this post, we will talk about all the aspects of NFTs that you need to know.



What Is an NFT?

The full form of NFT is a “Non-fungible token.” NFTs are digital assets that represent real-world items in digital forms such as art, pictures, music, gaming items, and videos.

We mentioned at the beginning that the first NFT was created in 2014. However, 2021 was the year when this technology became a part of the mainstream, creating disruptions in art, gaming, and other industries.

Particularly, NFT art is the latest trend of trading collectibles in digital forms that are selling like hotcakes, fetching millions of dollars. Since 2017, a whopping $174 million have changed hands through NFT sales.

Top NFT marketplaces such as OpenSea, Larva Labs, NBA Top Shot Marketplace, SuperRare, and others are buzzing for auctioning rare digital collectibles. Some examples of major sales in recent times are below:

  • In 2021, billionaire investor Mark Cuban put up one of his motivation quotes as NFT with the price tag of $17,000.
  • Graphic Designer Mike Winkelmann, also known as Beeple, sold an NFT worth $69 million at Christie’s in March 2021.
  • CryptoPunk (a digital avatar) sold an NFT at Sotheby’s for more than $11.7 million.
  • The New York Times sold the NFT “Buy This Column on the Blockchain!” for $555,478.
  • Christopher Torres sold “Nyan Cat” for $587,154.
  • Rafaël Rozendaal sold “Fear of Choice” for $106,593.

Although art and other collectibles are more popular as NFTs, anything that is possible to store digitally can be sold as NFT.

Besides art, there are other ways to make money with NFTs. Brands such as Taco Bell and Charmin have sold themed NFT via auctions to raise funds for charity. Charmin named its NFT as non-fungible toilet paper or NFTP, and the NFT art by Taco Bell was sold with the highest bid of 1.5 wrapped ether (WETH), equating to $3,723.83.

For buying and selling NFTs, you need to use the Ethereum (ETH) cryptocurrency. When selling, sellers should own the intellectual property right of the item.

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These days, many NFTs are coming up in digital forms that already exist, like popular video clips of NBA games, including legendary basketball players such as Michael Jordan or Kobe Bryant. The NBA Top Shot Marketplace is just the place for these NFTs.

Other than rare art pieces or iconic video clips, people can even check out individual photographs or even the collage of images online without paying a dime. Now, the question is why are buyers shelling out millions on stuff they can easily take a screenshot or just download?

The main reason is NFT allows buyers to have the digital rights to the original item. Besides, an NFT has built-in authentication, which is proof of ownership.

What is the Difference between NFTs and Cryptocurrencies?

A non-fungible token or NFT is developed using the similar programming used to develop cryptocurrencies, such as Bitcoin or Ethereum. However, this is where the similarity ends.

Cryptocurrencies are “fungible,” which means it is possible to trade or exchange them for one another. For example, one Bitcoin is equal to another Bitcoin. The fungibility of crypto makes it reliable for carrying out transactions on the blockchain.

On the other hand, NFTs are different. Each comes with a digital signature, which does not allow exchanging NFTs or equaling to each other.

NFTs provide artists and content creators a unique scope to monetize their work. For example, due to the rise of the digital platform, artists do not have to depend on galleries or auction houses to sell their artwork.

Now, artists can sell their creations directly to consumers as NFTs, and they also get to keep more profits. Additionally, artists can program in royalties so they will receive a certain percentage of sales whenever they re-sell an item to a new buyer.

Should You Buy NFTs?

Considering the buzz around NFTs, you might be wondering whether you should buy them or hold yourself back, thinking they are just a fad.

Dealing with NFTs has its share of risks, and it is hard to forecast their future for sure because there is hardly any record of historical performance. Since NFTs are new in the market, investing small amounts initially is a good idea.

The value of an NFT entirely depends on whether a buyer is willing to shell out money for it. It means NFTs are demand-driven, and economic or technical indicators do not affect their price.

If you sell an NFT, you need to pay capital gains taxes on the profit. Also, because NFTs are collectibles, there could be a higher collectibles tax rate.

Despite the risks, if you still want to invest in NFTs, you need to register with a digital wallet that allows storing cryptocurrencies and NFTs. You also have to purchase some cryptocurrencies, like Ether.

You can purchase cryptocurrencies from the platforms such as eToro, Coinbase, Kraken, or Robinhood. You can then move the cryptos from the exchange to your wallet. Keep in mind that most of these exchanges will charge a percentage of your transaction when buying crypto.

Closing Words

NFTs are similar to any other investment. So, do your research to understand the associated risks. If you decide to go ahead with it, do not throw caution to the wind.

Many experts think NFTs could be another “bubble,” while others are confident these will create new ownership opportunities. Also, artists and creators consider NFTs the next big way of monetization, after cryptocurrencies.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2022 Sumit Chakrabarti

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