The world of NFT crypto explained
- 15 minute read
Images of bored monkeys sold for tons. Virtual Nike shoes that bring in millions and the first tweet ever that brings in almost 2.5 million euros. It sounds almost unreal, but this is only the tip of the iceberg in the crazy NFT crypto market. So-called ''NFT art'' is a new way for artists and performers to digitally express their creativity, gain a stage and appreciation from fans around the world.
What is an NFT?
NFT is the abbreviation of non-fungible token. Translated, this means that every NFT is unique and cannot be replaced. The creation of an NFT is comparable to the creation of a 'normal' crypto currency. When you create a crypto currency yourself, you create it on a blockchain like Ethereum or Cardano. You also determine how much currency (tokens) will become available. This process you do with NFTs before you start "minting" them.
Minting means nothing more than writing data on the blockchain, which creates the NFT. An NFT can be an image, but also a domain name, a music file, a video or even a piece of land in a virtual world. Minting an NFT is not easy. When you start minting, you need to consume energy. This energy is also called "gas fees" and is needed to complete the transaction. The gas fee costs depend on the blockchain you want to use. For example, the Ethereum blockchain is much more expensive than the Solana blockchain.
The level of fees depends on supply and demand. When there is a high demand for transactions, the transaction costs rise because miners can only mine a limited number of blocks.
Every NFT is a "smart contract". A smart contract can be compared to an oral or paper contract. Once both parties have signed a smart contract, it will be automatically processed in the blockchain. In this way the NFT is automatically sent to the buyer and the tokens to the seller.
On which blockchains can you create NFTs?
There are several independent blockchains on which NFTs can be created. We highlight the three most important NFT blockchains at this moment.
The most used blockchain at the moment on which NFTs can be created is Ethereum. Ethereum has long suffered from high gas fees, because the Ethereum network is not built for so many users and therefore they have scale problems. In some periods, you would pay hundreds of dollars to minting 1 NFT. The high gas costs are one of the reasons why Ethereum started the development of Ethereum 2.0 The aim of the update is to ensure that the Ethereum blockchain becomes more scalable, can track blocks more quickly and that Ethereum becomes more sustainable. The update will be implemented in three phases and will bring a number of changes to the Ethereum blockchain.
- Phase 0: Beacon Chain
One step that Ethereum has taken to make the blockchain more sustainable is the introduction of 'the beacon chain'. The beacon chain makes it possible to stake ether. The algorithm needed to make stake possible is Proof-of-Stake (PoS). Staking means that owners of ether are rewarded if they hold Ethereum for an extended period of time.
- Phase 1: Shard Chains
Phase two focuses on implementing 'roll-ups' and 'shard chains'. The shard chains make it possible to split up the database, which creates more scalability. The second solution to make the blockchain more scalable are roll-ups and their function is to process smart contract information faster.
- Phase 2: Ether-accounts, Cross-shard transactions and eWASM
In the final phase, Ethereum 2.0 is added to the mainnet of Ethereum. The roll-ups and shard chains should make transactions on the Ethereum blockchain cheaper in the future.
Also, on the Ethereum blockchain is an alternative to store, collect and trade NFTs. Polygon is built on the second layer of the Ethereum blockchain and allows applications built on the second layer of Ethereum to interact with each other. NFTs can be minted and traded on the Polygon network and have lower gas cost. For example, you can mint an NFT for less than 1 cent.
An alternative blockchain to Ethereum is Cardano. On the Cardano blockchain, the gas fees are a lot lower. When you mint an NFT on the Cardano Blockchain, you pay about 2 dollars in gas fees. This makes Cardano a good alternative for Ethereum. On the other hand, the NFT market on the Ethereum blockchain is much further developed than the Cardano variant. The range of NFTs and marketplaces is much larger on the Ethereum blockchain.
Solana also has its own blockchain where you can mint NFTs. Solana is live since 2020 and was founded by Anatoly Yakavenko. The main advantage of Solana is that the blockchain is extremely fast compared to Ethereum and Bitcoin. For example, the Solana network is able to have a block time of 400 milliseconds. Block time is the average time between the mining of two blocks. The Ethereum blockchain takes 10 seconds and Bitcoin 10 minutes. The Solana blockchain also has a very fast transaction speed of 710,000 transactions per second. Visa, for example, can only handle 23666 transactions per second. Like Polygon, you pay less than 1 cent to create an NFT on the Solana network. Solana's NFT landscape is growing rapidly, and YouTubers in particular have great expectations of the NFT landscape on the Solana blockchain.
Where can you buy, mint and collect NFTs?
Minting, buying and trading NFTs is done on marketplaces built on a specific blockchain. Therefore, it is not possible to trade Cardano NFTs on the blockchain. To trade on an NFT marketplace, you need to connect your wallet. You mint, send and receive the NFTs on your personal wallet. You connect this wallet to the marketplace, and this is how trading in NFTs becomes accessible to everyone with a personal wallet. Every blockchain has different wallets, that is why it is important to research well in advance on which wallet you are going to upgrade your crypto.
NFTs on the Ethereum blockchain
Most used marketplace: OpenSea
OpenSea is according to many the most well-known NFT market at the moment and is home to projects like Cryptopunk and Bored Ape Yacht Club. With over 20 million NFTs, OpenSea claims to be the largest NFT platform. Unlike other platforms, the offer on OpenSea is diverse. The offer has different facets from NFT Art to metaverse, trading cards, photography and domain names. OpenSea is also the place where transactions of more than 100 Ethereum currently take place. For example, recently Bored Ape #224 was traded for more than €300,000.
Bored Ape #224 was purchased for 120.0 ETH— boredapebot (@boredapebot) January 10, 2022
On OpenSea, you cannot store any crypto and can only be used for trading with Ethereum, Polygon and KLaytn. So where do you store your NFTs? You use an external wallet to store your crypto and NFTs. OpenSea makes it possible to link a number of external wallets to OpenSea. When you have connected your wallet, you will see your NFTs and crypto balance appear on OpenSea.
Which external wallets can you link to OpenSea?
OpenSea offers the possibility to link more than ten external wallets to their platform. We would like to highlight the three most popular:
If you have been in the crypto world for a while, you probably heard of Metamask. Metamask is a web browser extension which you can use on Chrome, Brave and Firefox. Metamask was developed specifically for the Ethereum blockchain and can only store ERC20 coins on the network. ERC20 is a type of smart contract and allows anyone to create their own token, including NFTs. On Metamask you can create multiple personal wallets and trade with multiple addresses. Metamask is an online wallet, which immediately makes it less secure than a hardware wallet, such as a Ledger. A seed phrase is linked to your 'account'. A seed phrase is a combination of words that must be entered in the right order in order to access your wallet at all times.
Walletconnect is built differently than Metamask, and is an open protocol to enable a secure connection between wallets and dApps, such as marketplaces. What makes Walletconnect safe(er) is that it does not use passwords, but instead you connect a wallet to a dApp by scanning a QR-code. Walletconnect is therefore seen by some as more secure and is also multi-applicable to multiple blockchains.
With Fortmatic you encrypt your wallet, unlike other wallets. The builders of Fortmatic believe that this allows you to guarantee security yourself. The big difference is that the management of the crypto is not in a web-extension, but more like the security of a hardware wallet. In contrast to a web-extension, you don't need to download anything to use Fortmatic. Because the personal wallets you create are linked to your email address, you can manage your crypto wherever internet is available.
NFTs on the Cardano blockchain
Most used marketplace: Cnft
The NFT world on the Cardano blockchain is less developed than its competitors and therefore has only one known platform. Cnft is the first NFT marketplace on the Cardano blockchain and makes it possible to trade NFTs efficiently. Previously, Discord was used to trade Cardano NFTs. The arrival of Cnft for the Cardano community was therefore welcome. The difference in size compared to Ethereum is that at the time of writing this article, less than 10,000 NFTs are tradable on the Cnft platform, while 20 million NFTs are traded on OpenSea. Also, it is not yet possible to mint your own NFT on Cnft and the NFTs are not categorizable.
Which external wallets can you connect to Cnft?
Deadalus is, in contrast to the wallets we discussed earlier, a program that you install on your device. Deadalus can be downloaded for Mac, Windows, Android, iOS and Linux. In Deadalus you can create your own Cardano wallet, but you can also connect a hardware wallet, such as a Ledger. In terms of security, you can say that a Deadalus wallet is well protected, as long as your device is well protected.
Like Metamask, Nami is a web extension and is available for on Chrome, Brave and Edge. Nami is similar to Metamask, but is built on the Cardano blockchain. The application of Nami can be linked to any dApp on the Cardano blockchain.
What makes Cardano wallets unique compared to Ethereum wallets, is that 'delegating' Cardano is possible on all three wallets. Delegation is also called cessation of crypto and is locking your crypto for a certain period of time, for which you will eventually be paid in crypto.
NFTs on the Solana blockchain
Most famous marketplace: Solsea
The most popular marketplace on the Solana blockchain is Solsea. They are the first NFT marketplace that allows creators to license. Solsea is called the new OpenSea by some and has a number of advantages over OpenSea. For example, the gas fees are a lot lower at the moment, which makes creating and trading NFTs a lot cheaper. Also, the Solana blockchain is a lot faster, which makes the minting and trading of NFTs a lot quicker. If you compare Solsea to Cnft, the supply on Solsea is much more diverse and larger. Solsea is also transparent with information. There is a ranking tool built into Solsea so you can see how rare an NFT is. With about 100,000 NFTs, Solsea is a lot smaller than OpenSea, but its advantages make it a good alternative.
Solana Doodle Apes #1219 has been purchased on SolSea! 🔥— S◎L B◎T (@NFTSaleBot) January 8, 2022
this fine piece sold for 15.0 SOL (that's $2163.75 USD!!) #hodl pic.twitter.com/LwUCn0QWtx
Which external wallets can be connected to Solsea?
Phantom is a kind of Metamask but is made on the Solana blockchain. By adding Phantom to your browser as a web-extension, you can store crypto in a decentralised way on the Solana blockchain. Phantom can be added to the Chrome, Brave, Firefox and Edge browsers. On the Phantom web-extension you can also visually see your NFT collection and also send the NFTs directly from Phantom. It is also possible to connect to a hardware wallet, such as a Ledger wallet.
Gm @phantom— Regeninc.lol (@RegenIncorp) January 11, 2022
Pfp or im gonn use solflare
Come on do the right thing pic.twitter.com/UibF5eaDjB
Like Phantom, Solflare is a web extension. At the moment, Solflare is only available as a mobile app and as a Chrome extension. Solflare is the first wallet built on the Solana blockchain. They claim that 24% of all Solana is traded at the platform. On Solflare, you make sure your account is secured with a seed phrase of 24 words. To make it easier to use, you don't have to enter your seed phrase every time, but a password you choose per device is enough to get access to your wallet.
What are the risks of buying an NFT?
If you are familiar with the crypto market, then you know that investing can be risky. The same goes for investing in NFTs. It will surely not have escaped your notice. The stories about NFTs being sold for millions even make it to the national newspapers and television news broadcasts.
Since the rise of NFT crypto, numerous projects have sprung up, such as Bored Ape Yacht Club and CryptoPunks, which all seeking success. Since you often hear the success stories of projects that have delivered a lot, you might forget that most projects fail or cannot reach the expectations. The risk is therefore that you can lose a (large) part of your deposit through bad investments.
Investing in NFT projects is therefore always a gamble. Nevertheless, there are a number of points you can pay attention to when looking for a good project. Especially YouTubers indicate that Rarity.tools is a handy tool to search for projects with growth potential.
A number of aspects that are important:
- Does the project have a large and active community on Discord and Twitter?
- What do experts say about the project?
- Does the website look professional and reliable and is there a roadmap available?
- Is it known who the creators of the project are?
If the community is larger than the number of NFTs, there are more interested parties than the number of available NFTs. This may be a sign of a project with potential. Apart from a large community, experts on the Internet and YouTube can provide you with information about the project. If the creators prefer to remain anonymous, there is a chance that they are trying to rip you off. Watch out for this! Our tip is always to do your own research.
🚨The @Cryptoon_Goonz rarity ranking is live now!🚨— Drop.Date | NFT Tools & Promotion 👨🚀 🚀 (@DropDotDate) January 7, 2022
Quality NFTs for quality people. Just dope artwork you can buy and trade. #NFT #NFTCommunity #NFTCollection
To check rarity 👇
✅Follow us: @DropDotDate
✅Telegram: https://t.co/4tinjqmXFM pic.twitter.com/di4CFAMKiz
What are the advantages of your own NFT art?
Besides minting and buying NFTs from other people's projects, there is also the possibility of minting your own NFT art on the blockchain. And if you are a real creative person, an own NFT project is also an option. In addition to selling your own NFT art and seeing what the prices do in the long term, there is also another earnings model behind it. As 'creator' of an NFT, you have the opportunity to receive royalties if your creation is sold. You can set the percentage yourself when creating the NFT. On many platforms, 10% is the maximum.
The world of NFT crypto is developing and has attracted a lot of attention in the past year. More and more blockchains are making it possible to trade NFTs on their network and therefore there are plenty of alternatives on the market for traders, creators and collectors. It is difficult to say which projects will do well in the future, but it is certain that the NFT market will be an important factor in the crypto world in the upcoming years. When you want to invest in NFTs, it is important to do your own research and to follow your own intuition. In addition, you should always keep in mind that most projects will not make you rich(er). So always invest with what you are prepared to lose.