The Beginner’s Guide to NFTs — Part1
Lately, you can’t go online without hearing about NFTs. Maybe it’s a casual conversation from a colleague who’s showing off their collection, an influencer/celebrity pushing a new project on their social media account, or a Youtuber dissecting the latest dip trying to convince you that now is a bullish time to purchase. As the chaotic nature behind this trend continues to grow, I thought I would add to it by creating an article that aims to help those who are curious about the space and just want to learn more about this exciting topic.
Section1
What is an NFT?
NFT stands for Non-Fungible Tokens. This is considered as a unique digital asset such as art, videos, audio, tweets, and basically anything that one can create, store, and sell on the blockchain. Once this asset has been tokenized, it can then be bought, sold, and traded using cryptocurrency.
Alright, I’m sure that didn’t make any sense — that’s fine. Let’s try to simplify this.
Why is it called “non-fungible”?
Fungibility means interchangeability — the ability of assets to be interchanged with other individual assets of the same type. Money or any fiat currency would be considered a fungible asset. If I was to give you 100 dollars, and you give me two 50 dollar bills we would be even.
In opposition, a non-fungible asset refers to something that has a unique value. This is a one-of-a-kind item and there are no two that are exactly the same.
Makes sense? Great! Now things get really interesting when dealing with non-fungible tokens.
Blockchain, blockchain, blockchain
At a high-level, Blockchain fuses already existing technologies, such as cryptography, proof of work, and decentralized networks together to create a system that can reach decisions without a central authority. The first and probably most popular implementation of this is the creation and distribution of tokens was Bitcoin.
Okay… So why should we use this blockchain thingy?
There are two main reasons:
- Proof of authenticity: The blockchain logs the ownership history. It’s a permanent audit trail that cannot be altered and is open to be verified by anyone in the world with an internet connection. This means that by taking a simple look into the blockchain, the embedded metadata and transaction history is viewable to know who the original owner was for a particular asset and help determine frauds from originals.
- Monetization opportunities: The blockchain can allow for secondary sales. Since there is an ownership history log, direct benefit can occur when an asset is sold and a small percentage of the sales is residually sent to the creator. This allows creators to continue to profit from their work while others trade it.
We are only at the surface of what’s possible with blockchain and the fact that the technology is still in its infancy means that new implications and advancements could provide endless opportunities.
Let’s get Digital… Art.
As we now know, we can create a non-fungible token that acts as proof of authenticity for any digital file using the blockchain. If we were to then take an image and mint it on the blockchain — just a fancy way of saying validating information, creating a new block, and recording that information onto the blockchain — we now have a digital record of the transaction.
Let’s use an example, such as CryptoPunk #2924.
This image has proof of authenticity certificate that exists on the Ethereum blockchain and is securely stored in a digital wallet — Contact Address. Anyone can verify this by reviewing websites like Etherscan, which display the transaction history — see below.
Section2
Learn by Doing
With all said and done, the best way to learn any new skill is through the act of doing. So, in order to become comfortable in this space, let’s purchase an NFT!
In order to proceed, you’ll need the following:
Step 1 — Set up a Crypto Wallet
Cryptocurrency wallets are similar to bank accounts in the traditional banking system. They are used to communicate with blockchain networks to safely access, send, and receive crypto funds (Bitcoin, Ether, ect.) or assets (such as NFTs). There are two types of crypto wallets — custodial and non-custodial.
- Custodial: Custodial wallets are online marketplaces where you can buy, sell, and store a variety of cryptocurrencies. Many people make their first crypto purchases on these centralized exchanges, such as Coinbase or Binance, where you can easily trade coins.
- Non-Custodial: Non-custodial wallets give full control over your crypto assets rather than a third party such as Coinbase. You can easily transfer your coins from a custodial wallet to a non-custodial wallet.
For this example, we are going to use the Non-Custodial approach and connect MetaMask.
Setting up MetaMask Wallet
You will need to download the Chrome Extension for MetaMask.
1. Click on Install MetaMask for Chrome to start the installation
2. Add MetaMask to your Chrome Extensions
3. Click to Get Started
4. Click on Create a Wallet
5. Follow the prompts and Create Password
6. Reveal Secret Backup Phrase
This step is by far the most important part of setting up your wallet. A secret backup phrase is a 12-word unique phrase that helps restore access to your wallet if you ever forget your password or use a different computer.
No one should ever ask you for your secret backup phase, so make sure you don’t share it.
7. All done!
You’ll receive a Congratulations message which means your wallet has been successfully created.
Step 2 — Buy some Ether (ETH)
1. There are a variety of ways of purchasing Ether, so I will just provide some resources where you can set up an account and make a purchase.
Binance:
https://www.binance.com/en/buy-ethereum
Coinbase:
https://www.coinbase.com/buy-ethereum
Shakepay:
2. Once you have Ether, you can easily transfer it over to your MetaMask wallet by sending it directly to your wallet’s address.
Step 3 — Set up your OpenSea Account
After setting up your MetaMask wallet and adding ETH, the next step is to set up your account on an NFT marketplace such as OpenSea.
NFT marketplaces, such as OpenSea, Mintable, and Rarible, are platforms where NFTs can be stored, displayed, and traded. Think Amazon or eBay but for NFTs.
Head to OpenSea website and create your account by clicking on My Profile -> Sign in and follow the instructions.
You will need to connect your MetaMask Wallet to OpenSea — follow the prompts to connect.
Step 4 — Purchase your First NFT
Here comes the fun part of purchasing your first NFT. There are two ways to buy an NFT.
- Minting an NFT: Minting is the producer of creating something for the first time. In crypto terms, when an NFT is minted, there is a unique publication of that token onto the blockchain where the metadata captures the transaction and the information of the NFT.
If you’ve found a project that is in the public phase and minting is available, you’ll need to connect your wallet to their website.
Verify the cost of the transaction after selecting how many NFTs you’d like to mint.
Accept!
The transaction will be processed and you’ll be able to see the history of it in your wallet.
2. Buying NFTs on OpenSea
Once you’ve found an NFT that has caught your eye and you’re ready to make a purchase, simply click the “Buy Now” button.
There will be a prompt by OpenSea to review the details of the purchase before finalizing. This ensures that you’re aware of exactly what you’re purchasing and helps to avoid purchasing similar unauthentic versions created by scammers.
If everything looks great, proceed to the checkout pop-up where you can review the final cost of the purchase. You’ll need to agree to OpenSea’s terms of services, and then you’re able to select the “Checkout” button to finalize the purchase
Hitting “Checkout” will open your wallet where you’ll get a final cost including applicable gas fess (I’ll cover this in another article).
Once you clicked the “Confirm” button, you’re done. You’ve just purchased your first NFT!
You can now view the NFT in your wallet by returning to your profile, and selecting “In Wallet” on the left-hand side of the page. If the NFT does not appear immediately, this is due to the slight delay of processing and will be available shortly.
And that’s pretty much it.
Final Thoughts
That concludes Part 1 of this series for a Beginner’s Guide to NFTs. I’ve still got a lot more to say on the topics of NFTs, not just the technology itself, but approaches for finding communities, assessing projects, and much more so if you’re interested feel free to message me on Twitter and expect another article when I have time to jot down my ideas.
Life is golden.
— Adam D.
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