NFT Guide

Technical Foundation

Most NFTs are part of the Ethereum blockchain, though other blockchains like Solana, Flow, and Tezos have also developed their own NFT standards. On Ethereum, NFTs are primarily created using the ERC-721 or ERC-1155 token standards, which define how these unique tokens function.

Each NFT contains a unique identifier directly linked to one Ethereum address. This creates an immutable record of ownership that can be verified by anyone with access to the blockchain.

Metadata and Storage

An NFT typically consists of two parts:

• Token: The actual NFT on the blockchain that establishes ownership
• Metadata: Information about what the NFT represents, including links to the digital asset

The digital assets themselves (images, videos, audio files, etc.) are typically too large to store directly on the blockchain. Instead, they're usually stored using decentralized storage solutions like IPFS (InterPlanetary File System) or Arweave, with the NFT containing a link to this content.

Minting Process

"Minting" an NFT refers to the process of creating a new NFT on the blockchain. This typically involves:

1. Creating the digital asset you want to tokenize
2. Choosing an NFT marketplace or platform
3. Uploading the file and metadata
4. Paying a transaction fee (gas fee on Ethereum) to create the token

Once minted, the NFT exists on the blockchain permanently unless deliberately destroyed (a process called "burning").

Smart Contracts and Royalties

NFTs are powered by smart contracts that define their properties and functionalities. These contracts can include features like royalty payments, where creators automatically receive a percentage of all secondary sales of their NFTs.

Digital Art

Digital art was one of the first and remains one of the most prominent use cases for NFTs. Artists can tokenize their digital creations, providing proof of authenticity and ownership in a medium that was previously easy to copy without attribution.

Notable examples: Beeple's "Everydays: The First 5000 Days" (sold for $69 million), Art Blocks generative art platform, CryptoPunks

Collectibles

Digital collectibles function similarly to physical collectibles like trading cards or figurines, but with the added benefits of provable scarcity and ownership history.

Notable examples: NBA Top Shot (basketball highlight moments), CryptoKitties, Bored Ape Yacht Club

Gaming Assets

NFTs enable true ownership of in-game items, allowing players to buy, sell, and trade assets across games or even outside of the gaming ecosystem entirely.

Notable examples: Axie Infinity creatures, Decentraland land parcels, The Sandbox voxel assets

Virtual Real Estate

In virtual worlds and metaverse platforms, NFTs represent ownership of digital land and properties that users can develop, monetize, or sell.

Notable examples: Decentraland parcels, The Sandbox LAND, Otherside plots

Music and Entertainment

Musicians and content creators are using NFTs to tokenize music, videos, and other creative works, creating new revenue streams and fan engagement opportunities.

Notable examples: Kings of Leon's NFT album, 3LAU's tokenized music, Grimes' digital art collection

Domain Names

Blockchain-based domain names like .eth addresses serve both as human-readable cryptocurrency addresses and as digital identity markers.

Notable examples: Ethereum Name Service (ENS), Unstoppable Domains

Membership and Access Tokens

NFTs can function as membership passes, granting holders access to exclusive communities, events, content, or services.

Notable examples: Bored Ape Yacht Club membership, Proof Collective, Moonbirds

NFT Marketplaces

NFT marketplaces are platforms where users can mint, buy, sell, and trade NFTs. Different marketplaces cater to different types of NFTs and communities.

Popular marketplaces:

• OpenSea: The largest general NFT marketplace
• Blur: Trading-focused marketplace with advanced features
• Foundation: Curated art platform with an invitation system
• Magic Eden: Leading marketplace on Solana
• Nifty Gateway: Known for curated drops from high-profile artists

NFT Communities

Many successful NFT projects have built strong communities around their tokens, with membership often providing access to exclusive Discord servers, events, and other benefits.

Creator Tools

A growing ecosystem of tools helps creators mint, manage, and monetize their NFTs, including:

• No-code minting platforms
• Generative art engines
• Royalty management tools
• Analytics platforms

Environmental Concerns

Early criticism of NFTs focused on the energy consumption of proof-of-work blockchains like Ethereum. However, Ethereum's transition to proof-of-stake in 2022 (The Merge) reduced its energy consumption by approximately 99.95%, largely addressing these concerns.

Intellectual Property Issues

The NFT space has faced challenges with unauthorized minting of others' work. Buyers should verify that NFT creators have the rights to the content they're tokenizing.

Market Volatility

NFT prices can be highly volatile, with significant price swings based on trends, sentiment, and speculation. Collectors should be cautious about investing more than they can afford to lose.

Technical Barriers

Despite improvements, there are still technical barriers to entry for many users, including wallet setup, gas fees, and understanding blockchain concepts.

Long-term Preservation

Since most NFTs store the actual content off-chain, there are concerns about long-term access if hosting services fail. Solutions like IPFS help mitigate this risk but don't eliminate it entirely.