A little bit about me
Hi, I'm Rohan.
I'm a medical student from the UK with an interest in technology and entrepreneurship, particularly when it comes to cryptocurrencies and NFTs.
I've been buying and selling NFTs for a few months now. It all started withĀ NBA Top Shot, but slowly progressed as I fell down the NFT rabbit hole. NFTs have been all the rage in 2021. There have been crazy multi-million dollar sales, celebrities are changing their profile pics to drawings of monkeys and even corporations like Twitter are starting to sell their own NFTs.Ā
If you were anything like me, you're probably thinking WTF is an NFT? What's the hype? Perhaps most importantly, should I buy and sell NFTs or even make my own?Ā
Today Iām going to try and provide a basic overview of all of these things by answering 3 main questions: What are NFTs? What makes them so special? Should I buy some?
I'm going to primarily talk about the digital art side of NFTs as it's a lot easier to understand.Ā
REMEMBER: Nothing in this blog is financial advice and always do your own research (DYOR)Ā
What is an NFT?
In order to understand what NFTs are, we need to first break down the meaning of the word. NFTs stand for non-fungible tokens.
AĀ fungibleĀ asset is something that can be equally exchanged with another asset. In contrast,Ā non-fungibleĀ assets are unique. Each asset is different from the others and is a 1/1.Ā
I know this is a bit weird, but to put it into a more understandable context, a fungible token is something like a Ā£ coin. Each Ā£ coin is the same and is worth exactly Ā£1. In contrast, something that is non-fungible would be something like a custom painting by an artist. Each custom painting of yourself is different and tailored to you.Ā
TheĀ tokenĀ bit refers to the cryptocurrency and blockchain technology part that underpins every NFT. Each NFT artwork or object is associated with an underlying token that is found on a blockchain network like Bitcoin or Ethereum. It is this underlying token that is what makes an NFT so special. Since blockchains are essentially a public record of transactions, we can see exactly who owns which token and therefore who owns which NFT artwork or asset. This ability to indisputably verify ownership is why NFTs are so revolutionary.Ā
If this explanation doesnāt make sense, Coinbase has a really good explanation:
What does ānon-fungibleā mean?
Every bitcoin is worth as much as every other bitcoin. NFTs, on the other hand, are all unique.
āFungibilityā refers to goods or assets that are all the same and can be swapped interchangeably.
A dollar bill is another perfect example ā each is worth exactly one dollar. Concert tickets, by contrast, are non-fungible. Even if every Radiohead ticket is the same price, they arenāt directly exchangeable. Each represents a specific seat and a specific date ā no other ticket will have those exact characteristics.
The use case for this new technology are limitless. Anything, where you want proof of authenticity or ownership, could benefit from being in an NFT format. NFTs are already starting to be used in a variety of industries not just digital artwork. Some are used in games likeĀ Axie Infinity,Ā fashion with brands like NikeĀ about to venture into NFTs and we could even see them used inĀ real estate.
Here's a video that might further explain it with some cute animations:Ā
Whatās so special about NFTs?Ā
Like I mentioned before I'm going to primarily focus on the art side of NFT just because it's easier to understand.Ā
For ArtistsĀ
Let's use the example of buying and selling artwork for now. Say you own the Mona Lisa and want to sell it. In the real, traditional art world, you would first need to prove that this is the real Mona Lisa. Anyone can copy or make a replica of the Mona Lisa, but no one wants a copy. You want to buy the original. Now to do this, you'd need to first have someone appraise and value the painting. They'd check that it's the original and not a replica and from that, they would be able to give you a rough estimation of its value. Now there's only a very small number of people in the world that have the knowledge and skills to tell the real Mona Lisa from a very convincing fake and so they'll be expected to be appropriately compensated for their time. This will not be cheap and rightfully so, as they're putting their reputation on the line by certifying it as the original painting.Ā
Let's say it's all good and we've got a certificate of authenticity or whatever they use in the art world. The next step is to find a buyer for this painting. Unlike more liquid assets like stocks and shares, there's no large market for high-end artwork. To sell your painting, you need to find someone else that believes it has value and is willing to buy it. This is where auction houses likeĀ Christie'sĀ andĀ Sotheby'sĀ come in. Aside from acting as appraisers of artwork and antiques, they also have access to a large list of clients that would be willing to purchase your painting. But they don't do this for free. Typically auction houses can take around 25% of the final selling price and this doesn't include the whole appraising and certification costs. The running costs of hosting these auctions are not cheap. Finding buyers is difficult and requires a lot of effort. These are some of the things auction houses use to justify their high cuts.Ā
With NFTs, this chages. Thanks to blockchain technology, you can codeĀ smart contractsĀ that handle all of this for you. No longer do you need someone to certify that your Mona Lisa is the real one. Instead, you can just check the blockchain transactions and you can see exactly which wallet address owns the underlying token of the Mona Lisa and you can even see who was the original creator. NFT marketplace platforms like Opensea don't have to host in-person auctions in inexpensive hotels and venues or pay for a ton of staff and are simply just a few lines of code running on a server. Their running costs are a fraction of auction houses and as a result, they charge a fraction of the fees, with Opensea charging only 2.5% of the selling price (and many in the NFT community argue that is too high).Ā
Now imagine you're the original artist of a painting. In the traditional world, artists only make from the most recent sale of a painting or other form of artwork. Early on in your career, you might have sold your artwork for $100. In the future, as your notability improves and you start to build a reputation in the art world, you're now able to sell your new paintings for more money. The person that owns your original first paintings recognises this and can now resell your original paintings at a much higher price than they bought them, probably higher than you can sell your newest paintings because it's one of the OG. This person is now able to sell your OG painting for $1000, making a nice $900 profit. Great for them, but for you the original artist you don't gain anything from this sale which isn't really fair.Ā
NFTs can fix this. With NFTs, since all the artwork is digital and on a blockchain, you can add code to it and do a few clever things. For every sale of your artwork, you can code it so that you get a sale of the selling price, usually around 5%. That way if someone resells your painting for $1000, you'd earn $50 from the sale. This completely revolutionises how artists make money and provide them with a recurring course of income. No longer are you required to just churn out new artwork to make ends meet. Instead, artists can spend more time refining their work, knowing that they'll be safe with the income from secondary market sales of their artwork.Ā
Aside from this, NFTs are making the art world more inclusive. We all know that the art world is very elitist and secretive. Those auctions I previously mentioned at Christie's and Sotheby's aren't intended for the general public to attend and many rare art sales occur in private functions and events. Even if you are willing to spend the cash, you have to be connected to the right people to even be invited to these events. To even have your artwork sold at these places you have to have a certain level of clout in the art industry and need to network with the crowd. This favours artists in big cities in the west like New York, LA, London.Ā
In contrast, the NFT market is open to everyone. Most NFTs are sold on platforms like Opensea where anyone with an Ethereum wallet can purchase any NFT. Opensea even shows what's trending, sales data for every NFT and occasionally showcases smaller artists. You can easily know what's popping and buy the same project or artwork too (although might not be the best financial decision to jump onto what's already trending).Ā
This particularly favours artists in developing countries like Indonesia or Thailand. Paying artists a fair price for their artworks is incredibly difficult in a country where the average monthly wage is around $800 a month. NFTs change this, as now artists can sell their artwork to anyone in the world. People in developed countries have no issues paying $100 for an NFT but this is huge for artists in the developing world. Combine this with the recurring income that you can get from each secondary market sale and you start to see how NFTs bring inclusivity and fairness to the art world.Ā
A perfect example may beĀ Superlative Secret Society by Arief WitjaksanaĀ and an Indonesian artist. At the time of writing, the project has done 4.1K ETH in trading volume and so Arief and his team would have made around 300 ETH off the royalty fees from every sale on the secondary market. At the current price of ETH, that's around $1.2 million. Much of this money is going back into the community with Arief and his team aiming to create an art gallery back in Indonesia to support local artists.Ā
Influencers are as prevalent in the NFT world as they are in the real art world, but the difference is that they're not hiding in some elusive art community in New York or London, at fancy black-tie galas or dinner parties. Instead, NFT influencers are digital natives. The NFT community mostly hangs out on Twitter and people tweet their thoughts on projects all the time. This is a great way to discover new projects and find new artists and something not seen as often in the traditional art industry.Ā
Another benefit of the transparency of blockchain technology and NFTs is that you know exactly what the previous person paid. No longer do you need an appraiser to tell your the value of your artwork. Although the value of art is highly subjective, it does help that know what the last person paid. You can also track the price of NFTs over time by looking at the blockchain. This inherently creates a very transparent that reduces the information asymmetry typically found in the art market.Ā
To recap
NFTs give you the security that what your buying is the real deal, without the need for any middlemen like appraisersĀ
Significantly lower costs for sellers as most NFT marketplaces are just code
Artists are able to make recurring income from secondary market salesĀ
Inclusivity - NFTs let artists from developing countries sell their artwork for a fair price to anyone in the world
Transparency - You can see exactly how much the last person paid for an NFT. The community is very active on Twitter and you can easily see what is trending and popularĀ
Profile Picture Projects and CommunityĀ
Profile picture projects are probably the most popular type of NFTs, with the likes of celebrities like Jay Z, Steph Curry and Mike Tyson proudly using NFTs as their profile pics on Twitter.Ā
Most projects are a collection of 10,000 randomly generated images that feature a unique randomly selected combination of traits and characteristics. Although each image may look similar and share certain characteristics, no two are exactly the same. Think of them as snowflakes. All snowflakes are very similar, but no two snowflakes have the exact same ice crystal structure. This isn't really possible with real-world art, but with NFTs being technically code, developers are able to work with artists to create some really unique artwork. This blend of software and artistic talent is something that makes NFTs and digital artwork really special.Ā
These profile picture projects are probably the thing people understand least about NFTs. Digital artwork or trading cards makes sense, but why would anyone want to buy an image of a cartoon ape for hundreds of thousands of dollars? Why make it your profile picture on Twitter?Ā
The main selling point to these types of NFTs is community. Bored Ape Yacht Club (BAYC) is the second biggest profile pic project, both in terms of market cap but also in terms of community and influence. The BAYC discord is made up of thousands of people and is a place where you can talk about anything from NFTs and crypto to the latest movies or Kanye album. It's a fascinating space where people don't care about what you look like or your background. You can talk to a multi-millionaire in America or a young guy in Pakistan who just happened to buy one before it blew up. The networking aspects of this community are something that people will pay good money for. If someone with a BAYC avatar is talking about an NFT project or artist, it lends a certain level of credibility to that project.
As part of the BAYC (and most other NFTs), you own the rights to your individual ape. You can sell it on T-shirts, mugs etc and you get to keep all of the revenue and profit. There's something about these apes that people resonate and connect with that makes them so special. Members of the community have used their apes as part of their own personal branding and started to sell beers and other products.Ā
Here's a Twitter thread showcasing all of it below:Ā
With Crypto punks, these are some of the OG NFTs. They were the first 10k randomly generated profile picture project. Owning one is like owning a small part of blockchain art history and is seen as a huge status symbol. Forget a Rolex or a Lamborghini, these are the new flex. By making it your profile pic, you're able to flex it to millions of people all around the world, something that you just can't do with paintings, a Rolex or a nice car.Ā Ā
The price of these may seem incredibly absurd but the inherent scarcity of these types of NFTs is what makes them so valuable. 10,000 may seem like a large number but when you realise that there are 56.1 million millionaires out there in the world, there's actually a large number of people that could potentially afford these. A lot of these recent millionaires made money in tech and value their online identity more than their real identity. They'd rather own some digital art than a physical art. At the end of the day, you can always print off your NFT and display them in art galleries (this is something that has recently actually happened). There's also a large number of "crypto rich" people. These are people that bought Ethereum back when it was less than $100 a token and are sitting on hundreds/thousands of ETH. They don't look at things in $ amounts but in ETH terms so spending a few ETH is not a big deal.Ā
If these explanations haven't done the job, Robin Schmidt and the team at the Defiant have a series of videos explaining BAYC and why it means so much to people. Rolling Stones also just published an article that helps you understand what's so special about BAYC and these online NFT communities.
Rolling Stones Article:
https://www.rollingstone.com/culture/culture-news/bayc-bored-ape-yacht-club-nft-interview-1250461/Ā
To recap:
Profile picture NFTs are the most popular NFTs and a combination of artistic talent and clever codeĀ
Profile pic NFTs aren't just cool art but also a membership pass to a private community
The community is what makes a profile pic valuableĀ
They are the new flex. You can easily show off your wealth to millions of people by making it your profile pic on social mediaĀ
Should I buy some NFTs?Ā
Buying most NFTs is like buying art. The value is highly subjective. Blockchain data does it make easier as you can see exactly how many people have also bought similar pieces, how much they paid and all the other information from the recent sale history. But just because someone paid for that in the past doesn't mean that they'll be willing to pay for it in the future. The market for custom artwork or 1/1s is small and sales aren't instant so you may be waiting a while for someone to buy that NFT.Ā
In contrast, profile pic projects have a much larger potential market and dominate the sales on Opensea. Projects often have their initial sales or "mint" where you can buy them for around 0.05-0.08 ETH. If they sell out, they tend to be worth a lot more on the secondary market, often going up 2-3x instantly. However, this isn't an assured thing. The NFT market is incredibly fickle and even more fast-paced than the crypto market. Things here change in a day or two, not weeks like the crypto market. It's incredibly hard to know what project is going to pump up next because of NFT twitter influencers. If you're buying a profile pic project it's important to look at the developer team, roadmap and community.Ā
Is it a good wholesome, welcoming community with an active developer team and a solid roadmap that aims to add extra value to the NFT, besides it just being an image? Or is it just a big pump and dump with an over-hyped roadmap and a community that just only cares about money? These are some of the things to look out for in NFTs especially if you want to get into the whole profile pic flipping game.Ā Ā
There's no instant liquidity in NFTs. Unlike traditional stocks or even crypto, there are no market makers or institutions that are buying the asset at all times. When an NFT gets sold, it goes from one person to the next. It usually takes a few hours for an NFT to sell, even if you list it at an insanely low price. This means that when the NFT market goes into a downturn and a bear market, it gets rough. People start to undercut each other very quickly, as they try to tempt potential buyers to buy their bags. Take for example BAYC. At its peak, it was around 50 ETH for the cheapest ape, but now it's around 30 ETH. That's a massive drop and this is from a "blue chip" NFT that many will be around for years to come. This lack of instant liquidity also means that when the price shoots up, it shoots up hard. It's not unusual for NFTs to gain 2-5x in a day in value, as buyers scramble to find people selling their NFTs and this is where the scarcity aspect comes into play. There's only around 15% of BAYC listed on Opensea at the moment, so there's really not that many apes that you can buy, so the price could rapidly increase if we see another pump.
Since NFTs are a cryptocurrency asset, you need to purchase them with crypto. This is another thing that makes the NFT market very complex, as even if the price of your NFT rises in ETH terms, it may have actually fallen in $ terms
High risk, high reward is the moto with NFTs. It's like the crypto market but on steroids.
To recap:
There's no inherent value to NFTs as they are artwork and generate no revenue like company stocks/shares or even Cryptocurrencies via demand for the token for transaction fees
You can easily make many multiples on your initial investment in the NFT space but with high risk due to the scarcityĀ
There is no instant liquidity in NFTs. You can be waiting days potentially to sell your NFT
Some Cool NFT Projects and ArtistsĀ
I'd just like to share some articles/tweets about cool NFT artists and projects that most people in the space would consider blue chips. Most of these artists are exclusively NFT artists and never would have made it if it wasn't for them.Ā
GHXSTS:Ā pronounced Ghosts, are a collection of hand-drawn digital art turned into NFTs by the artist GxngYxng. There are 101 OG Ghxsts. Each was sold at around 0.001 ETH (~$3 at the time) but have risen to >50 ETH for an OG. During this entire process, GxngYxng has created a whole universe, mythology and community around the ghosts. He rewarded his earliest collectors with several free NFTs that can even be combined with the OG ghosts to create new creations. He's constantly rewarded his earliest supporters and I'm certain we can expect big things to come out of thjs project.
Here's a great article and Twitter thread about the GHXSTs:
Article on GHXSTs:
https://nftnow.com/guides/ghxsts-nfts-ultimate-guide/
Art Blocks:Ā Ā A generative art platform where artists can sell their work. Users are able to see samples of what the work may look like, but no one, not even the OG artist has any idea exactly what will be created. This gives it a sort of fun lottery element to the art. Art Blocks features a wide variety of artists with some of the most notable being Tyler Hobbs Fidenza. Artists spend hours refining the code to get the best set of random images, often generating 1000s of images to see what potentially could be minted. They're a perfect showcase of what's possible with this new type of digital artwork.Ā
Here's a short article on what Art Blocks are and another excellent video from The Defiant.Ā
Art Block Article
https://phemex.com/academy/what-is-art-blocks-nft
Damien Hirst's The Currency:Ā The currency is big time, traditional artist, Damien Hirst's first foray into the NFT space. Aside from being randomly generated like art blocks, it also has a unique twist. Collectors have until July 27,2022 to decide if they want to "burn" or destroy their NFT in exchange for a physical one. Any physical paintings unclaimed will also be destroyed. This adds an element of game theory as you wonder which one will have a lower supply and higher price. It also will be a test for the NFT market and see how it compares to the physical, traditional art market. Do people value having something physical that they can hold with their hands? Guess we'll have to find out.Ā
Damien Hirst Article:
https://news.artnet.com/market/damien-hirst-nft-update-2002582
š§ Closing Thoughts š§ Ā
Gonna keep these thoughts short and sweet as this article is long enough as it is.Ā
If it isn't obvious already, I'm really passionate about NFTs. The underlying technology is amazing and I really one day everything will be tokenized or available as an NFT. House deeds, concert tickets, stocks and shares. The possibilities are truly endless.Ā
The revolution that NFTs are causing in the art world is long needed. If we want to have more inclusivity, fairly compensate and introduce more people to the art, NFTs are a great way to do so. I've gone from buying profile pic projects to flip them for a quick profit, to dreaming of owning a Fidenza one day. The communities projects are creating are something truly special. In today's world, we arere more connected than we've ever been but also somehow the more isolated. People are longing for a sense of community and these profile picture NFT projects like BAYC help fill this need. The NFT community is, generally speaking, overwhelmingly positive and they really support their own. People don't really cash out in the NFT world and often put some of their profits back into the artwork by smaller artists and 1/1s. If you're an artist, NFTs are definitely something to look into.Ā
Lastly, I always believe you should look follow the money. If celebrities, sports, gaming, fashion and a whole host of companies are getting into NFTs then there's probably something there. At the moment, this is incredibly early days and apart from a few projects like CryptoPunks, BAYC and some of these Art Block projects, who knows what will be popular in the next few years or how the whole NFT landscape will look. I for one am excited and so grateful to have the opportunity to be an early adopter and involved in this space.
Hopefully, this blog helped you. If it has given it a share and a like. Too long? Too many topics covered or anything else that you think could be improved, please leave a comment below.