Can you take a photo of the Mona Lisa at the Louvre and claim you own the artwork?
No, by no means! Same goes for any artwork you download from the internet. Even if you create perfect facsimiles with coding, you’ll never be able to prove their authenticity or show their digital provenance.
Wish you had digital property rights? Enter the world of non-fungible tokens (NFTs). They use blockchain smart contracts to record digital art or objects’ provable originality, ownership, and authenticity. By doing so, NFTs are changing the legacy concept of verifiable ownership of digital assets. That’s why NFTs are suddenly everywhere.
Usually, it doesn't mean much to the uninitiated when a little-known artist sells a painting at auction for almost $70 million. But everyone noticed one sale in particular because new assets don’t appear that often.
The little-known artist was Michael Joseph Winkelmann, professionally known as Beeple. He sold an artwork called Everydays: The First 5000 Days to Vignesh Sundaresan, aka MetaKovan, at Christie’s Auction House in 2021.
This event made everyone jump on the NFT bandwagon, from hotel heiress Paris Hilton to rapper Snoop Dogg to NBA superstar Stephen Curry. And now, digital creators use NFT platforms to create, launch, distribute, and sell NFTs. Buyers integrate these platforms with Bitcoin or Ethereum cryptocurrency wallets to purchase NFT assets.
A non-fungible token or NFT is a digital or crypto asset. Each NFT has a unique, non-interchangeable identification code and metadata for easy authentication and differentiation. NFTs tokenize tangible assets like collectibles, art, and real estate to ease digital asset trading and prevent fraud.
Having a hard time grasping what non-fungible means?
It's an economic concept that denotes items that aren't interchangeable. You can't interchange a laptop and a credenza since they have unique properties. However, fungible tokens or items are exchangeable. For example, you can trade one Bitcoin for another altcoin and have the same thing.
NFTs are different from cryptocurrencies because one NFT is never equal to another. This unique, non-transferable identity makes NFTs different from crypto. NFT owners or artists also embed metadata, asset attributes, or digital signatures for ease of identification and transfer between token holders.
You can make NFTs for any reproduced digital file. Recently, NFTs related to photography, motion artwork, fine art, music, or video have made the news. NFT creators have also created NFTs from memes and tweets.
NFTs are essentially digital items sold to buyers or holders who pay for files that contain proof of ownership.
What is NFT art?
NFT art is a collectible and non-transferable digital asset that is illegal to duplicate. As a result, NFT art assets are rare and limited. You can use NFTs to prove that you own the art.
What are NFT stocks?
NFT stocks refer to public companies that deal with NFTs in one way or another. These companies usually provide a digital platform for investors, dealers, and artists to create, list, track, or sell NFTs.
To prove ownership, regardless of the item, you need a record.
As you already know, NFTs can represent tangible and intangible items such as deeds, tickets, invoices, documents, signatures, GIFs, collectibles, music, and videos. But, how do NFTs work from a technical standpoint?
NFTs use the immutability and transparency of blockchain ledgers to record ownership and locate files. In short, the blockchain ledger helps you verify an NFT’s identity, authenticity, and ownership. This ledger timestamps and records each time creators or owners make, buy, trade, or sell NFTs. These records can track NFTs back to their genesis.
You can’t just use any blueprint when it comes to creating NFTs. Most NFT developers apply established standards to save costs and streamline the creation process. Ethereum developed Ethereum token standards to make crypto tokens interoperable.
These token standards contain smart contract function sets to ensure that a newly created token is compatible with other tokens, platforms, and services. Developers use Ethereum request for comment (ERC) 721 and ERC 1155 contracts to deploy NFTs on the Ethereum blockchain.
Unlike cryptocurrencies, you can’t list, buy, or sell NFTs on any centralized or decentralized exchange. NFT traders can only use NFT marketplaces to list and trade assets.
NFT standards are guiding principles for building NFTs on a particular blockchain protocol. Below are the popular NFT standards.
You’ll also come across the Flow blockchain protocol and Tezos FA2 standard. Dapper Labs created the Flow blockchain protocol to help creators design digital games and collectibles. This protocol uses the proof of stake (PoS) consensus algorithm to create upgradeable smart contracts. Dapper Labs launched NBA Top Shot, a virtual trading-card platform, in partnership with the NBA in 2020.
The FA2 standard on the Tezos blockchain supports different token types, including fungible, non-fungible, and multi-asset contracts. Developers use FA2 to support complex token interactions and create their own NFTs.
NFTs have forever changed the digital asset space.
Previously, there was no easy way to differentiate the ownership of two artwork copies – you had to hire experts to verify authenticity. Because the market needs clear property rights to identify or transfer ownership, NFTs are solving ownership and identification issues with smart contracts on tamper-resistant blockchains.
An NFT smart contract creates a sale agreement to assign ownership and manage NFT transferability. A smart contract is a self-executing program that doesn’t need an intermediary to check the fulfillment of contract terms.
Because of their existence within the blockchain, smart contracts can store NFT transaction information. NFT smart contracts also ensure immutability and transparency of information. This verifiable ownership enables NFTs to build new transaction types around products that no one could sell before.
NFTs are important because their location on public-facing digital ledgers simplifies ownership proof and prevents forgery. Owners can also transfer NFTs quickly. This ease of ownership certification and transfer makes NFTs important.
You can also equip NFTs with features to expand their purpose. There are many examples of programming blockchains for direct utility in the digital or physical world. NFTs can work like tickets, membership cards, or keys to online spaces, depending on how you use them.
For example, the Bored Ape Yacht Club uses NFT ape images to offer community memberships. The project provides quality merchandise, social events, and yacht parties.
The programmability of NFTs continues to gain traction and enable NFT-based markets to create highly engaged communities.
NFTs are becoming a potent force of change because of their ability to:
In recent years, NFTs have gained popularity due to viral network effects. Many people today associate NFTs with Ethereum blockchain. However, the concept of NFT goes back much further in history.
eToro CEO Yoni Assia and Ethereum creator Vitalik Buterin introduced colored coins in a 2013 whitepaper. Their idea was to color Bitcoins and use metadata to distinguish them. Assia and Buterin split these coins into two layers.
1. Fundamental layer uses cryptographic technology to process transactions
2. Open asset layer processes colored coins without changing the Bitcoin source code
Assia and Buterin created colored coins to help people use the Bitcoin blockchain to manage non-monetary, real-world assets such as collectibles, company shares, properties, and coupons.
Colored coins are regular Bitcoins but with specific use cases. For example, you can have one each for savings, bills, and miscellaneous expenses.
The crypto world never realized the full potential of colored coins due to Bitcoin’s limitations back then.
In 2014, Robert Dermody, Adam Krellenstein, and Evan Wagner founded Counterparty, a peer-to-peer financial platform. This platform leveraged decentralized exchange so users could create tradable currencies with a distributed, open-source protocol built on the Bitcoin blockchain.
Counterparty was one of the most popular Bitcoin 2.0 platforms in 2014.
The same year, digital artist Kevin McCoy teamed up with technology entrepreneur Anil Dash to develop Quantum, the world's first NFT. Quantum is a pixelated octagon with shapes pulsing hypnotically.
McCoy and Dash referred to the technology as monetized graphics. They registered Quantum on the Namecoin blockchain and sold it later for over $1.4 billion in Sotheby’s ‘Natively Digital’ auction in 2021.
The release of Etheria took place at DEVCON 1, Ethereum's first developer conference, in 2015. Etheria was the first full-fledged NFT project and put 457 purchasable hexagonal tiles up for sale. No one purchased these tiles until 2021, when NFTs gained renewed interest. All the tiles were sold for $1.4 million within a day.
Memes made their way into cryptocurrency in 2016 when people started adding assets to the Rare Pepe meme. Rare Pepes emerged from a comic character named Pepe the Frog and quickly became an internet sensation.
Artist Matt Furie created Pepe as a comic strip character in 2005. The bulge-eyed frog was the internet’s favorite medium to express ‘feels good man’ or ‘feels bad man’. When the 4chan website reappropriated the character with swastikas and Nazi numerology, Pepe became a symbol of white supremacy.
Crypto traders started trading Rare Pepes in early 2017. Louis Parker and Portion Founder Jason Rosenstein ran the first live Rare Pepe auction at the Rare Digital Art Festival. Developer Joe Looney created the Rare Pepe wallet around this time. This cryptocurrency wallet enabled creators around the world to sell their artwork.
The Rare Pepe project initiated discussions around the value of blockchain-secured art.
Matt Hall and John Watkinson of Larva Labs started the CryptoPunks project in 2017. This generative project used proof of ownership to store 10,000 unique collectible characters on the Ethereum blockchain. These characters were punk rock-looking pixelated avatars. CryptoPunks used ERC 20 and paved the path for ERC 721 standard that powers most digital collectibles today.
At first, they launched 9000 CryptoPunks. Anyone could claim them for free, but, initially, very few people did. That changed when Mashable published an article featuring them. Today, people can buy them from sellers on the CryptoPunks marketplace.
The Vancouver-based company Axiom Zen launched blockchain-based virtual game CryptoKitties in 2017. They released the game during ETHWaterloo, the world's largest Ethereum ecosystem hackathon. Axiom Zen later spun off CryptoKitties into Dapper Labs.
CryptoKitties NFTs use the ERC 721 standard to ensure unique token validity. CryptoKitties players use Ethereum to adopt, breed, and trade virtual cats. When two CryptoKitties breed, their offspring's appearance, biography, and traits result from each parent's 256-bit genome, leading to 4-billion possible genetic variations. This unique breeding and appearance system made the project viral.
The success of CryptoPunks inspired John Crain to create SuperRare in 2018. SuperRare charged a 15% commission to help artists sell digital art NFTs. The platform also offered artists a 10% royalty for each subsequent sale. SuperRare as an NFT art marketplace changed the meaning of royalty sales.
NFT gaming started gaining popularity following the success of CryptoKitties.
Ari Meilich and Esteban Ordano were the first to break ground in NFT gaming and metaverse space. In 2020, they launched Decentraland, a decentralized, open-world virtual reality (VR) gaming platform.
Players use the Ethereum blockchain to buy virtual plots as NFTs with MANA cryptocurrency. They can also build, explore, and collect items using blockchain.
Today, the nonprofit Decentraland Foundation oversees the Decentraland operations.
Axie Infinity (AXS) is another NFT example. This blockchain-based game emerged around the same time.
2021 saw a massive surge in NFT supply and demand because of increasing interest from crypto enthusiasts, celebrities, and digital artists. Different blockchains like Solana, Tezos, Flow, and Cardano created their NFTs to represent authentic digital assets.
Murat Pak, aka Pak, a digital artist, sold the NFT called Merge for $91.8 million in December 2021. Merge contained thousands of pieces from collectors and was the most expensive NFT ever.
is the market size of decentralized exchanges (DeX) that trade both NFTs and cryptocurrencies.
Source: Statista
The future of NFTs holds endless possibilities as they go mainstream.
Below are the top ten NFT projects in 2022.
NFT deployments have different variations and standards. However, they share some common characteristics as described below.
NFT rarity measures how rare and valuable an NFT is in a collection. Traders use the following NFT rarity calculation methods or rarity tools before investing in NFTs.
The growing scope for innovation is driving diverse NFT use cases across sectors. Look at these popular types to understand the NFT variants available in the market.
Most NFTs out there are digital works of art. Artists combine creativity and technology to create and represent programmable art on blockchain networks.
Crypto art derives its value from digital authenticity and ownership. Existing digital art formats like jpg can’t exclusively distinguish ownership and permanence. NFTs address this challenge with unique metadata.
Digital art NFTs are transforming how artists sell their work. NFTs enable digital artists to earn privileges that physical medium artists have enjoyed for years, such as creating scarcity by introducing limited editions. Today, artists use the ERC 721 token standard to mint NFTs.
Musicians are also trying NFTs to avoid piracy, reach new audiences, and create a fan following. Some artists use NFT marketplaces to pre-release albums or offer shares to buyers. Once these albums release on traditional streaming platforms, buyers get a percentage of the profits.
The American rock band Kings of Leon was the first to release their album When You See Yourself as an NFT in 2021. They created three types of tokens for their NFT Yourself series: a special album package, live show perks, and exclusive audio-visual art. The band generated about $2 million with the NFT album sales.
Unlike record labels and streaming platforms, music NFTs allow musicians to keep 100% of their earnings. That’s why more musicians are trying NFT experiments. Listeners benefit from the premium experience and exclusive file ownership.
Event organizers are leveraging blockchain platforms to mint and auction event tickets. Buyers take part in auctions to purchase those tickets and store them using cryptocurrency wallets.
NFT ticketing can significantly reduce forgeries. On the other side of things, attendees can store these tickets as collectibles and mementos.
Game creators are using NFTs to create in-game items on gaming platforms. They rely on the immutability of NFTs to offer in-game item ownership and grow in-game economies.
Gamers use NFTs to buy and upgrade characters and customize accessories. Playable NFT creators earn money every time someone sells those NFTs. As a result, play-to-earn NFT games are becoming popular because they help gamers generate income.
Plus, the ease of money recovery pushes game developers and designers to create unique, playable NFTs for gamers.
The hot potato effect in NFT gaming refers to when players buy assets to sell and make profits, but then suffer a massive loss because of market collapse.
Digital collectibles are the oldest form of NFTs. You can’t exchange or trade them for other virtual tokens. These collectibles act as one-of-a-kind trading cards.
Three types of NFT collectibles are:
1. Art collectibles are cryptocurrency-based artworks and offer proof of ownership to buyers.
2. Game collectibles are game NFTs that players can move between games or trade on secondary markets.
3. Sports collectibles include limited-edition sports videos, collectible cards, and other related items. Sports fans collect these items to engage with their favorite teams or be a part of historical moments.
Crypto enthusiasts and traders are selling the following types of NFTs:
An NFT tokenizes a digital or real-life asset, making it unique and verifiable. The identifiable information in an NFT proves ownership. You can't forge this blockchain-based digital certificate containing transaction data and proof of ownership history. Popular NFTs derive their value from utility, rarity, and user interest.
Cryptocurrency or crypto is a digital currency that uses distributed ledger technology (DLT) to verify transactions and create new coins on a blockchain. Because they are decentralized, crypto-assets operate without any third-party interference.
| NFT | Crypto | |
| Purpose | Prevent asset ownership frauds | Facilitate trading |
| Volatility | Medium | High |
| Technology | Blockchain and cryptocurrencies | Blockchain |
| Buying | NFT marketplaces and blockchain applications | Crypto exchanges and brokers |
| Basis of value | Rarity, scarcity, uniqueness, and consumer interest | Regulation, use cases, accessibility, and blockchain |
| Use cases | Digital art, card trading, in-game collectibles, tickets, wearables, real estate, and loan collateral | Payments, investment, peer-to-peer transactions, and loan collaterals |
If the million-dollar NFT sales stories made you wonder if you can cash in on the craze, too, this section is for you. Follow the steps below to get into NFT minting.
Deciding on NFT concepts is the first step in creating NFTs. While nothing's set in stone, you want your asset to be as unique as possible. That's why it's best to think about how you can offer NFT value with rarity.
Creators generally create tokens with custom paintings, memes, collectibles, music, GIFs, and tweets. Ensure you own the intellectual property rights to the asset you’re converting into an NFT.
Picking the most suitable crypto wallet and marketplace helps you streamline the NFT creation process.
A crypto wallet stores the NFTs and private keys you need to authorize transactions. If you haven’t used a wallet before, here’s a quick refresher on what crypto wallets do.
Crypto wallets store private keys instead of crypto. These keys are essential for proving digital ownership and making transactions. Crypto wallets help you:
Not sure how to choose an NFT wallet? Look for these signs to determine whether a wallet suits you:
An NFT marketplace is a digital marketplace that helps buyers and sellers connect for NFT transactions. Creators can store and showcase their NFTs on these platforms.
Once you have made wallet and marketplace choices, move on to making connections and building relationships.
Successful NFT projects don't solely rely on sophisticated marketing tactics. They leverage NFT communities to build authentic relationships and share information. Over time, these communities become your most valuable marketing resource.
Active communities help you expand your reach and connect with interested stakeholders. For example, after launching in November 2021, the Women Rise NFT collection generated a trading volume worth 2,000 ether (ETH) by January 2022, without spending a dollar on marketing.
Most NFT blockchains have active communities that are more than willing to help newcomers and share great opportunities with them. Many private Discords open their doors for anyone who purchases one of the NFTs on their chain.
NFT creators also rely on the shilling, the act of dropping or sharing NFT links to create a community or find one that will value your NFT.
To be ready to mint NFTs, you need to design your artwork first.
Creators usually use NFT creator software to design NFT arts. If you are creating an NFT for the first time, design with your audience in mind. You'll also need to invest in digital tools and technologies to translate your art.
Other things to keep in mind when designing NFTs include:
Once you create NFT art, you’re ready to mint and share NFTs.
Finally! The time has come for you to upload and mint artwork using the NFT marketplace of your choice. Once you mint NFTs, they are ready for sale.
Creators use decentralized smart contract platforms to access Ethereum blockchain transactions. Everyone can access these public records and see how much money you make. That's why some creators use pseudonyms and multiple wallets to protect documents.
The NFT market experiences extreme highs and lows. And the NFT buying process isn't too straightforward, either. Follow these steps to safely navigate the unknown waters of buying NFTs.
Cryptocurrency exchanges allow you to accept crypto payments and trade cryptocurrency. You can use these platforms to buy and sell different types of cryptos. That’s why you need a crypto exchange platform account to buy NFTs.
You’ll also need a crypto wallet account to store public and private keys. These keys give you access to digital assets. Remember to safeguard your seed or recovery phrase to access assets in the future.
A hot wallet is a web-based desktop app or browser extension that uses software to store keys digitally. Hot wallets are convenient and easy to access. However, they are also more vulnerable to cyber-attacks because of their connection to the internet.
A cold wallet is a physical device that uses hardware to store public and private keys. Cold wallets are more secure than hot wallets. However, the risk of loss is greater than hot wallets as there’s no backup in case you lose the seed phrase.
Also, choose a wallet that’s compatible with the Ethereum blockchain.
Most artists use the Ethereum blockchain to create NFTs. Plus, popular marketplaces showcase NFTs built on Ethereum. That’s why the exchange platform and wallet have to be compatible with Ethereum. NFT buyers often struggle with high gas fees (cost of performing network transactions) and slower transaction speed on the Ethereum blockchain.
However, you can also go for non-Ethereum NFTs using proof of stake blockchains like Flow, Solana, Cardano, and Tezos.
The next logical step is to transfer Ethereum tokens to your chosen wallet. If you're using a cold storage wallet, consider linking your wallet to the NFT marketplace of your choice.
Now it’s time to connect your crypto wallet to the NFT marketplace.
NFT marketplaces are digital platforms where you can buy and sell NFTs. Three types of NFT marketplaces are:
Some marketplaces may require you to set up new accounts using their proprietary wallets. These platforms usually offer gas fee discounts when you do so. Remember to read the fine print whether you’re using a marketplace proprietary or third-party wallet.
NFT buyers prefer to create multiple marketplace accounts to receive NFT drop alerts and announcements.
Now you’re ready to buy NFTs. Consider acting quickly as well-known NFTs sell out fast. Not all platforms offer NFT copyrights as part of the direct agreement between you and them. That's why you have to review copyright restrictions and other regulations before buying NFTs.
You should also research security measures before setting up crypto wallets and buying NFTs. Be cautious of phishing sites and scammers trying to steal confidential information, including crypto wallet private keys.
Be aware of these common scams while buying, selling, or trading NFT marketplaces.
Selling NFTs is a great way to bankroll the viral NFT moment. But it’s smart to learn the ropes of NFT sales first. Follow these steps to learn how to sell NFTs.
The first step is to mint an NFT so that you have proof of ownership for your work. Creators usually mint art, music, video games, and writing as NFTs. Remember, the selling price depends on factors such as quality, creativity, and your reputation in the NFT world.
The next step is to choose an NFT marketplace where you can list and sell your NFTs. Once you select one, remember to link your wallet, upload your digital file, and hit the ‘mint an NFT’ option. This process may look a little different across platforms, but most allow you to create NFTs with a few clicks.
Also, remember to set the royalty amount, in case you want to make money from subsequent sales.
Once you’re ready, click the sell button and follow the prompts shown on the platform. The marketplace usually calculates the gas fees at this point, depending on the business of the blockchain network. Marketplaces usually charge a percentage of the final sale prices as handling charges.
At this stage, your NFT is available for purchase on the marketplace of your choice. You can promote your NFT to relevant communities now. Be cautious of making listing changes as that may incur additional gas and platform fees.
Selling NFTs isn’t easy money, given the market volatility. Consider the overall market conditions, marketplace costs, and NFT buying patterns before you set out to monetize your talent.
Keep the following tips in mind while trading NFTs.
Gamers, investors, artists, celebrities, and NFT enthusiasts are increasingly investing in NFTs. But what’s in it for them? Learn more as you explore this section on NFT pros and cons.
NFT buyers, investors, and sellers look at the following benefits as they trade NFTs:
That said, NFTs aren’t free from cons. Take a look at these NFT disadvantages before trading:
If you follow Web 3.0 trends, you know how NFTs are seeing a ton of use cases in digital art, gaming, music, sports, and collectibles. But that’s not all. NFT utility is expanding to other arenas, too. Below are some use cases that the NFT world is gearing up for:
NFTs are fueling frictionless membership experiences for many companies. Members can connect wallets to explore relevant content.
The smart contract does all the heavy lifting in terms of checking and unlocking accessible content based on the NFTs users hold. The benefit is a seamless user experience with no need to remember passwords to access the platform.
For example, Gary Vaynerchuk's VeeFriends uses NFT technology and smart contracts to offer community membership and access to the yearly multi-day event VeeCon.
You’ll also come across NFTs that provide access to entities like decentralized autonomous organizations (DAO). Holding NFTs with access to a DAO provides you exclusive rights to participate in platforms, projects, or dapps.
NFTs are taking the fashion industry by storm. The NFT gold rush is encouraging many e-commerce fashion brands to evaluate the potential of digital collectibles.
is the first luxury NFT collection that combined digital and physical items, helping the Italian fashion house Dolce & Gabbana generate sales worth $6 million.
Source: Statista
Apart from avatars wearing NFT clothing in video games, influencers are also using NFT wearables for photoshoots. As a result, they can stay eco-friendly by not buying new physical clothing for every shoot.
Traditional clothing brands like the GAP started leveraging NFT to create a gamified experience earlier this year. They launched a digital hoodie art series with different rarity levels and price points. Customers could buy four common and two rare NFTs to get the chance to buy an epic collection once.
Just like storing virtual tickets, NFTs can also create and store virtual identities. The built-in authentication of these NFT-based identities will reduce the dependence on government and other centralized institutions.
Keeping identities secure in digital and physical environments continues to be a challenge. NFTs can safeguard identities with self-sovereign identities (SSI).
SSI applications create new identity architecture by using public-key cryptography. NFTs extend NFTs’ value beyond tokens and allow creators to sign off on digital or physical assets they created.
The Internal Revenue Service (IRS) launched IRS Notice 2014-21 to help investors, buyers, and sellers understand virtual currency tax treatment. Holding virtual currency investments or using them to pay for goods and services results in tax liability.
Creating NFTs doesn’t incur taxes. However, any crypto-to-crypto transaction is taxable. Below are the taxable capital gain or loss NFT activities:
NFT taxes aren’t the same for hobbyists and professionals. Professional NFT creators’ transactions come under ordinary income and are subject to different NFT tax regulations.
Shane Brunette
CEO, CryptoTaxCalculator
As Brunette explains, NFT taxes can be complicated. Depending on your situation, you may have to pay ordinary income or capital gains tax. That’s why it’s best to consult a local tax professional to meet tax obligations.
Take a look at the following scenarios to understand whether you have to pay taxes:
Investors using cryptocurrency to buy NFTs are liable to pay capital gains taxes once that cryptocurrency’s value increases.
Investors selling NFTs directly or on cryptocurrency exchanges must pay capital gains tax on any increase in the NFT value. The tax rate depends on the amount of time you hold an asset. Short-term rates apply to those who hold assets for a year or less, and long-term rates for more than a year.
NFT selling is also taxable for NFT creators. If you create and sell NFTs for livelihood, you’ll have to pay taxes on self-employment income and profits.
Minting an NFT isn’t a taxable event. Creators minting NFTs are likely to pay self-employment taxes.
There’s little guidance on the tax treatment of NFT royalty income. You can mention passive income on Form Schedule E for royalties from a one-off sale.
Donating or auctioning NFTs don’t attract taxes when you meet the following criteria:
However, if you don’t auction an NFT for charity without transferring it to the 501(c)(3) organization first, you’ll owe capital gains taxes on the auction proceeds.
NFTs are changing many traditional operations. Finance isn’t an exception. Many decentralized finance (DeFi) projects use NFT tokens to store value and offer proof of immutable ownership.
Traditionally, centralized finance relies on governing authorities to oversee transactions, investments, and trade contracts. Verification and approval can be extremely lengthy with this approach. Plus, the tangible expenses and chances of fraud are high, too.
DeFi offers a transparent and efficient means to solve all these problems while safeguarding security and privacy.
DeFi or decentralized finance democratizes financial transactions using infrastructure, processes, and technologies. This emerging financial technology uses smart contracts to enable people to trade, lend, or borrow money.
DeFi uses blockchain smart contracts to remove third parties from financial transactions. Many projects are leveraging the NFT foundation in DeFi.
For example, Uniswap, an automated liquidity DeFi protocol, uses non-fungibility liquidity pools to tackle impermanent loss. Thus, liquidity providers are able to reduce risk and increase exposure to desired assets.
NFT lending is the process of offering NFT-backed loans with NFTs as collateral. Popular NFT lending platforms use on-chain smart contracts to disburse, track, and close loans.
The NFT lending sector relies on four operating models:
1. Peer-to-peer NFT lending uses the classical lending marketplace model of matching borrowers with lenders. Popular peer-to-peer NFT lending platforms include NFTfi and Arcade.
2. Peer-to-protocol NFT lending lets borrowers borrow directly from the protocol. These lending platforms rely on the crypto funds of liquidity providers. The protocol locks borrowers’ NFTs in smart contract-powered digital vaults before letting borrowers access liquidity.
3. Non-fungible debt position (NDP) is an early-stage DeFi revolution by JPEG'd. Users can leverage the JPEG’d platform to take out a loan for a portion of the NFT they deposit as collateral.
4. NFT rental is another NFT lending protocol that connects NFT tenants and renters. Lenders can determine the rental price and period before renting out NFTs to a smart contract. Once borrowers key in how long they want to own the NFT, they pay the rental cost along with the collateral amount to receive the NFT.
Wondering how else can NFTs benefit DeFi? Take a look at these NFT use cases in DeFi to learn more:
Traditionally, banks or financial institutions come up with the collateral amount for borrowers. DeFi changes this tradition by letting lenders decide the collateralization amount.
DeFi projects use NFTs to secure collateralized loans. Borrowers present tokens to lenders to reduce loan risks. Now, lenders make calculated decisions after checking NFTs ’current value, market trends, and asset type demand.
Some platforms also allow lenders to change interest rates, depending on NFT type, loan-to-value ratio, and loan duration.
Some NFTs are expensive and may not get buyers right after launch. However, the asset becomes more liquid when you fractionalize it. Everyone can buy a fraction of the asset.
For example, Fractional generates ERC 20 compliant fractions, thus making it possible for owners to buy collectibles that they couldn’t afford otherwise.
Some DeFi projects are also transforming traditional insurance products and crypto-assets. These projects usually convert insurance policies into NFTs, making them ready for purchase, sale, or exchange.
Since NFTs don’t come with expiry dates, you don’t have to worry about renewing documents every year. These DeFi projects help you save time and make the insurance renewal process seamless.
For example, CoverCompared is the first DeFi insurance marketplace where you can buy policies with a host of cryptocurrencies. The platform significantly reduces insurance-related transactional and administrative costs for buyers and insurance providers.
Another finance area that is using NFT and DeFi is debt management.
Debt management involves financial planning and budgeting to keep debts under control. Bigger companies need more people to manage financial analysis and operations. NFTs are helping companies solve debt issues with smart contracts.
Smart contracts help you streamline resource allocation and minimize human error. Plus, all the data stays on the blockchain, meaning you don’t have to worry about losing it. If a borrower can’t repay you, you’ll automatically receive the NFT, without legal intervention.
The climate controversy around NFTs is sparking debates worldwide.
While NFTs themselves don’t negatively impact the environment, NFT production does. The NFT creation process is energy-intensive. Solo miners and some mining pools use a proof-of-work operation method that relies on huge amounts of electricity. This demand for electricity causes carbon dioxide emissions.
Miners use large numbers of computing devices to increase the chances of solving crypto puzzles and validate transaction blocks. When miners worldwide validate crypto transactions, they collectively consume an extensive amount of electricity.
is the electrical energy every Ethereum transaction uses –equivalent to the power consumption of an average U.S. household over 6.04 days.
Source: Digiconomist
Some blockchain platforms tackle this problem by using proof of stake algorithms. These platforms produce comparatively less electricity because of their operating methods.
Proof of work blockchain users consume more electricity to discover blocks. On the contrary, proof of stake users must adhere to the staking guidelines. Staking requires validators to secure blockchain without excessively consuming energy.
Now that you know how NFTs harm the environment, here are a couple of ways to mint NFTs without negatively impacting the Earth.
Want to buy energy-efficient NFTs? Consider purchasing NFTs from proof of stake blockchain platforms such as Solana, Algorand, Tezos, and Cardana.
NFTs have become extremely popular across industries and professions. But what’s the future of NFTs? Check out these NFT future predictions to understand what’s possible.
Researching NFT platforms for asset tokenization along with NFT sale and distribution? Keep reading.
Individual creators and businesses use NFT platforms to generate, market, sell, and distribute assets. Some platforms also feature launchpad functionality to help creators raise funds before public release.
A platform must meet the following requirements for inclusion in the NFT platforms category:
*Below are the five leading NFT platforms based on G2 data collected on June 14, 2022. Some reviews may be edited for clarity.
OpenSea, the world’s first and largest NFT marketplace, helps people collect, sell, and discover NFTs. The platform aims to create vibrant new economies using ERC 721 and ERC 1155 standards.
“OpenSea is the world's biggest NFT Marketplace. It allows you to buy and sell a variety of NFT custom art, such as domain names, digital art, and collectibles using Ethereum wallets.
It’s easy to create my own original NFT collections and sell on the primary marketplace. Plus, the platform is easy to use and cheap for creating NFT collections. You can easily start an NFT collection without any knowledge of blockchain or coding skills.”
- OpenSea Review, Himangshu D.
“OpenSea's main limitation is that it only supports a few blockchains, currently Ethereum, Polygon, Klatyn, and Solana. It’d be nice to see a lot of other blockchains supported, especially those with low gas and environmental impacts. Tezos and Immutable come to mind as nice possible additions.”
- OpenSea Review, Ben H.
Mintable is an NFT platform built on top of the Ethereum blockchain. Users can create, buy, sell, trade, and distribute digital files on Mintable.
“The best thing about this platform is that you can mint NFTs for free. There is no gas fee for creating and sending NFTs.”
- Mintable Review, Tuğçe N.
“The bad thing is that anyone can use this platform to take the images from the internet and sign them as NFTs randomly. Also, the user interface could be better.”
- Mintable Review, Tuğçe N.
Rarible is a community-centric NFT marketplace that enables users to discover NFT drops and track NFT portfolios. This multichain marketplace currently supports Ethereum, Flow, and Tezos.
“Rarible is a super easy platform to mint new NFTs. You can simply connect your Metamask wallet and you are good to go.”
- Rarible Review, User in Insurance
“The platform is sometimes unable to handle the load and lags as a result. Also, there is no specific reporting page like OpenSea where you can see NFT market trends.”
- Rarible Review, User in Insurance
Venly NFT Tools is a native solution that offers digital wallets for blockchain projects to store assets. Venly Market is the first peer-to-peer NFT marketplace on Polygon. It lets users trade NFTs in a compliant environment.
“Their salesperson was very responsive. They structured an agreement appropriate for what we were doing as their standard packages didn't meet our needs. We were able to get things up and run quickly.”
- Venly NFT Tools Review, Executive Sponsor in Computer Software
“As we began using the APIs more, we realized that some of the things were not ideal. First, the API was built on ERC-1155. This was causing us to create a token type first and then have another function call to Mint. This was going to use more gas than we wanted. Metadata attributes showed some things that we didn't want shown. We were a small account for them, but we didn't get much help from their support.”
- Venly NFT Tools Review, Executive Sponsor in Computer Software
Bitbond uses blockchain technology and tokenization to streamline NFT issuance, settlement, and custody. This peer-to-peer marketplace is suitable for online sellers and small businesses.
If you use Bitbond to create or transact NFTs, feel free to submit a review.
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