NFTs first came into existence in 2014 but the technology never became widely known until 2021 when a little-known artist sold a piece of digital artwork for USD 69 million at an auction. This ignited the massive boom that NFTs are experiencing today.
Ever since the explosion of the NFT market, various criticism and questions have been raised as to whether it’s just a crypto fad or an elaborate scam due to the unclear nature of the technology.
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This article will provide answers to questions you may have concerning the concept behind NFTs, what they are, what they are used for, what makes them valuable, their ultimate impact, as well as demystify some of the misconceptions that surround the technology.
We’ve compiled a list of the 15 most common questions you might have about NFTs below.
NFTs Frequently Asked Questions
Let’s take a look at some of the most frequently asked questions on NFTs:
1. What are NFTs and how do they work?
NFTs is an acronym for Non-Fungible Tokens.
Non-Fungible in the sense that they are unique and cannot be interchanged like fungible assets such as Bitcoin. Let’s take for example if you exchange a Bitcoin to get another, nothing changes, you still get the same Bitcoin back — it’s the opposite in the case of NFTs.
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Each NFT has a distinct signature used to designate and verify ownership of assets — there is no two original copy.
NFTs are digital assets that are usually representations of real-world objects such as in-game items, videos, music, collectibles, virtual assets, and arts. These crypto-assets are largely part of the Ethereum network, however, there have been other versions of NTFs implemented on other blockchains such as Algorand, Tron, WAX, Tezos, EOS, Solana, Cardano, Binance Smart Chain, and Flow.
Also see our post on what is an NFT?
2. Why does NFT art have value? Why are NFTs so expensive?
Same as physical art, four factors contribute towards the value of an NFT art — how expensive it becomes.
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The first is the “market-driven value”, which depends on the speculated resale value and popularity of the artist. The second is the “subjective value”. It involves the moral statement or political message that is conveyed by the art — how it makes you feel.
Another value determinant of NFT arts is the “objective value”. This involves the experience and technical skill by which it was created. Lastly is the “historical value” the piece of digital art has.
All these factors contribute to how people value NFTs. “The Merge” which sold at an auction for a whopping USD 91.8 million is the most expensive artwork ever. Each NFT created or minted is unique, and its right can be traced to the owner, and blockchain technology protects this right of ownership.
It was recorded by DappRadar that in the 3rd quarter of 2021, NFTs sales increased to $10.7 billion, from the $1.3 billion in the second quarter of 2021.
Because lately, a lot of crypto enthusiasts believe that to make money with NFTs, you have to have a lot of money to buy a valued NFT, including a gas fee. This is not entirely a lie because, in the business world, you need money to make more money. The higher your capital, the higher your profit.
In the era of decentralized finance, anyone with as little as $20 can buy a coin or a token that can make him 200,000$ in a few months of hodling. People are asking the same questions “can I make so much from so little with NFTs?” Check out our article on “how to make money from a less than $100 NFT”
Also see our NFT marketing guide.
3. What are NFTs used for?
NFTs can be used to indicate ownership of rare assets which represents real-world items like real estate and artwork.
It’s important to note however that purchasing an NFT that includes the copyright of the original artwork does not mean its copyright is automatically transferred to you. While you can sell the NFT itself, you are prohibited from reproducing or selling its content.
4. Are NFTs a good investment? What is the risk of NFTs?
NFTs can be categorized under the High Risk, High Reward investment type. The NFT market is fueled by scarcity and desirability which explains the craze people have about them.
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However, pundits warn potential investors — who are over-excited by the unimaginable prices NFTs are being sold — against staking their financial security on NFTs. Same as Initial Coin Offerings, there are high chances you can get scammed in NFTs. You also have to consider the fact that you don’t own the content of the NFTs when investing.
Before you attempt to invest in NFTs, invest in knowing what you’re getting into. You need incredible knowledge in the cryptocurrency industry if you’re ever going to have a bleak chance of success.
With NFTs, the philosophy of time and chance is a real thing. They are only worth the amount people are willing to pay for them.
If you are looking to invest in NFTs, some of the best projects you can follow include Adam Bomb Squad, Decentraland, Creature World, Nouns, MekaVerse, and Moon Boyz.
5. How to make money with NFTs?
NFTs can be treated like stocks — can be bought or sold when their value changes. The best way to make money from NFTs is to buy low and sell when it appreciates.
While you can also create NFTs by minting them, the additional cost of creation such as royalties, account setup fees, site fees (ranges from free to $900), marketplace listing price, and gas fees are factors to consider when calculating profits.
Whether you choose to buy and sell later or set out to create NFTs, you must first realize how the NFT world works and what would and wouldn’t sell or risk losing money. You can also consult a professional for help.
6. Where do you buy NFTs?
You must know that NFTs can only be bought with cryptocurrency (mostly with ether or ETH). However, some exchange platforms like Gemini, Kraken, and Coinbase allows user to convert U.S dollars to ether.
Some of the best marketplaces where you can buy NFTs include OpenSea, Rarible, Axie Marketplace, and NBA Top Shot Marketplace.
7. Can I create my NFT? How much does it cost to create NFTs?
Yes. You can create your NFTs and even sell them for a profit.
The process of creating or minting an NFT is listed below:
- Step 1: Choose a platform where your wish to sell your NFT
- Step 2: Set up a Wallet
- Step 3: Connect your Wallet
- Step 4: Create an NFT (the cost of creation depends on the quality and size of the artwork).
- Step 5: List your NFT
Note: There are some popular NFT hosting sites where you can create NFTs for free.
8. How much energy/power do NFTs use?
According to research by a computational artist and engineer, Memo Akten, the process of minting NFTs uses over 263,538 kWh of energy on average and causes emissions of 163,486 KgCO2.
9. What is the environmental impact of NTFs?
One harmful trait both NFTs and Bitcoin share is their massive use of energy. Thus their environmental impact is similar.
NFT arts are sold and authenticated using energy-intensive computer transactions. These transactions are required for minting NFTs, to bid and pay for the NFT after successful bidding, as well as the process of transferring ownership.
This show tells you how much electricity consumption these transactions take and their impending effect on the environment. And the massive boost NFTs are getting is not helping matters either.
The major problem with these NFT transactions is the energy used. Miners generally opt for cheap sources (like fossil fuels) in a bid to maximize profits.
Another concern is the technology being used, the recycling and production of the hardware being also contribute negatively to the environment.
10. How can I get NFTs for free?
There are various ways you can get NFTs for free.
- Create Your Own NFT
The easiest way to earn NFTs is to create your own. You can create an NFT art for free to pad out your wallet. NFT marketplaces such as OpenSea offer a “lazy minting” approach to creating NFTs which doesn’t require any upfront fee from users.
- Play-To-Earn Games
Another way you can earn free NFTs is through Play-To-Earn games. By design, these games stimulate NFT trading. The purpose of these games is to help mainstream the adoption of NFTs. There are tons of leading play-to-earn NFT games that offer players the opportunity to earn in NFTs.
Examples of NFT-supported play-to-earn include Mobox, My Neighbor Alice, Mines of Dalarnia, and Axie Infinity.
You can always research for more play-to-earn platforms where you can earn free NFTs.
- Giveaways and Airdrops
Many NFT projects provide free NFT giveaways for users’ participation on Discord servers, Reddit, and Twitter to promote their new collections. CryptomonKeys Discord and Alien Worlds are examples of online communities that offer NFT giveaways. You can also search for NFT giveaways on Twitter by searching for the keyword “NFT”.
NFT projects, like traditional companies, sometimes offer stock options (in this case, NFTs) freely to the public packaged as “airdrops” to raise capital. Bored Ape Yacht Club and OpenDAO have utilized this strategy before and others are following suit.
11. Can JPEGs be NFTs?
No. A lot of people seem to mistake NFT for the external media it’s tethered to such as documentation, tickets, JPEGs, etc., — which diminishes the concept of the token itself.
12. Can NFTs be copied?
No, and Yes. While the technology “NFT” cannot be replicated because of security factors inherited from blockchain, the media can be copied easily.
Take, for example, the Mona Lisa painting done by Leonardo da Vinci, while there are many lookalikes and iterations of the original painting, there is no two original Mona Lisa artwork. The same goes for NFT, it’s impossible to fake the creator’s wallet even though copying the contents of an NFT can be done.
NFTs contain unique codes — stored on the blockchain in an immutable form — that makes it possible to trace them back to the creator. Read our detailed article here on where NFTs are stored.
13. Will NFTs last?
The questions as to the durability of NFTs have generated mixed opinions due to the many uncertainties as regards its use case.
Experts believe that projects based on strong fundamentals are likely to survive the test of time, however, that can be said about weaker ones.
Projects that are most likely to lose the fizz are NFT collections that lack utilities.
14. Can I make money in NFTs as much as Crypto coins?
A lot of crypto traders ask if they can make money in NFTs as much as they can in crypto. Or the prospects of making money faster either with coins or NFTs. We should know that making money in crypto requires patience. Some investors also wonder if they can just open an NFT marketplace and right-click or save an NFT.
Anyone can do this, however, it can’t be sold. The real money you get from having an NFT is when you sell it. When OpenDao gave out free $SOS tokens to active users of Opensea, a lot of people did not qualify for the airdrop because though they bought NFTs in OpenSea, they did not sell. The selling was where the real activity was pegged to.
You do not need to possess a special skill to buy or sell an NFT. Musicians, Artists, Social media influencers, and videographers can create NFT. All you need to show is that you legally have the right to the ownership of the NFT, anyone can Mint NFT too.
15. What is the future of NFTs?
OpenSea co-founder Alex Atallah said in an email that “the possibilities of NFTs are endless since they can be used to log ownership of any unique asset.” Using NFTs as event tickets, software licenses, fan club memberships, or other interactive experiences is already a common use case for NFTs.
Nike and other well-known American companies are already experimenting with new ways to use NFTs. However, the use of NFTs in consumer products could be just the beginning. Isn’t it possible to prove your identity using an NFT?
A shift from artist-driven NFTs to NFTs that focus on access or authorization has been observed, At a recent New York party, attendees gained entry by purchasing an NFT. When it comes to digital identity, I am curious to see how NFTs will be utilized.”
There is a lot of potential for NFTs in the $85 billion video game industry. They’re already being tried out by some of the bigger studios. The metaverse, a virtual 3D world proposed by Meta (formerly Facebook) CEO Mark Zuckerberg and other tech industry heavyweights, could make use of NFTs as building blocks for a future digital universe.
According to Atallah, “gamers are already used to caring about digital goods, so the potential for NFTs is enormous: A few million NFT users compared to almost 3 billion gamers.” Some exciting developments are taking place when it comes to bringing together NFTs, gaming, and the metaverse.
The Beauty of NFTs…
The beauty of NFTs is that in anything you do, whether it is dancing, drawing, writing, singing, you can convert it to a digital asset in form of NFT, and its value will be evaluated in the market. This is an opportunity to make money without working anywhere, all you need to do is just have the skill.
NFTs are interesting and speculative, but for now, they do not have a strong use case in the asset class. NFTs are not entirely without use cases but personally, Investing in collectibles like baseball cards is a safer way to invest. If you must invest in NFTs, do this with a small amount of money and ones with sentimental values attached to it, or you can buy high worth NFts like Lazylions or BoredApes but at your own risk.