What is an NFT?
NFTs (short for non-fungible tokens) are digital certificates of authenticity on a public ledger proving that the holder owns a one-of-a-kind digital (and sometimes physical) asset.
Though the possible use cases for NFTs can — according to some — encompass the whole world, the most common use of NFTs to date has been the monetization of digital art and the celebration of digital artists.
Read: What are NFTs?
What does it mean to mint an NFT?
“Minting an NFT” means transforming a digital file into a digital asset, uniquely publishing the token on a blockchain network to make it purchasable. Once minted, the NFT serves as proof of ownership and provenance of a specific item. NFTs are digital certificates of authenticity that can be verified by anyone on a blockchain.
The components or details of this NFT token metadata can include:
- Artist or creator of the item
- Description of the item
- Price of the item
- NFT creation date
- Ownership information
- Specifications such as royalties or IP use rights
- Transaction history
- Location links of the file representing the NFT (usually on the decentralized IPFS [Interplanetary File System] server).
What are the benefits of minting an NFT?
NFTs empower artists to
- Prove they are the original creator and authenticate the digital file
- Sell art that would otherwise not find a market.
- Enable features that allow them to collect royalties on secondary sales.
- Explore entirely new, unexplored possibilities within the digital art realm.
NFTs enable collectors to
- Buy, sell, or trade digital art pieces that would otherwise be easily copyable.
- Support artists and a creative ecosystem that is pushing boundaries.
- Depending on the details, collectors may buy intellectual property rights or other unique benefits with the NFT.
Does minting NFTs cost money?
Yes. Most NFTs and NFT marketplaces use Ethereum blockchain smart contracts. Using the Ethereum blockchain to participate in the NFT economy carries with it transaction costs known as a “gas fee,” which typically costs between $25 and $200, depending on the demand on the blockchain.
In the future, as the world’s various blockchains increase in efficiency, gas fees are predicted to drop dramatically and perhaps even disappear altogether.
One way that creators can avoid minting fees is with lazy minting. Lazy minting is when the minting process doesn’t occur until the NFT is purchased. Upon purchase, the buyer incurs the minting fees.
Read: Everything You Need to Know About Digital Wallets
What happens after I sell an NFT?
After listing an NFT for sale, any interested collector can bid on it. If you accept the offer, the record of purchase will be added to the NFT’s metadata. The new owner will receive the NFT token, which is recorded on Ethereum’s blockchain along with the new owner’s identity and details of the trade.
If the NFT creator has stipulated a secondary market royalty, the wallet associated with that creator will receive the funds following every secondary sale. For this reason, it’s important the creators maintain all wallets associated with their NFTs.
Read: How to Stand Out in the NFT World
How do I mint my first NFT?
Creating an account or logging into Ethereum-based NFT marketplaces starts with installing and logging into the Metamask Ethereum wallet browser extension.
Turning your digital content into an NFT is a simple process, not unlike uploading a video to YouTube or a music file to Spotify. Generally, all you need is to upload the file (PNG, JPG, GIF, MP3, or MP4); give it a title, subtitle, and description; stipulate a royalties percentage, and list it for sale.
Nota bene about royalties: The higher the royalty percentage, the lower the incentive a collector has to sell. Assuming collectors like to sell for a profit (not a bad assumption to make), consider setting a royalty percentage that doesn’t dwarf the percentage by which you can semi-confidently presume your work to gain in value.
In other words, you can reasonably expect lower secondary market activity on a piece with a 50% royalty stipulation — by which collectors would very likely suffer a loss if selling — than one with a 10% royalty, a level at which both collector and creator might profit. One potential side effect of this low secondary market activity is that the open market value of your work does not grow as quickly.
In sum, a reasonable royalty rate is a long-term play for more secondary market activity and thus higher valuations of your work.
NFTs are not the digital file or any digital content itself, but rather a representation of the file or content. While the Ethereum blockchain can store your NFTs, it cannot yet efficiently store the associated file.
Because NFTs are unchangeable in perpetuity, it’s important to ensure that the file represented by the NFT is securely stored. The preferred means of storage, in this case, are decentralized databases, such as IPFS (InterPlanetary File System). Centralized databases — like a cloud hosting service — is risky because the ongoing viability of a given NFT would be completely dependent on the ongoing life of a single, centralized company.
What am I buying when I buy an NFT? What am I selling when I sell an NFT?
A limited-edition digital creation, signed by the creator.
Upon purchase, buyers receive the right to use, distribute, display (for non-commercial purposes) and sell. Buyers can access the high-resolution digital file to display digitally or physically while knowing that they have the authentic piece, verifiable on the blockchain.
Creators retain commercial rights to their work (unless otherwise stipulated by the creator). However, creators shouldn’t issue more tokens of the same creation once they are tokenized. Increased visibility in popular culture can increase value, but the excessive proliferation of editions can and will decrease value.
Caveat emptor
Keeping safe the wallet(s) that you use to mint is critically important. Losing access to your minting wallet cuts you off from a lifetime of royalties from secondary sales — not to mention cutting you off from anything stored in that wallet.
If you lose your private key — a random string of 12 or 24 words — you will never get it back.
Security best practices
- Don’t store your private key digitally. Write it down and keep it in a secure place.
- Don’t give your private key to anyone. Ever.
- If anyone ever asks for your private key, scrupulously inspect every piece of text for typos or instances of the person trying to hurry or distract you. Then remind yourself, “Oh yes, I should NEVER GIVE MY PRIVATE KEY TO ANYONE, EVER.”
P.S., Don’t give your private key to anyone. Ever.
For more web3 security best practices, read Staying Safe with NFTs and Web3.
To expand your general education of NFTs and web3, visit either The Collectors’ Curriculum or The Creators’ Curriculum.
