Explained: NFTs – Understanding the hype
Everyone talks about NFTs, but you still don’t get what’s behind the acronym? No need to worry. In this guide you will find an overview of the most common terms around the NFT hype. Let’s go, arm yourself for the next NFT discussion with friends and shine with your knowledge!
What is a NFT?
NFT stands for “Non-Fungible Token” and refers to a cryptographic token on the blockchain that cannot be replicated or replaced. NFTs act as certificates for the authenticity and uniqueness of a digital asset and give the owner proof of ownership. That’s why you can’t just take a picture of a NFT to duplicate it.
NFTs are created via smart contract technology (e.g. ERC-721 token standard).
Especially in the art and music scene, digital works have recently been offered as Non-Fungible-Tokens. But even initially physical assets such as artworks can be digitally mapped or tokenized.
How to buy NFTs?
There are several ways to acquire NFTs, such as participating in a minting, purchasing NFTs on a peer-to-peer marketplace or play-to-earn games.
Minting describes the process of buying a new NFT directly from the creator or new project. At minting, NFTs are randomly assigned and the price is the same for all buyers. Sometimes, however, certain conditions have to be met in order to participate in a NFT mint. For example, the term Whitelist describes a process whereby a cryptocurrency wallet address is pre-approved for a future NFT mint. To get on a project’s whitelist, you usually have to complete several steps that are determined by the project team.
You can also buy NFTs on peer-to-peer marketplaces for digital or crypto collectibles. Payments on these platforms are processed via the blockchain. The first and largest platform for trading NFTs, OpenSea, was founded in December 2017 by Devin Finzer and Alex Atallah. Other well-known NFT marketplaces are Rarible (Ethereum/Solana/Tezos NFTs) or JPG Store, which is the largest Cardano NFT marketplace.
Floor or Floor Price is a term that describes the lowest price at which you can buy an NFT directly from the project (e.g. minting) or on the secondary market (e.g. NFT marketplace OpenSea).
NFTs as play-to-earn rewards
Another supposedly less cost-intensive way to obtain NFTs are play-to-earn games. Play-to–Earn (P2E) or also known as GameFi refers to a new game concept in which a gaming platform offers its players the opportunity to earn in-game assets like non-fungible tokens or digital tokens. It is possible to transfer them to the real world as a valuable asset.
Popular play-to-earn games where you can earn NFTs include CryptoKitties, Axie Infinity and The Sandbox. While CryptoKitties is considered the first major blockchain game, Axie Infinity was the first NFT game to reach $1 billion in trading volume.
Hype vs. reality
According to a Q2 2022 report by DappRadar, blockchain games and game-related NFTs performed better than other crypto verticals during the bear market and were not as drastically affected. Nevertheless, the overall bear market has not left the NFT market as a whole unscathed. The NFT sector is suffering from the negative market sentiment and shrinking volumes and dwindling interest have put a lot of pressure on NFT prices over the past few months. Despite the weak market environment, some of the most hyped NFT collections are still fetching huge prices. For example, on 13 June, a CryptoPunk changed hands for exactly 2,500 Ethereum (equivalent to over $2.6 million).
It remains to be seen how the situation will develop in the coming weeks and months. Like everywhere in the crypto world, there are a lot of fraudulent projects in the NFT sector. Therefore, before making a NFT investment, the most important thing is: Do your own research!
This article does not provide investment advice. Historical cryptocurrency data is not a guarantee of future market developments. The author may hold several of the cryptocurrencies mentioned in this article.
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