What is NFT: NFT Ecosystem Explained
NFTs were quite a hot topic in 2021. After the most expensive sale of Beeple’s NFT artwork for a whopping $69.3 million, the NFT market has captured everyone’s attention. For crypto, it took nearly a decade to become mainstream, while for NFTs, it took only a couple of years.
With brands like Visa and Adidas entering the NFT market and famous stars like The Weeknd and deadmau5 launching their NFTs, it seems like NFTs are more than just a new trend. And it now seems the perfect time to finally lift the curtain and find out what NFT is and how you can benefit from it.
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What is NFT?
“NFT is proof of the ownership of any digital file.”
When you see an image on the Internet and right-click on it, you see the “Copy Image Address” phrase. The address is its digital signature and is unique for every image. Imagine you own this address, and you have proof of ownership. The address is public and everyone knows that you’re the sole owner of that image.
Whenever this address is bought or sold, everyone can see who becomes the new owner. Sure, anyone can duplicate that image, but everyone still knows that you’re the rightful owner of the original image, and no duplication can change that fact.
Simply put, NFTs are digital assets linked to blockchain that make it possible to trade digital artwork and collectibles by making them unique. NFTs stand for non-fungible tokens, which are any type of digital file like a photo or video, embedded in a smart contract on the blockchain. Still doesn’t make much sense? Let’s look at it another way.
Fungibility vs Non-Fungibility
“You might be wondering what non-fungible means. Fungible means replaceable, e.g. bitcoin, US dollars. You will get the same value if you replace a $10 note with two $5 notes. That’s quite the reverse for NFTs. They are not replaceable and each NFT is unique. It’s similar to physical works of art. They are one of a kind, and that’s what makes them so valuable. The same goes for each NFT; it’s one of a kind and can’t be copied or duplicated, which makes it possible to trade it.”
How NFT Works?
NFTs can be anything – digital art, music, video, domain names, game assets, etc. As mentioned before, NFTs are built on blockchain technology, and the information about who owns each NFT is open to the public. Every time an NFT is sold, everyone learns about it.
NFTs may have made it possible for digital art to be traded, but they are not the same thing. Digital art existed long before NFTs were created. And digital art needs to be “minted” to become an NFT.
So, how exactly does a digital asset become an NFT?
That process is called minting. There are many NFT marketplaces where you can buy and sell NFTs or create one. When you have a digital file you want to sell as NFT, you should go to one of these marketplaces and mint it.
Minting means creating an NFT for your digital asset via NFT minting sites. And when you do it, it becomes open to the public and you become the owner of that digital file which is now a static or dynamic NFT.
NFTs are generally traded in crypto. So if you want to buy or sell NFTs, you’ll need to have a crypto wallet.
Ethereum is the original NFT ecosystem and the leader among all the others. Ethereum is a decentralized, open-source blockchain that uses Ether or ETH as its native cryptocurrency. Thanks to NFT market growth, Ethereum became one of the most successful blockchains, with Ether as the second currency after bitcoin in market capitalization.
Over 90% of digital assets are built on Ethereum (including Etherum sidechains), which makes it the largest NFT ecosystem. And as most of the NFTs have been created on the Ethereum blockchain, gas fees have increased.
Ethereum uses the energy-intensive proof of work consensus method, which consumes a lot of energy, so many artists refuse to use Ethereum. Though Ethereum plans to transition to the proof of stake method, which can decrease energy usage by 99%.
Most NFT marketplaces use Ethereum for minting and trading NFTs, like the largest NFT marketplace OpenSea. OpenSea offers all kinds of NFTs from art and music to game items and many other digital assets. This marketplace made $1.9 billion of traded volume in November 2021, which is 95% NFT trading volume.
There are also marketplaces that focus on one type of NFTs, like art, and some of the best-performing marketplaces are Rarible, SuperRare, Nifty Gateway, Foundation. SuperRare is a heavily curated marketplace, and it offers only high-quality artwork. And before minting your NFTs on SuperRare, the platform needs first to approve your works. Not all platforms require approval, like SuperRare, so you can easily start trading on other marketplaces.
To trade on these platforms, you’ll need to have ETHs and, thus, a crypto wallet like MetaMask. Most of the platforms support MetaMask, and if you don’t have a wallet yet, you can choose this one.
The second place takes Ronin – the Ethereum sidechain. The reason it’s so popular is that it’s the main currency for the Axie Infinity marketplace. Axie Infinity is the leader among play-to-earn games with 2.5 million people playing it every month. For many players, it’s the main source of income. On this marketplace, you can buy Axies, pokemon-like characters which are used to play the game and fight with other players.
Ronin has actually bypassed the Ethereum blockchain with its faster transactions and lower fees. The problem with Ronin is that Axie Infinity is the only game on the Ronin network, while other blockchains have multiple projects. Though the developers are planning to add more games and projects and we hope they will help grow the Ronin network.
Solana ecosystem is another top NFT network considered the biggest competitor to Ethereum. Solana is a relatively new blockchain and is still growing, but it has already formed a large community around it. At the launch, Solana was built to focus on financial transactions, providing a faster transaction processing speed and less overhead than Ethereum. But NFTs have also become a big part of this blockchain.
Solana has 5 marketplaces, two of which are among the top 10 NFT marketplaces. Solana marketplaces are Solanart, Magic Eden, Solana Monkey Business, DigitalEyes Market and Solsea, which have attracted around 115,000 users. This might not seem much, but Solana is becoming more popular and has attracted some of the wealthiest NFT traders.
Solana’s NFTs are also getting popular among celebrities. Former US First Lady Melania Trump is going to create her own collection of NFTs on Solana, and basketball legend Michael Jordan and his partners are going to launch a new app HEIR in 2022. It would be a platform for fans and collectors to create and sell NFTs.
WAX blockchain was created specifically for NFTs and it supports any kind of NFT activities: games, marketplaces, dApps, and exchanges. You might find these NFTs low-quality compared to other ecosystems, but there are high-quality NFTs to be found on there. Besides, NFTs on WAX cost less than on other blockchains, so it’s a great starting point.
WAX supports six marketplaces, and the most popular is AtomicMarket, which has a $312 million trading volume. The number of traders reaches 800,000 which makes the platform the second most popular after Axie Infinity. You can also visit NeftyBlocks, which can also offer you some good collections of NFTs.
Binance is one of the leading platforms to buy cryptocurrencies, and it also offers its blockchain for creators to buy and sell NFTs. Binance is a unique ecosystem, as you can find all you need for trading NFTs in one place. You won’t need to have any third-party wallets and marketplaces to choose from, as Binance has all of that.
If you’re already using Binance for trading cryptocurrencies, you can as well use it for trading NFTs. On the Binance marketplace, you can trade NFTs by paying in Ether (ETH), Binance Coin (BNB), or Binance USD (BUSD). Binance USD is Binance’s “stablecoin,” as 1 BUSD = 1 USD.
If you’re even familiar with NFTs, you might’ve heard about NBA Top Shot. It’s a platform for collecting NBA highlights as NFTs. Well, NBA Top Shot is running on a blockchain Flow, which was created by Dapper Labs. The design of this blockchain is based on games and digital assets. NBA Top Shot is one of the most successful NFT marketplaces. And even for that single marketplace, it’s more than worth mentioning Flow here.
NBA Top Shot is not the only successful project of Dapper Labs. They are also responsible for creating CryptoKitties and Dapper Wallet.
One of the best things about NBA Top Shot is that you can trade on it using your credit card. You don’t need any cryptocurrency or new crypto wallets.
The NFT market is growing very fast and new blockchains and ecosystems will certainly emerge soon. We’ve tried to cover the established and successful NFT ecosystems here so that you can easily start familiarising yourself with NFTs.
If you want to start trading NFTs, explore all ecosystems and marketplaces thoroughly to find the perfect ones for you.