A Beginner’s Guide to Recognizing the Various NFT Types

NFTs (non-fungible tokens) are unique digital assets stored on a blockchain. Unlike cryptocurrencies, NFTs aren’t interchangeable.

Nfts perform cryptocurrency-like functions without actually being cryptocurrencies, thanks to the underlying technology of blockchain networks. This makes them highly secure.

NFTs with utility can be an excellent way for artists and musicians to release their work directly to fans and bypass the traditional sales pipeline. Examples include generative art and virtual worlds.

Collectibles

NFTs are taking the digital art world by storm. When they are affixed to paintings or other forms of digital artwork, they provide a means for buyers, sellers, and traders to authenticate the work and verify ownership. This democratizes the art market and makes finding, buying, or selling art easier, potentially making the work more valuable.

These tokens are one-of-a-kind, unlike cryptocurrencies or other assets like dollar bills and gold that are interchangeable (‘fungible’). Each NFT has properties distinguishing it from other NFTs (‘non-fungible’). NFTs are verified and verifiable thanks to the blockchain technology that underpins them, reducing fraud. The NFTs have unique IDs and metadata that make them different from other NFTs, and they are assigned to specific owners through intelligent contracts.

Some artists are using NFTs to sell their music and art. The Kings of Leon released their latest album as an NFT in March of 2021, and NFTs of the band’s songs have been sold for up to $587,000. Other NFTs are of Internet memes like the Nyan Cat video that exploded in popularity in 2017 or Jack Dorsey’s $2.9 million tweet, which was sold as an NFT in 2018.

While some NFTs have increased in value, a financial advisor advises on crypto investments and cautions investors that NFTs can be volatile and are unlikely to produce consistent returns. He suggests looking for NFTs from creators that you enjoy and supporting their work even if it doesn’t necessarily go up in value, and investing only small amounts of money on all NFT types.

Paintings

If a work of art is a one-of-a-kind object that cannot be replicated, it can have an objective value, as in the case of paintings. NFTs created by renowned artists sell for millions of dollars thanks to their novelty and association with the artist’s fame. One such example is “Everyday,” a video by the now-viral Mike Winkelmann (more commonly known as Beeple), which has sold for almost seventy million dollars.

However, digital artwork can be duplicated as often as people want, making it difficult for the work to have real value. NFTs solve this problem by creating an immutable and tamper-proof record of ownership, like crypto-currency. This is accomplished through blockchain technology, which makes a ledger maintained by thousands of computers and cannot be forged or destroyed. Smart contracts can also set terms between the seller and buyer of the NFT, such as a cut for the artist.

While NFTs are often associated with cryptocurrencies and their boom-bust cycles, they can also have real-world traction in areas such as individual identification. Startups have developed NFTs as digital ID certificates to help individuals verify their identities. Additionally, fashion brands such as Louis Vuitton have jumped on the NFT bandwagon, minting tokens that can be purchased and used to buy virtual clothing for avatars or video game characters.

Virtual Real Estate

In virtual reality (aka the metaverse) or digital property, NFTs are increasingly popular as a way to buy and sell land. Unlike traditional real estate, digital property is intangible. It can’t be touched or smelled but has value because people want it and because it is one of a kind (thanks to blockchain technology).

Much like buying land in the real world, purchasing a plot of digital land carries ownership rights. As a result, these properties are highly sought after, with some selling for prices that would make even the most ambitious physical real estate mogul blush.

While virtual real estate is new, it is already affecting the economy and changing work dynamics. For example, companies use the metaverse to host events or uniquely provide customer service. The same happens in the gaming industry, where players can purchase and use digital land and spaces for various purposes, including monetizing in-game assets and enhancing gameplay.

Just like any investment, there are some risks to investing in virtual property. Specifically, market volatility and technological risks. Fortunately, these risks are mitigated by digital property transactions and ownership records being transparent and immutable on the blockchain. Also, the buying and selling process is simplified by using smart contracts and decentralized finance apps.

Domain Names

Domains aren’t often considered non-fungible assets, but NFTs for them are gaining momentum as blockchain technology gains more adoption. Domain names can be minted like other NFTs and traded on the Ethereum blockchain, much the same way as other digital assets are. While many layers of companies manage traditional domains, NFT domains are decentralized and owned by the purchaser. This makes them more secure and an excellent option for those looking to avoid the privacy issues associated with other domain registrars.

The value of an NFT domain is determined by demand. This differs from a stock’s price, driven by investors’ perception of its worth. However, resale prices for NFTs may be lower than those of traditional assets because the market is still relatively new.

NFT domains can be purchased on various platforms, including the Ethereum Name Service dApp. Domains minted on the Ethereum blockchain are known as ENS domains, and they have unique characteristics that set them apart from other NFTs. For example, an ENS domain can contain a contract address or a link to a decentralized website, which will help users keep their cryptocurrency and identity safe from hackers and scammers. It’s also important to note that ENS domains are only as secure as the wallet they store, so purchasing a domain from an established seller is best.