How does this work?

WTF is an NFT?

 
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Non-Fungible What?

An NFT, which stands for non-fungible token, is a unique unit of data employing technology that allows digital content—from videos to songs to images—to become logged and authenticated on cryptocurrency blockchains, primarily Ethereum. Once content is logged onto the blockchain, every transaction from transfers to sales is recorded on-chain, creating an easily accessible ledger of provenance and price history. The main impact of NFTs is making it easy to own and sell digital content. Previously, for example, digital artists could build up large followings on social media, attract freelance commercial work, and maybe sell prints and other merch with their designs, but they had trouble monetizing digital art directly, as consumers asked, Why should I buy what I can screenshot for free?

While the technology behind NFTs made it easy to trade and sell images online, it is really the NFT community that has to be credited with creating a market for these digital assets, because technically, as many detractors point out, digital images that have been turned into NFTs can still be saved or screenshot without cost. 

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How does it work?

Typically, creators (or, if you prefer, artists) will mint their work on an NFT marketplace, which includes platforms like OpenSea, SuperRare, Nifty Gateway, Foundation, and many others. Minting is the act of creating an NFT, which means creating a smart contract that will be stored on the blockchain. The smart contract contains a lot of important information: it lists the creator of the work and ensures that the creator, or other parties, receives royalties each time the NFT is sold.

The ability for artists to collect returns on resale value automatically is part of NFTs’ draw for artists (all platforms make their money by receiving a small percentage of royalties through the smart contract). But the process isn’t perfect: technological glitches can make it so that parties don’t always receive royalties. And a smart contract does not have the legal weight of copyright — it will take a relevant court case to see how the law regards smart contracts. 

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...Contracts?

Smart contracts are stored on blockchain, but the artwork itself is most often not stored on-chain because storing that much data is too laborious and expensive; accordingly, most smart contracts contain a link to the work they represent. This means that many NFTs comprise two parts, the smart contract and the asset itself. This can cause some confusion about where the value actually resides. However, there are works that are not only stored on-chain but are also created using blockchain tech (more on this below).

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Why do artists do this?

While artists are constantly encouraged by their peers to make big bucks making NFTs of their work, there are obstacles. Perhaps the most prohibitive is that minting an NFT is not free, and its cost increases the more congested the Ethereum network becomes, and the more computational effort is needed to do the job. The financial cost of that necessary computational effort is the “gas fee,” which is constantly fluctuating. Currently, it costs some $70 to mint an NFT on Ethereum. The NFT creator doesn’t always do the minting; certain platforms will offload that process and the subsequent cost to the consumer.

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What is cryptocurrency?

Cryptocurrency is a digital currency or store of value that uses the blockchain, a digital transaction ledger, to record and secure online transactions. Cryptocurrencies can be used to buy goods and services. Currently, the most traded cryptocurrency is Bitcoin, followed by Ethereum.

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What is a “digital wallet”?

A blockchain wallet is a digital storage that enables you to store and transact with cryptocurrency. In its simplest form, a wallet comprises a public and private key, which are cryptographically generated.


To make the process of setting up a wallet user-friendly, there are many software wallets, such as Metamask, which equip you with a wallet address, key vault, secure login, and backup options to manage your digital assets securely.


Metamask runs as a browser extension and/or mobile app, and you can be up and running in just a couple of minutes.


With a digital wallet, you hold the keys and are in charge of your own assets. Your assets are only as safe as your keys, so back them up and keep them safe! Remember to never, ever share your seed phrase with anyone. That is for your eyes only.

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What are gas, gwei or minting fees?

Gas fees, or minting fees, are a transaction fee on the Ethereum blockchain.


When you make transactions, such as purchasing an NFT, you will need enough ETH in your wallet for the initial purchase and the associated gas fees. The gas fee enables your transaction to be processed on the Ethereum network and stored on the blockchain.


The price of gas is volatile and fluctuates based on the supply of miners who receive the gas for the transaction vs the demand from consumers/minters making transactions.


At the mint time, when a user can enter the gas price they wish to pay, a suggested fee is shown by the wallet (e.g. Metamask) to make the transaction. If the cost of gas price exceeds the fee you offered to pay, your transaction could fail and the gas fee will be lost without the transaction being confirmed.


This means that you will have paid gas, without receiving an NFT. Lost gas fees are non-refundable. Move forward at your own risk.

What happens to gas fees?

They are paid to miners as a reward for processing Ethereum transactions and keeping the network online.

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