NFTs 101
An overview of NFTs and resources to get you started
So you're seeing NFTs go crazy but have no idea what's going on or how to get started. You're in the right place. I'm going to attempt to share with you everything I've learnt so far about NFTs in one post.
This post will include:
What are NFTs
The current state of NFTs (a rough categorisation of NFT types)
How to get passive exposure to NFTs
How to start actively investing into NFTs
(This should honestly be 3 separate posts)
I haven't had time to organise my thoughts so this post is going to be a little messier but it contains value-gems 💎 that I spent quite a long time to sift out.
There have also been new changes in my life structure so I'm trying to figure out a more sustainable posting schedule/format, so please forgive the erratic-ness in the coming weeks.
Let's start.
In case you haven't been keeping up...
Right now we're experiencing NFT mania.
Trading volume on the OpenSea NFT marketplace, has exploded 💥 — it is up 76,240% YTD.
The reach of the latest and greatest Pudgy Penguins NFTs have spilled over into the "real world" and found its way onto The New York Times.
The mint cost of a penguin for 0.03 ETH (~$100), and the highest recorded sale was an insane 150 ETH (~$475,000).
It's undeniable that NFTs may be in a price bubble right now.
However, in my opinion, the recent craze, if anything, has cemented the place of NFTs as one of the most exciting and important applications of blockchain technology.
What this means for you:
You should probably start paying attention.
What is an NFT?
NFT stands for Non-Fungible Token.
A regular dollar bill is fungible which means it is easily interchangeable — my $1 is regarded to be the same as yours, because a dollar is defined by its value and not its unique property (like serial number)
However, an item like a house, a drawing or a piece of music is fungible because it is defined by its unique properties.
NFTs then, are unique, tokenized digital assets that live on a blockchain.
This is an innovation on blockchain that allows:
Ownership of this assets to be proven and verified
Functionality to be built on top of these assets (buy, sell, implement royalties, and much more)
It sounds really simple, but it opens up a whole slew of how NFT-technology can be leveraged to bring our world into the next step of our digital age.
The current state of NFTs
To give you an idea of how this tech is currently already being implemented, here's a broad overview.
In general current NFT projects lie somewhere within this triangular "spectrum" of art/collectibles, social/community and utility.
Don't take the triangle too seriously, it's just a framework for getting acquainted with the ecosystem. Usually projects contain more than one of these elements to them, but they likely have a particular lean.
I'll go deeper into each corner.
Art-art / collectible NFTs
First and the most straightforward are NFTs that meant to be appreciated purely as art or collectors' items.
Cultural artefacts like Jack Dorsey's first tweet, or the "Disaster Girl" meme have value because if you have verified ownership of these pieces you can claim to own pieces of internet culture history.
Well-known artists that sell their work as NFTs also fall under this category as their fans can now really own digital pieces of the artists' work.
Something extremely exciting is also happening right now on the blockchain — native blockchain generative art.
These pieces are not just generated by lines of code, they are the very lines of code that live on the blockchain itself.
On-chain art is where the entire visual comes from the smart contract - essentially the smart contract draws the visual itself. There is no hosted image anywhere.
On-chain generative art is a sociological phenomenon to preserve the NFT world to make it impenetrable to the traditional art world. The traditional artist is not able to enter this world without going through a huge learning curve.*
Essentially, the rise of the blockchain has created a new medium of expression for artists, allowing them to create pieces that were never before possible.
Blockchain is the new pen and paper.
To understand more about generative art projects you can listen to this podcast (16 min) or read the summary. And check out Art Blocks, the current leading curator of such projects in the space.
Crypto is at the forefront of the tech space. NFTs are at the forefront of the crypto space. Art Blocks is at the forefront of the NFT space. Let that sink in for a moment. — Zeneca_33
Even crypto VCs are buying into these projects 👀
Social / community NFTs
Avatar projects or Profile Picture (PFP) projects are now the hottest thing on the market.
These projects launch a limited amount of NFTs, which buyers then use as tickets to enter social communities built around the project. Being part of the club gives you access to member benefits like free additional NFTs, follow for follow (networking), entry into metaverse clubhouses, etc.
Members of the club also tend to make these NFTs their profile pictures on social media for social proof or as social currency. This is why these are often referred to as PFP projects.
The avalanche of PFP NFTs are inspired by the success of the Bored Ape Yacht Club (BAYC), which managed to create a wildly successful "club" around being holders of these apes.
In these project the strength of the community that participates in the project determines its value, making them inherently social.
At the end of the day, successful PFPs will also end up being collectors items like the OG CryptoPunks.
Utility NFTs
To be fair "utility" is a very broad strokes way of categorisation and definitely does not do justice to the massive potential contained in NFT utilisation.
I've placed NFT games, items and real estate in metaverses like Sandbox and Decentraland and, Gary Vaynerchuk's Veefriends that gives its holders access to exclusive conferences in this category.
A relevant hot take here: The casino in decentraland is hiring dealers for real.
Gaming is going to be a huge sector on its own, the metaverse is (likely) inevitable. And online creators are exploring new ways to monetise and provide value to their fans.
NFTs will bring about structural change in the way we interact with one another online.
Note: What is considered to "have utility" is completely subjective. Ultimately it's just a matter of semantics and I've classified them this way from a broader POV. Social/community NFTs could easily be put under the umbrella of utility.
Now, on to the fun stuff.
Getting started
This should be a given, but before you begin, you will need to have basic knowledge of how to fund and operate your own crypto wallets.
I will cover two general approaches to NFTs — the passive and active approach.
How to get hands-off exposure to NFTs?
If you believe in the technology of NFTs but don't want to spend copious amounts of time on researching and keeping up with the space, I would recommend getting exposure through one of the following (not financial advice).
Invest in the Metaverse Index (MVI)
The MVI is an index maintained by Index Coop. This is works exactly like how an index fund in traditional finance would.
The Metaverse Index (MVI) is designed to capture the trend of entertainment, sports and business shifting to take place in virtual environments.
Currently with the MVI, you get a basket of 16 NFT related tokens. Buying MVI will give you a dedicated % exposure to each of those projects, without having to actively manage your NFT exposure.
You can find out how the index is weighted, calculated, and maintained on the indexcoop site, and read more about it in the docs (including the different places to buy MVI).
Participate in BlackPool Finance
BlackPool is a new fund operating within the NFT industry: managing a range of assets from sports cards to game items to digital art.
BlackPool is the first decentralised autonomous organisation (DAO) built solely for NFT gaming and trading. Our strategies will be based on our long-term passion for gaming and art, as we combine professional data analytics and machine learning to provide the best returns for our users.*
You can think of BlackPool as both an NFT asset management fund, which also happens to be a DAO.
Asset management
BlackPool currently holds and manages assets in Sorare, Axie Infinity, Cometh, Guild of Guardians, Hashmasks and other collectibles. Check out the breakdown here.
To get exposure to the fund, you have to buy the BlackPool Token $BPT. The main advantage of this is that it gives you access to play-to-earn games that have a high capital barrier to entry which are also time and labour intensive to manage. BlackPool releases weekly reports on their blog so you can keep up-to-date with how the fund is performing.
BlackPool DAO
Holding $BPT tokens also give you rights to participate in the BlackPool DAO.
DAOs are just a fancy term for self-governing decentralised bodies. Participation in the DAO means you can vote on the fund's decisions e.g. to buy/sell a particular asset, or to invest in a new upcoming game. The idea is that no one person, or group of persons control the direction of BlackPool. This concept however, isn't perfect, as votes are weighted according to the proportion of the total supply of $BPT.
In my opinion, BlackPool is extremely interesting. It's a good way to be exposed to NFT growth while familiarising yourself with how a DAO operates which some believe might be the future of human organisations.
You can find more information on their launch post and read BlackPool: How DAOs it work (yes, it's a pun).
⚠️ An important note: Check liquidity (trading volume) on both these tokens. If you place large amounts of funds in, you might not be able to sell if you need the money urgently.
Want to actively invest in NFTs?
Now we've entered degen territory. Are you ready?
Honestly I could attempt to put together an active investment approach, but I myself am not a pro-NFT-flipper. Instead, what I am going to do is to give you a collection of resources that I've compiled over the past week.
How to find upcoming projects?
But first I'll help with this question.
Unfortunately, there are currently no central databases to find out about all the upcoming NFT projects. The closest one out there right now is through the upcoming tab on rarity.tools.
The only and best way to find out is through participating in the NFT community.
Join Twitter and start following NFT people
Join Discord chats of existing projects
Follow content creators on their newsletters, Youtube, etc
You can choose to just lurk around and consume the content out there, but to reap the full benefits of joining these communities, you should probably also ask questions!
The NFT community currently is super helpful and welcoming — don't be afraid to DM someone or ask a newbie question in the discord. People are extremely willing to help.
Resources for your journey
Tools you'll need:
Tools for NFT summer — Bankless
Understanding the space:
Zenaca_33's Newsletter covering interesting/important projects in the NFT space
Elliotrades NFT tuesdays: Past episode 1, Past episode 2
Why people are willing to pay so much for NFTs — @SfTappy
Podcast notes with OG collector @gmoneyNFT — @sandraaleow
Successful war stories (take it with a pinch of salt):
MEV Collector's twitter thread on turning 11 ETH into 82 ETH in 7 days using data tools like nansen.ai
notEezzy's thread on turning 0.3 ETH to 20 ETH in 47 days flipping NFTs(95x run)
Strategies:
A framework for investing in NFTs — @yeastydough
The most popular NFT strategy — Giancarlo buys tokens
Why buy multiple floor assets — @0x650d
Why you might want to consider more rare, higher priced assets over floor assets —@tbr90
7 indicators to evaluate NFT projects — Spencer Noon
If you read through all of these, you’ll get a pretty good idea on how to start.
Friendly caveats
To say the market is overheated is an understatement.
When you see meme projects like pet rocks, GRAVEL, SHOVELS, and dope shibas popping up, you know you're in a mania phase. Mania is often, if not always, followed by sharp drops. Be careful if you're entering now.
NFTs may not be for you.
Last week I talked about choosing your crypto adventure. Specialising will give you a much higher probability of success than putting your toes into everything, especially if you're just starting out.
Even within the NFT space itself, gaming, collectors items, fine arts, the metaverse are all niches that deserve full attention on their own.
Final thoughts
Now you have the know, but it doesn't give you the how. The how comes only after you start doing. Go get your feet wet. Buy your first NFT. You'll naturally gain a vested interest into learning more and keeping up with the space.
At this point I think it's safe to say that NFTs are here to stay — whether in it's current form, or something completely different. If you choose to go down this rabbit-hole, know that it won't be easy. If it's easy, there wouldn't be much gains left to be had.
Have fun diving and see you in the next one.