Non-fungible tokens or NFTs have taken the world by storm and are garnering attention. The new digital assets based on the foundation of blockchain technology have become quite popular in recent times.
As a result, the interest in understanding the different types of NFTs has been growing in recent times.
NFT’s diverse use cases and unique tracts can be attributed to its growing scope for innovation and developing infrastructure which has boomed in the year 2021.
NFT has gained the interest of people due to its promising economic potential associated with it, apart from a vision for transforming conventional asset management.
The visible rapid growth in the domain of non-fungible tokens can ensure prolific opportunities for NFT creators and investors.
Therefore, as an investor or creator knowing the different types of non-fungible tokens could help in making better decisions in your NFT journey.
What is NFTs? Non-Fungible Tokens Explained
An NFT is a digital asset that represents real-world objects like art, collectibles, music, in-game items and videos. They are assets that are bought and sold online, mostly with cryptocurrency, and they are generally encoded with the same underlying software as many cryptos.
“Non-fungible” means that it’s unique and can’t be replaced with something else. For example, a bitcoin is fungible — trade one for another bitcoin, and you’ll have exactly the same thing. A one-of-a-kind trading card, however, is non-fungible. If you trade it for a different card, you’d have something completely different.
NFTs have been around since 2014 and are also generally one of a kind, or at least one of a very limited run, and have unique identifying codes. “Essentially, NFTs create digital scarcity,” says Arry Yu, chair of the Washington Technology Industry Association Cascadia Blockchain Council and managing director of Yellow Umbrella Ventures.
Even though many NFTs, at least in these early days, have been digital creations that already exist in some form elsewhere, like iconic video clips from NBA games or securitized versions of digital art that are already floating around on Instagram.
The Radical Rise of NFTs
Digital tokens are not new in the world of technology. As a matter of fact, NFTs started to become popular after the digital artist Beeple auctioned off his artwork at a Christie’s auction in March 2021. Famous people such as Twitter chief Jack Dorsey and Elon Musk have also expressed their opinions in favor of NFTs.
It is interesting that the first NFT was minted in 2014, and only six years later, the NFT market cap is almost $2 billion, only in the first quarter of 2021.
A staggering $174 million has been spent on NFTs since November 2017 and in 2020, the total value of sales amounted to almost $250 million.
NFTs are just digital or cryptographic tokens you can find on a blockchain with the ability to maintain uniqueness. NFTs could be tokenized variants of real-world assets or completely native digital assets.
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Categories of NFTs
The foremost classification of NFT types refers to the general categories. The three common types of NFTs include,
- Original or copy of work, documented on a blockchain network or DLT
- Digitally native NFTs, which have ownership rights to the work constituting the NFTs
- NFT metadata, which involves the NFT providing representation of ownership for metadata files related to the internet
The common types of non-fungible tokens offer a broad description of the criteria used in the classification of NFTs. In the case of original NFTs, they are created on a blockchain network, and the NFTs remain on the blockchain network.
Digitally native NFTs are the assets that involve issuing NFTs to multiple persons with ownership rights of the asset.
The NFT metadata is another important pointer for the classification of non-fungible tokens as it basically involves a link to the metadata for the NFT. As a result, you don’t get ownership of the NFT and just the right to use it.
Different Types of NFTs
The different predictions regarding the potential of NFTs and the value and risks associated with them have become quite significant topics of discussion.
Non-fungible tokens are capable of displaying the true provenance of an asset with the functionalities of blockchain.
NFTs could help in holding, limiting, or denying access to rights of an individual on their assets, thereby ensuring exclusivity.
The prominent entries in a non-fungible tokens list would include the following,
1. Video-Game Assets
NFT-based video games are games that players get involved in to win rewards like cryptocurrency, digital assets, or other NFTs.
In the gaming industry, the most popular sorts of non-fungible tokens are used to represent in-game objects. NFTs have sparked a lot of enthusiasm among game creators.
They can provide the functionality of in-game item ownership records, allowing in-game economies to thrive. Most importantly, NFTs in the gaming industry focuses on providing a diverse range of benefits to players.
NFTs have the ability to change the value of in-game collectibles, which were once a frequent prerequisite for a better game experience.
NFTs, which are in-game items, can simply be used to recover money by selling them outside of the game. On the other hand, game developers or authors that issue NFTs may receive a royalty for each item sold in the open marketplace.
The game Axie Infinity was the first NFT video-game asset, following which games like CryptoKitties, Gods Unchained, Sorare, and others became immensely popular among video game players.
This is fundamentally changed by cryptocurrencies and NFTs. Many new “play-to-earn” games and metaverses have NFTs that users can genuinely own.
That implies you can sell any NFT you get from a video game or a metaverse independently (for real money), even on 3rd-party NFT marketplaces that aren’t linked with the game maker. The data proving your ownership of NFTs is held on a blockchain, not on the private servers of a game corporation.
Currently, this concept is a relatively new trend. NFTs in video games and metaverses could, in the near future, take the shape of avatars (player skins), characters, clothing, accessories, creatures (such as Axies), cards (for card-based games), decorations, furniture, goods, weapons, vehicles, or other types of objects and entities relevant to that particular game or metaverse.
2. NFT Fashion in the Metaverse
Fashion houses (such as Gucci and Louis Vuitton) began to invest in the development of NFTs in 2021. Nike purchased RTFKT Studios, a virtual shoe startup, in December 2021 as a first step toward making and selling virtual Nike sneakers in the metaverse.
Clothing and accessories designed for digital avatars and video game characters are known as virtual fashion. Louis Vuitton and Burberry have released a line of NFT fashion, including kimonos and shoes for digital avatars.
3. NFT Virtual Real Estate
People frequently purchase virtual real estate NFTs in metaverses as investments that they believe will increase in value. Furthermore, metaverse real estate owners are frequently able to erect buildings and structures on their digital land, which they may be able to commercialize depending on the metaverse.
This encompasses both video games and the Metaverse’s territory. It may appear to be a completely useless item with no real-world applications, but it has a lot of promise. Advertisements can be placed inside video games, and virtual assets can be created, among other things.
4. Memes
Memes have existed for quite some time. People have been freely using memes for years, and the people in the memes and the original photographers of the memes haven’t gotten much in return.
No one could have predicted that memes would have any financial value a few years ago, but in the wake of the NFT boom, memes have emerged as a valuable digital asset. In June 2021, the original Doge meme was auctioned for $4 million.
Memes such as Disaster Girl, Bad Luck Brian, Success Kid, NyanCat, and others have been highly valued and sold for large sums of money, making meme artists wealthy and the meme market lucrative. The disaster girl meme was auctioned for more than $470,000..
Anyone can freely download an image of a meme onto their computer. However, buying the NFT of a meme is like the original owner of that meme handing the meme over, with a digital autograph on it certifying (for everyone in the world to see) that the buyer is now the new exclusive owner of that meme.
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5. Music
This is a relatively new phenomenon in the NFT craze. Artists pre-release their albums on NFT markets before releasing them on standard streaming platforms, and buyers can purchase a portion of the record, such as a share in it, or the entire album, and then partake in the album’s revenues when it is published through traditional channels.
Although this is not yet a well-established method of trading Musical NFTs, it does account for a significant number of transactions. In March 2021, Kings of Leon’s album ‘When You See Yourself’ was marketed in a similar fashion as several NFTs.
Experiments in converting music to NFTs resulted in the development of a new NFT variation. With the real ownership claim made to an individual, media files and music can now be connected to NFTs.
The transformation of music from a fungible commodity to a token has helped musicians in a variety of ways. From having direct access to a new audience and dedicated following to offering listeners a premium experience.
NFTs also allows musicians to keep nearly 100% of their earnings without having to worry about record labels or streaming platforms taking a cut, which is why it’s popular among musicians.
6. Collectibles
The creation of Cryptokitties, which are online collectibles, is the most prominent example of NFTs. Cryptokitties are, in reality, the first instance of humans employing NFTs. In 2017, Cryptokitties got so popular that the Ethereum network became crowded.
Cryptokitties are one of the most eye-catching entries to the non-fungible tokens list in the digital collectibles area. They’re essentially digital kittens with distinguishing characteristics that make them more popular and appealing than others.
7. Sports NFTs
Sports Memorabilia is one of the most popular NFT categories, with the NBA Top Shot being the most well-known NFT in this category. A video clip of great sports moments is frequently included in this sort of NFT.
The LeBron James Dunk, Throwdowns (Series), a clip showing Lakers player LeBron James dunking the ball, is one of the most well-known NFTS in this category. It was one of the most expensive Sports Memorabilia NFTs ever, selling for nearly $380,000.
Many digital sports trading cards are used in NFTs. NFT cards from the “Sorare” collection, the second most popular sports NFT collection, can also be used as players in a global fantasy football (soccer) game.
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8. Ticketing/Membership NFTs
NFTs can be used to allow access to a game, event, or society by acting as digital “codes,” “passwords,” or “secret knocks.” Users must have an “Alpha Pass” NFT, for example, to enter The Sandbox metaverse while it is still in Alpha. It’s essentially a digital ticket for a digital event.
The introduction of NFTs ushered in a slew of changes to the way people trade on a daily basis, and ticketing was no exception. Event tickets can now be printed on blockchain platforms and auctioned off by the organizers.
Fixed-price NFT tickets are also available. Because these tickets can also be preserved and resold as collectibles, this would dramatically reduce counterfeit and create a sense of memorabilia.
In addition, NFTs can signify membership to an exclusive group or club, along with access to certain members-only perks. Bored Ape Yacht Club NFTs actually double as this type of NFT.
9. Domain Names
Users may now register and sell domain names thanks to the NFT market. By purchasing a domain name on the NFT market, you can avoid having to pay a third-party business to handle your domain name.
These are blockchain-based crypto domains, such as Binance Smart Chain or Ethereum. They have approximately 500 domain extensions, with ‘.eth’ being the most popular.
Crypto domains are a sought-after asset since they are not reliant on any centralized authority. They can also be used to link crypto-wallets, which is a feature that non-NFT domain names do not have.
Cryptodomains’ biggest flaw is that they are currently unsupported by the majority of browsers.
There are exclusive rights on the name ownership meaning you don’t need the middleman.
Examples of domain name NFTs providers are Ethereum Name Service (ENS) and Unstoppable Domains through decentralized domain name services.
10. Artworks
This is, as previously stated, the most popular category of NFTs. These are mostly digital artworks that come with a public certificate of authenticity and ownership from the digital ledger where they’re kept.
The majority of today’s NFTs are artworks, with programmable arts accounting for 99 percent of all NFTs in circulation. This is due to the fact that artists jumped on the idea of NFTs very away.
Virtual artworks, such as digital photos, GIFs, and short videos, are now being sold online as if they were tangible goods. These are also the most expensive NFTs, with some selling for millions of dollars.
The digital artwork ‘The First 5000 Days’ by artist Beeple, which sold for $69.3 million in March 2021 in a Christie’s auction, is the most expensive NFT ever sold.
11. Text-Based NFTs
Even text can be turned into NFTs on occasion. Display names are a type of NFT that consists solely of a string of text that can be bought and sold in metaverses like Decentraland.
Images of historically noteworthy social media posts are also occasionally minted into NFTs and sold. In March 2021, Twitter CEO Jack Dorsey sold the first tweet ever sent for $2.9 million, making it the most high-profile case of this.
Although not yet popular, pieces of literature (ranging from a stanza to an encyclopedia) could theoretically be minted and sold as NFTs.
12. Real World Assets
Many people believe that NFTs will be used as real-world tokens in the future. The improvement in the NFT area is moving in that direction, and the chances of it becoming a reality are looking good.
You might think that NFTs are primarily related to digital and virtual assets up to this point. However, NFTs can also be used to store real-world assets. A Real World Asset NFT (rwANFt) is a token that represents virtual ownership of a tangible object in the real world.
Because NFTs give cryptographic proof of ownership, they can be used to represent real-world assets. The tokenization of luxury commodities and real estate is presently the focus of many NFT efforts. When buying a house or a car, you have more options using NFT deeds.
The token associated with a rwANFT, like digital NFTs, proves ownership and establishes legal contracts like warranty, insurance, and enforceability. Because the tokens cannot be falsified and the digital ledger provides transparency, rwANFTs give an extra layer of security.
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13. Miscellaneous Online Items
This category encompasses everything that hasn’t been covered in the previous categories. This includes tweets, blogs, Instagram postings, and other social media posts. In other words, anything that is non-fungible and has been coined on a digital ledger belongs under this category.
To summarize, NFTs are commonly linked with digital and virtual assets; but, with recent technological advancements, novel real-world uses of NFTs have been developed to make transactions more transparent and secure.
14. Computer-Generated NFT Collections
The idea of NFTs was first popularized by computer-generated collections of NFTs. Most people who are familiar with NFTs are familiar with NFTs that are part of a computer-generated collection.
When an artist makes one “bare” template image, as well as a multitude of smaller images with various accessories, features, and attributes, NFTs are created. Then, using a computer algorithm, a computer matches numerous accessories, qualities, and attributes to the original template image.
After that, the computer program will continue the procedure to generate a collection of dozens, hundreds, or even thousands of similar photographs. Each image in the collection will have a unique combination of characteristics, ensuring that no two images are alike.
15. Identity NFT
Because of their non-fungibility and the added assurance of transparency provided by the digital ledger, NFTs have begun to achieve significant real-world momentum.
The provision of identifying certificates to individuals is one of the real-world applications of NFTs. Real-world applications of NFTs in individual identification include Self-Sovereign Identity and Bridge Protocols.
NFTs in 2022
In the year 2020, the majority of people had never heard of NFT. NFTs, on the other hand, swept the globe in 2021, winning Collins Dictionary’s word of the year.
Different varieties of NFTs spread like wildfire across the internet in a matter of months. It will be fascinating to observe if 2022 ushers in new and novel sorts of NFTs that have yet to be seen.
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How Is an NFT Different from Cryptocurrency?
NFTs are generally built using the same kind of programming as cryptocurrency, like Bitcoin or Ethereum, but that’s just where the similarity ends.
Physical money and cryptocurrencies are “fungible,” meaning they can be traded or exchanged for one another. They also have equal value—one dollar is always worth another dollar; one Bitcoin is always equal to another Bitcoin. The fungibility of cryptocurrency makes it a trusted means of conducting transactions on the blockchain.
NFTs are different. Each has a digital signature that makes it impossible for NFTs to be exchanged for or equal to one another (hence, non-fungible). One NBA Top Shot clip, for example, is not equal to EVERYDAYS simply because they’re both NFTs. (One NBA Top Shot clip isn’t even necessarily equal to another NBA Top Shot clip, for that matter.)
How Does an NFT Work?
NFTs work on blockchain, which is a distributed public ledger that records transactions. You’re probably most familiar with blockchain as the underlying process that makes cryptocurrencies possible.
Specifically, NFTs are typically held on the Ethereum blockchain, although it is also supported by other blockchains. An NFT is created, or “minted” from digital objects that represent both tangible and intangible items, including:
• Art
• GIFs
• Videos and sports highlights
• Collectibles
• Virtual avatars and video game skins
• Designer sneakers
• Music
Even tweets count. Twitter co-founder Jack Dorsey sold his first-ever tweet as an NFT for more than $2.9 million.
Essentially, NFTs are like physical collector’s items, only digital. So instead of getting an actual oil painting to hang on the wall, the buyer gets a digital file instead.
They also get exclusive ownership rights. That’s right: NFTs can have only one owner at a time. NFTs’ unique data makes it easy to verify their ownership and transfer tokens between owners. The owner or creator can also store specific information inside them. For instance, artists can sign their artwork by including their signature in an NFT’s metadata.
What Are NFTs Used For?
Blockchain technology and NFTs offers artists and content creators a unique opportunity to monetize their wares ad also investor to make money from investing in NFTs. For instance, artists no longer have to rely on galleries or auction houses to sell their art.
Instead, the artist can sell it directly to the consumer as an NFT, which also allows them to keep more of the profits.
Furthermore, artists can program in royalties so they’ll receive a percentage of sales whenever their art is sold to a new owner. This is an attractive feature as artists generally do not receive future proceeds after their art is first sold.
How to Buy NFTs
If you’re interested in starting your own NFT collection, you’ll need to have some important things:
First, you need to have a digital wallet that allows you to store NFTs and cryptocurrencies. You’ll likely need to purchase some cryptocurrency, like Ether, depending on what currencies your NFT provider accepts.
You can buy crypto using a credit card on platforms like Coinbase, Kraken, eToro, and even PayPal and Robinhood now. You’ll then be able to move it from the exchange to your wallet of choice.
You’ll want to keep the fees that those platforms charges in mind as you research the best options. Most exchanges charge at least a percentage of your transaction when you buy crypto.
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Popular NFT Marketplaces
Once you’ve got your wallet set up and funded, there is a lot of sites to shop for NFT. Currently, the largest NFT marketplaces are:
• OpenSea.io: This is a peer-to-peer platform that bills itself as a purveyor of “rare digital items and collectibles.” To get started, all you need to do is create an account to browse NFT collections. You can also sort pieces by sales volume to discover new artists.
• Rarible: Rarible is a democratic, open marketplace that allows artists and creators to issue and sell NFTs. RARI tokens issued on the platform enable holders to weigh in on features like fees and community rules. This platform is similar to OpenSea,
• Foundation: In Foundations, artists must receive “upvotes” or an invitation from fellow creators to post their art. The community’s exclusivity and cost of entry—artists must also purchase “gas” to mint NFTs—means it may boast higher-caliber artwork.
For instance, Nyan Cat creator Chris Torres sold the NFT on the Foundation platform. It may also mean higher prices — not necessarily a bad thing for artists and collectors seeking to capitalize, assuming the demand for NFTs remains at current levels, or even increases over time.
Although these platforms and others are hosts to thousands of NFT creators and collectors, make sure you do your research carefully before using any of these platforms or before buying NFTs. Some artists have fallen victim to impersonators who have listed and sold their work without their permission.
Moreover, the verification processes for creators and NFT listings aren’t consistent across platforms — some are more stringent than others.
OpenSea and Rarible, for example, do not require owner verification for NFT listings. Buyer protections appear to be sparse at best, so when shopping for NFTs, it may be best to keep the old adage “caveat emptor” (let the buyer beware) in mind.
Should You Buy NFTs?
“NFTs are risky because their future is not certain, and we don’t have yet a lot of history to judge their performance, So just because you can buy NFTs, does that mean you should? It depends “Since NFTs are so new, it may be worth investing small amounts to try it out for now.”
But really, it is largely a personal decision to invest in NFTs. If you have money to spare, it may be worth considering, especially if a piece holds meaning for you.
But bear in mind, an NFT’s value is based wholly on what someone else is willing to pay for it. Therefore, demand will skyrocket the price rather than fundamental, technical, or economic indicators, which typically impact stock prices and at least generally form the basis for investor demand.
What I am trying to say is that an NFT may resale for less than you paid for it. Or you may not be able to resell it at all if no one wants it.
You also need to know that NFTs are also subject to capital gains taxes—just like when you sell stocks at a profit. Since they’re considered collectibles, however, they may not receive the preferential long-term capital gains rates stocks do and may even be taxed at a higher collectibles tax rate, though the IRS has not yet ruled what NFTs are considered for tax purposes.
Bear in mind, that the cryptocurrencies used to purchase the NFT may also be taxed if they’ve increased in value since you bought them, meaning you may want to consult a tax professional when considering adding NFTs to your investment portfolio.
When you decide to invest in NFTs, approach it just like you would approach any investment: Do your research, understand the risks behind it—including that you might lose all of your investing dollars—and if you think it is a risk that you can bank on take the plunge, make sure you do it with a healthy dose of caution.