NFTs For Dummies. Tiana Laurence

      

The digital art you purchase is easy to duplicate. (Pressing the PrintScreen key on the keyboard requires little to no training.) However, because the NFT is secured on a public blockchain, it’s far more difficult to illegally transfer, duplicate, or otherwise hack. The beauty of NFTs lies in the underlying technology — a nexus of smart contracts and distributed network of validators — that allows you to reliably and automatically verify who truly owns each of the 14,688 mutant ape NFTs.

      Thus, our mutant apes are part of a greater decentralized ecosystem where records are kept in a public and trustless manner, which means that we don’t need a trusted central party, such as Bank of America, to maintain a reliable and secure system to track our mutant apes for us. In their peculiar way, these mutant apes are bringing further awareness to the burgeoning landscape of decentralized finance (DeFi) and decentralized autonomous organizations (DAOs). (To read more about DAOs, check out Chapters 4 and 6.)

The majority of NFTs are minted as ERC-721 tokens on Ethereum. Thus, as shown in Figure 1-6, the provenance of each token is memorialized on the public Ethereum blockchain. Each subsequent transaction is validated and executed by a distributed network of miners — much like the system securing the Bitcoin blockchain.

      

Because an NFT is secured on a robust and tested blockchain (to date, the Ethereum blockchain has never been hacked), developers of nascent projects can piggyback off the existing system in place to secure ownership records and reward systems within the latest sub-economy under development. We caution though, that, although the Ethereum blockchain itself has yet to be hacked, individual smart contracts deployed on Ethereum have. Thus, the recommended practice is to use vetted libraries that provide prebuilt smart contracts implementing development standards that have been reviewed and finalized by the greater community of core developers.

      We promise that the preceding paragraph makes much more sense after you dive into the technical chapters in Part 3 of this book.

Buying NFTs

      If you’re curious how to buy an NFT, you should know that it’s quite easy. There are now many marketplaces where you can purchase NFTs, and OpenSea is just one of many venues. Starting with Chapter 2, we walk you through how to set up a wallet to hold your NFTs and how to purchase your first NFT.

      If your heart is set on learning more details, jump to Chapters 4 and 5, which acquaint you with the practical considerations of buying (and selling) NFTs, and see Chapter 12 for a guide to ten NFT marketplaces.

      Before you jump ahead, though, we have two main considerations that we’d like to highlight.

      Why buy NFTs

      First, should you buy NFTs? Maybe. It depends on your motivations.

      If you plan to actually use the NFT, then yes — you should buy it! For instance, perhaps the NFT provides you entry to a venue or gives you the legal right to post certain digital media on your website. In these cases, your only legitimate course of action would be to purchase the NFT.

      We also advocate checking out NFT marketplaces for educational or even entertainment purposes. Perhaps you simply want to know how to go through the motions of buying an NFT. Or, perhaps you’re more likely to learn the underlying technology and explore additional use cases if you begin by purchasing an NFT.

      In any of these circumstances, the biggest question is, “Are you spending money that you would seriously regret losing?” If so, then you certainly should not buy NFTs.

      NFTs as investments

      We think of investments from the lens of traditional investment management principles. The gist is that you should be well-diversified and rebalance over time so that you bear less risk as you approach retirement.

      We don’t advocate individual stock-picking as a sound investment practice, and neither do we advocate NFT-picking as an investment practice. But, as we mention earlier, we aren’t opposed to setting aside money that you won’t miss, in order to have a little fun. This fun might mean a trip to Mexico, a dinner at Napa Valley’s swanky French Laundry restaurant, or mutant ape NFTs.

Of course, as the NFT asset class matures, you develop a better sense of the risk-return trade-off of various NFTs and their appropriate allocations, if any, within a well-diversified investment portfolio. After all, with Bitcoin now approaching a $1 trillion dollar market cap, we all should consider allocating a (tiny) portion of any truly broadly diversified portfolio to Bitcoin. Of course, this is a far cry from putting relatively large amounts of money in individual “investments” — whether it’s individual stocks or NFTs or Beanie Babies — in the hope of hitting the jackpot.

Proceeding on Your NFT Journey

      First and foremost, we hope this book is an enjoyable way for you to learn more about this emerging asset class. Beyond that, we hope to spark creative energy, encourage new implementations, and dissuade you from succumbing to the desire for making a quick buck.

      We wish you a fulfilling journey as you go on to select your next chapter. Cheers!

Chapter 2

      Owning Your Own NFT

      IN THIS CHAPTER

      

Placing NFTs in the context of CryptoKitties

      

Setting up your MetaMask wallet to make purchases

      

Creating a Coinbase account to transfer funds to your wallet

      

Buying and selling NFTs in a market

      

Creating NFTs by breeding CryptoKitties

      In this chapter, you dive into the exciting world of non-fungible tokens (NFTs), which is taking place inside Dapper Labs' CryptoKitty platform. Playing CryptoKitties can help you gain a deep understanding of how NFTs are created and traded.

      We show you how to set up an NFT wallet and an exchange so that you can buy and (eventually create and) sell your first NFT and explore with confidence the new markets as well as the changing business models NFTs have introduced.

      Dapper Labs is working hard to make its platforms accessible to everyone, no matter their technical background. This chapter also prepares you to access other NFT marketplaces, which we cover in Part 2 of this book.

Where