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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
Get a grip on NFTs and learn how to get in the game It's not often that a brand-new investment comes along that revolutionizes how we buy and sell digital assets. But that's what non-fungible tokens (NFTs) did. Built on blockchain tech, NFTs are shaking up the world of digital commodity investing. And you can get your slice of the pie before everyone jumps into the arena. In NFTs For Dummies, you'll find straightforward answers to critical aspects of the NFT phenomenon. You'll learn exactly what non-fungible tokens really are, how you can find them, and even how to create your own valuable NFTs. You'll also discover: * How to find reliable and safe NFT marketplaces where you can be sure you're dealing with reputable buyers and sellers * A peek behind the NFT curtain to see how NFTs work and what, exactly, you own when you buy or make an NFT * Discussions of the kinds of digital properties that can be converted into an NFT Perfect for anyone who wants to learn about the market for buying, selling, and creating crypto collectibles, NFTs For Dummies is the only resource you'll need to get a handle on this cutting-edge tech and start making it work for you.
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NFTs For Dummies®
Published by: John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774, www.wiley.com
Copyright © 2022 by John Wiley & Sons, Inc., Hoboken, New Jersey
Published simultaneously in Canada
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NFTs For Dummies®
To view this book's Cheat Sheet, simply go to www.dummies.com and search for “NFTs For Dummies Cheat Sheet” in the Search box.
Table of Contents
Cover
Title Page
Copyright
Introduction
About This Book
Foolish Assumptions
Icons Used in This Book
Beyond the Book
Where to Go from Here
Part 1: Getting Started with NFTs
Chapter 1: Introducing Non-Fungible Tokens
Beginning at the Beginning: What Is a Non-Fungible Good?
Exploring Uses for NFTs
Finding Out How an NFT Works
Buying NFTs
Proceeding on Your NFT Journey
Chapter 2: Owning Your Own NFT
Where It All Began: Non-Fungible Kitties
What’s In Your Wallet? Setting Up MetaMask
Setting Up Coinbase
Collecting, Breeding, and Selling Your Very Own Non-Fungible (Crypto)Kitties
Chapter 3: The Future of NFTs
Dissecting the Anatomy of a $69 Million NFT
Redefining Property Rights (NFTs Are Not Just about Digital Art and Kitties!)
NFTs and Digital Property
NFTs and Real Property
Imagining the Possibilities
Part 2: Buying and Selling NFTs
Chapter 4: Getting In on the NFT Game
Knowing the Ins and Outs of Buying NFTs
Understanding the Risks of Hot Wallets like MetaMask
Uncovering Your MetaMask Wallet
Buying Ether for Your MetaMask Wallet
Exploring NFT Marketplaces
Chapter 5: Investing In NFTs
Understanding NFTs Are Not Cryptocurrency
Introducing NFT Investing
Deciding Whether NFT Investing Is for You
NFT Investing Strategies for Beginners
Discovering the Best-Performing NFTs
Exploring Popular NFT Types
Reporting NFT Gains and Paying Taxes on NFTs
Part 3: Developing Your Knowledge: A Step-by-Step Guide to Programming Your Own NFT
Chapter 6: What Is Ethereum?
Revealing the Ethereum Virtual Machine
Ether: The Gas That Fuels Your Transactions
The Blockchain: Where It’s All Stored and Secured
Smart Contracts Make the EVM Go Round
Oracles: How to Connect to the “Outside” World
Shining a Light on Ethereum’s Fundamental Structure
Chapter 7: Creating an Ethereum Account
Understanding Externally Owned Accounts
Discovering Contract Accounts
Knowing the Difference Between Public Networks and Private Environments
Preparing Your Accounts (on MetaMask)
Chapter 8: Setting Up a Development Environment
Exploring Your Ethereum Solution Stack
Put On Your Hard Hat: Constructing Your Environment
Chapter 9: Deploying Your First Smart Contract
Working with Smart Contract Languages
Key Elements of a Smart Contract
No Need to Reinvent the Wheel: Using Smart Contract Libraries
Ready for Takeoff: Launching Your Smart Contract
Chapter 10: Discovering Token Standards
Introducing Ethereum Development Standards
Understanding Standard Token Interfaces
Chapter 11: Building an ERC-721 Token
Writing and Compiling Your NFT
Deploying Your NFT
Nurturing Your NFT
Part 4: The Part of Tens
Chapter 12: Ten Marketplaces for Your NFTs
The OpenSea Marketplace
The Axie Infinity Marketplace
The CryptoPunks Marketplace
The NBA Top Shot Marketplace
The Rarible Marketplace
SuperRare Marketplace
The Alcor NFT Marketplace
The Binance NFT Marketplace
The Foundation NFT Marketplace
The Crypto.com NFT Platform
Chapter 13: The Ten Most Expensive NFTs
EVERYDAYS: THE FIRST 5000 DAYS
CryptoPunk #7523
CryptoPunk #3100
CryptoPunk #7804
CROSSROAD
OCEAN FRONT
CryptoPunk #5217
World Wide Web Source Code
Stay Free
CryptoPunk #7252
Index
About the Authors
Connect with Dummies
End User License Agreement
List of Illustrations
Chapter 1
FIGURE 1-1: Bitcoin price chart.
FIGURE 1-2: Google Trends comparison of searches for
bitcoin
versus
Biden.
FIGURE 1-3: Google Trends comparison of searches for
nft
over time.
FIGURE 1-4: The five most active NFTs.
FIGURE 1-5: MAYCs listed for public sale on OpenSea.
FIGURE 1-6: MAYC #7632.
Chapter 2
FIGURE 2-1: Learn about cryptocurrency while buying and selling cute cats.
Chapter 3
FIGURE 3-1: Beeple’s famed digital artwork,
EVERYDAYS — THE FIRST 5000 DAYS.
...
FIGURE 3-2: An event log excerpt from the transaction that created the Beeple N...
FIGURE 3-3: Details of the Beeple NFT from Christie’s online auction site.
FIGURE 3-4: A sample image search on Google.
FIGURE 3-5: A
League of Legends
in-game asset for sale on PlayerAuctions.
FIGURE 3-6: CARFAX interface and pricing scheme.
FIGURE 3-7: An AKC certificate of pedigree.
Chapter 4
FIGURE 4-1: The sketch.io download page.
FIGURE 4-2: A Tiana Laurence original, created on sketch.io.
Chapter 6
FIGURE 6-1: Viewing transactions data on the Ethereum blockchain.
FIGURE 6-2: Unconfirmed transactions waiting in the mempool.
FIGURE 6-3: A pending transaction, awaiting confirmation and execution.
FIGURE 6-4: Confirmation of the pending transaction from Figure 6-3.
FIGURE 6-5: Metadata for Block #12546760.
FIGURE 6-6: Average confirmation times for a given gas price.
FIGURE 6-7: Snapshots of recommended gas prices from ETH Gas Station.
FIGURE 6-8: Etherscan’s Ethereum Gas Tracker.
FIGURE 6-9: Gas consumption and the fee for a successful transaction.
FIGURE 6-10: Gas consumption and the fee for an unsuccessful transaction.
FIGURE 6-11: Elon Musk tweets concerns about the sustainability of crypto-minin...
FIGURE 6-12: Crackdowns on crypto-mining activity in the news.
FIGURE 6-13: Kraken’s confirmations required and estimated wait times.
FIGURE 6-14: A temporary split in the blockchain results in an uncle block.
FIGURE 6-15: A sample transaction, initiating a call to a smart contract functi...
Chapter 7
FIGURE 7-1: The account name and public address displayed on MetaMask.
FIGURE 7-2: Accessing additional account details on MetaMask.
FIGURE 7-3: The Account Details tab on MetaMask.
FIGURE 7-4: Password prompt to access an account’s private key on MetaMask.
FIGURE 7-5: An account’s private key, displayed on MetaMask.
FIGURE 7-6: Finding a contract’s source code.
FIGURE 7-7: Creating separate accounts in MetaMask app.
FIGURE 7-8: Navigating account options on MetaMask.
FIGURE 7-9: Specific account details on MetaMask.
FIGURE 7-10: Renaming an account on MetaMask.
FIGURE 7-11: The Ropsten Ethereum Faucet.
FIGURE 7-12: Switching networks in your MetaMask wallet.
FIGURE 7-13: Copying a public account address from your MetaMask wallet.
FIGURE 7-14: Requesting test ETH from the Ropsten Ethereum Faucet.
FIGURE 7-15: Updated testnet account balance, after requesting test ETH.
FIGURE 7-16: The greylist, warning when you request more test ETH too soon.
FIGURE 7-17: Exploring transactions on the Ropsten testnet.
FIGURE 7-18: Finding transactions and account balances on the Ropsten testnet.
FIGURE 7-19: The Ethereum Mainnet doesn’t reveal the test ETH balance.
FIGURE 7-20: This testnet account contains 0 ETH when viewed on the Ethereum Ma...
Chapter 8
FIGURE 8-1: Frameworks and premade stacks.
FIGURE 8-2: Download the Ganache desktop application.
FIGURE 8-3: The Ganache installer.
FIGURE 8-4: The Ganache start screen.
FIGURE 8-5: Ganache Accounts screen.
FIGURE 8-6: The Ganache genesis block at initiation.
FIGURE 8-7: Saving your workspace on Ganache.
FIGURE 8-8: The Ganache start page, after reinitiation.
FIGURE 8-9: Editing your workspace on Ganache.
FIGURE 8-10: Locating the RPC URL from the Ganache interface.
FIGURE 8-11: The Network drop-down menu in the MetaMask wallet.
FIGURE 8-12: Adding a new network to MetaMask wallet.
FIGURE 8-13: HANDSOMELY-VESSEL now appears in the MetaMask network options.
FIGURE 8-14: Accessing account private keys in your Ganache workspace.
FIGURE 8-15: Sample account address and private key in Ganache.
FIGURE 8-16: The Import Account option in MetaMask.
FIGURE 8-17: Importing an account into your MetaMask wallet.
FIGURE 8-18: A successfully imported and renamed account in MetaMask.
FIGURE 8-19: The 0 ETH balance in our Ganache HV 1 account when viewed on Mainn...
FIGURE 8-20: Copying an account address in the Ganache workspace.
FIGURE 8-21: Preparing to transfer funds from a local Ganache account.
FIGURE 8-22: Transferring funds from one local Ganache account to another.
FIGURE 8-23: Transaction confirmation in MetaMask.
FIGURE 8-24: Updated account balances in the Ganache workspace.
FIGURE 8-25: The Remix main page.
FIGURE 8-26: The Deploy & Run Transactions dialog box.
FIGURE 8-27: Disabling specific browser extensions.
FIGURE 8-28: Our testnet account on the Ropsten test network.
FIGURE 8-29: Our Ganache HV 1 account on the Handsomely-Vessel custom network.
Chapter 9
FIGURE 9-1: The Remix Ethereum main page.
FIGURE 9-2: The Remix File Explorers pane.
FIGURE 9-3: The LittleBear.sol open tab on Remix.
FIGURE 9-4: LittleBear.sol source code, ready for compilation on Remix.
FIGURE 9-5: Solidity Compiler on Remix.
FIGURE 9-6: Accessing compilation details on Remix.
FIGURE 9-7: Deploy & Run Transactions on Remix.
FIGURE 9-8: Deploying the LittleBear contract to the Handsomely-Vessel workspac...
FIGURE 9-9: Confirming contract account creation on the Handsomely-Vessel works...
FIGURE 9-10: Viewing deployed contracts on Remix.
FIGURE 9-11: Interacting with deployed contracts on Remix.
FIGURE 9-12: Deploying the LittleBear contract to the Ropsten test network.
FIGURE 9-13: Confirming contract account creation on the Ropsten test network.
FIGURE 9-14: Copying a contract address after deployment via Remix.
FIGURE 9-15: The Ropsten Testnet Explorer on Etherscan.
FIGURE 9-16: Our LittleBear smart contract on the Ropsten test network, as show...
FIGURE 9-17: Our LittleBear event logs.
Chapter 10
FIGURE 10-1: The EIP workflow diagram from EIP-1.
Chapter 11
FIGURE 11-1: NFTFD and base contract compilation details on Remix.
FIGURE 11-2: The MetaMask display of the Ganache HV1 account on the Handsomely-...
FIGURE 11-3: Selected Ganache Environment and Account on Remix.
FIGURE 11-4: Public functions and data of the
NFTFD
contract.
FIGURE 11-5: The MetaMask display of our Testnet account on the Ropsten Test Ne...
FIGURE 11-6: The selected Ropsten environment and account on Remix.
FIGURE 11-7: Confirming contract deployment on the Ropsten Test Network.
FIGURE 11-8: Copying your newly deployed contract’s address.
FIGURE 11-9: Interacting with
NFTFD
deployed on Ropsten.
FIGURE 11-10: Expanding function parameters housed in our
NFTFD
contract.
FIGURE 11-11: Your
mintNFT
function parameters.
FIGURE 11-12: Accessing information for token
17760704
.
FIGURE 11-13: Error message from an attempt to verify the owner of a nonexisten...
FIGURE 11-14: Adding a new token type on your MetaMask wallet.
FIGURE 11-15: Specifying the custom details for a new token type on your MetaMa...
FIGURE 11-16: Finalizing a new token type and its account balance on your MetaM...
FIGURE 11-17: Our new Testnet account balance on the Ropsten Test Network.
FIGURE 11-18: Our Testnet account balance on the Ethereum Mainnet.
FIGURE 11-19: The account balance on the Ropsten Test Network for
0x885b0F6065B
...
FIGURE 11-20: Warning on Remix when attempting to create a transaction on Mainn...
FIGURE 11-21: Estimated gas fee and USD equivalent to deploy our
NFTFD
contract...
FIGURE 11-22: Finding your contract on Ropsten.
FIGURE 11-23: A basic contract profile provided by Etherscan.
FIGURE 11-24: NFTFD token-transfer information provided by Etherscan.
FIGURE 11-25: NFTFD token-holder information provided by Etherscan.
FIGURE 11-26: Locating the previously deployed
NFTFD
contract.
FIGURE 11-27: Interacting with
NFTFD
(again).
Guide
Cover
Title Page
Copyright
Table of Contents
Begin Reading
Index
About the Authors
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Introduction
Welcome to NFTs For Dummies! If you’re curious about NFTs — their origin, use cases, and underlying technology — this is the book for you.
In this book, you can find helpful information and advice for exploring the world of NFTs. You can also find useful step-by-step guides that teach you how to set up a hot wallet to store NFTs, how to navigate NFT marketplaces, and even how to code up your very own NFT.
You don’t need a background in programming, math, contract theory, or economics to understand this book. We do, however, incorporate these elements to convey a full appreciation of the multidisciplinary nature of NFTs and what they represent.
About This Book
Naturally, this book explains the basics of NFTs, but we also touch on smart contracts and blockchain technology to explain how NFTs are secured and how they operate. Additionally, we touch on various economic and legal themes to convey the rich possibilities of what might be achieved through NFTs.
This book is written to satisfy a diverse array of interests — ranging from lighthearted games to thought leadership in future NFT use cases to more technical explanations that cover the inner workings of the smart contracts that power NFTs and the blockchain technology that secures them.
You don’t have to read the book in its entirety to understand the separate topics. This book intends to provide a customizable journey for all audiences — whether you’re simply curious to learn the NFT lingo, interested in buying and selling NFTs, or filled with a burning desire to code up and deploy your own ERC-721 non-fungible token.
Foolish Assumptions
The biggest assumption we make about you is that you’re interested in learning about NFTs. We mean it!
We do make additional assumptions in writing our how-to guides that are peppered throughout this book. Although we assume no prior knowledge or experience in programming, blockchain technology, or cryptotrading, we do assume that you
Have a computer and access to the Internet.
Know the basics of navigating your computer and the Internet, and know how to download, install, and run programs.
Recognize that some web addresses or long hashes may be split across two lines of text. Keep in mind that these web addresses and large numbers should be copied verbatim as though the line break doesn’t exist.
Understand that things move quickly, especially in the world of crypto, and that some of our illustrated guides may no longer represent ongoing conditions on the ground by the time you read this book.
Finally, we assume that you know we are not fiduciaries, and we do not provide investment advice. The marketplaces we describe and the step-by-step guides we provide for buying and selling NFTs are meant to be demonstrative and informative.
Icons Used in This Book
Throughout this book, we use the following icons to guide your expectations and direct your attention to certain pieces of information.
The Tip icon is used to draw your attention to potential shortcuts or easy adaptations that can be made without breaking an entire system. (Yes, you will learn what we mean by this!)
The Remember icon is used to highlight information that’s particularly important to know or that can help clear up possible confusion later.
The Technical Stuff icon is used to direct your attention away (if you’re a nontechie) or to draw your attention to (if you’re an aspiring techie) bits of more technical information that aren’t required to understand the main points.
The Warning icon tells you to watch out! It marks important information that may save your time, sanity, tokens, or even friendships.
Beyond the Book
In addition to the material in the print or ebook you’re reading right now, this book comes with a free access-anywhere Cheat Sheet with some additional tips for your learning pleasure as well as access to copy-and-paste-able code that should prove helpful in your pursuit to join the nifty world of NFTs. To get this Cheat Sheet, simply go to www.dummies.com and type NFTs For Dummies Cheat Sheet in the Search box.
Where to Go from Here
As obvious as this sounds, we recommend that you begin with Chapter 1. From there, you can choose your own adventure based on whether you’re more interested in trading, minting, or thinking up imaginative uses of NFTs.
You don’t have to read the entire book to understand select topics. We guide you as appropriate if certain sections or chapters require knowledge from an earlier section or chapter in the book.
Let’s get started!
Part 1
Getting Started with NFTs
IN THIS PART …
Discover the world of non-fungible tokens.
Meet the very first NFT: CryptoKitties.
Find out how to own your own NFTs.
Learn about current and potential uses for NFTs.
Chapter 1
Introducing Non-Fungible Tokens
IN THIS CHAPTER
Defining non-fungible tokens
Introducing NFT use cases
Understanding how NFTs work
Learning about NFTs as an investment
It all starts with Bitcoin: the original blockchain-based cryptoasset. With the latest run-up in Bitcoin prices (see Figure 1-1), the Internet is buzzing about crypto again. In fact, Google search trends within the US show that Googlers are now as curious about Bitcoin as they are about the country’s new president (see Figure 1-2), and interest in NFTs has naturally surged with the Bitcoin tide (see Figure 1-3).
With wild and exciting accounts of art-burning ceremonies and million-dollar NFTs, a mix of amazement, confusion, and even disdain surrounds this mostly “normal” but misunderstood digital creature.
In this chapter, we walk you through the basics of NFTs — what they are, how they work, and what they’re used for. The purpose is to provide you with a roadmap to decide which aspects of NFTs you would like to learn more about so that you can customize your reading selections in the chapters that follow.
From https://coincap.io/assets/bitcoin.
FIGURE 1-1: Bitcoin price chart.
FIGURE 1-2: Google Trends comparison of searches for bitcoin versus Biden.
FIGURE 1-3: Google Trends comparison of searches for nft over time.
Beginning at the Beginning: What Is a Non-Fungible Good?
As you’ve likely learned from friends or Google searches before even purchasing this book, NFT stands for non-fungible token. Although tokens themselves are a relatively new development, the idea of grouping fungible and non-fungible goods is not.
Think of dollar bills, shares of Microsoft stock, and Bitcoin — each represent a defined set where items within the set are fungible. Put simply, we don’t care which dollar bills we receive as long as we receive the right quantity, since each dollar bill fulfills the same purpose and obligations as another.
Non-fungible goods are also a regular and far more prevalent part of our lives. Apples at the grocery store, orchids from the florist, and tickets to an upcoming concert — we inspect our fruit and our flowers to select the ones that are less wilted or bruised. With concerts, each ticket represents a different seat, and a front-row seat is not happily exchanged for a seat that’s far removed.
By their nature, non-fungible goods are more difficult to systematically record and track. For one, they require more information to be stored to denote their unique differences. While we can’t digitalize the world, there are many instances where we would greatly benefit from a reliable, transparent, and automated system designed to group, organize, and digitally track non-fungible things that are important to us. Here’s where NFTs come into play!
A non-fungible token (NFT) is a unique digital identifier that’s secured and stored on a public blockchain. One token is not interchangeable for another, and a token cannot be further divided.
What an NFT actually represents depends on the intent of the developers. Much like how a cryptocurrency — or a fungible token — can represent a global medium of exchange (Bitcoin), a utility token used to fuel smart contracts (Ether), or a financial security linked to shares in a fund (BCAP), NFTs also differ in their current and potential uses.
Although general interest in NFTs has been minimal to nonexistent until recently, the development community has been teeming with fungible token activity for years. Following the successful launchings of Bitcoin (2009), Litecoin (2011), and Dogecoin (2013), a surge of projects followed, each spawning their own fungible tokens. Amidst this crypto-wave, developers began to envision a world of digital collectibles — the crypto-analogue of beanie babies and baseball cards. These projects required a different type of token standard to ensure the uniqueness and non-divisibility of each crypto-baby or crypto-card.
Finally, with the overwhelming success of CryptoKitties, a non-fungible token on Ethereum that debuted in 2017, the ERC-721 Non-Fungible Token Standard soon followed to serve as a blueprint for the development community. (Read more about CryptoKitties in Chapter 2.) Since then, there’s been an explosion of NFT projects, with more than 15,000 NFTs deployed on Ethereum alone. (See Figure 1-4.)
FIGURE 1-4: The five most active NFTs.
Exploring Uses for NFTs
The NFT space is still in its infancy, but already the development community is teeming with ideas on how to put them to good use. The most natural use case — the one currently dominating the marketplace — is in tracking digital collectibles. From there, gaming items and digital media were natural extensions. However, despite the recent explosion of NFTs, the current implementations are still rather limited in their scope, and mostly surround monetization of collectibles. The industry has also been hampered by the get-rich-quick mentality that has plagued crypto-space in general and has also attracted many unscrupulous players.
Still, we see many interesting use cases for NFTs on the horizon. Some of these could truly disrupt the way we validate, track, and assign ownership of unique and esoteric items or work to effectively democratize content creation and distribution. Imagine taking the costly detective work out of verifying the ownership history of a rare collectible. Or imagine a world where expensive eBay auctions include proof of ownership on the Ethereum blockchain. Much attention is centered on speculation right now, but the potential value added by these exciting possibilities far overshadow the headlines announcing the latest NFT millionaires and NFT scam artists.
The cryptocurrency world was also met with a similar breadth of reactions, ranging from deep skepticism to enthusiastic acceptance. But as governments and major financial institutions began to accept Bitcoin and Ether, the promise of the underlying technology came to the forefront of discussions. Although NFTs have the benefit of following their crypto-frontrunners (who themselves are still quite young), we need much more time to see how the NFT ecosystem will evolve and what it will spawn next.
Finding Out How an NFT Works
People often confuse the NFT itself with what the NFT was built to represent. An NFT is a cryptographically secure digital record that verifies your ownership of or access to, say, a piece of digital art — sort of like how your car title verifies ownership of your vehicle. You don’t really own the car in your possession without the title, and you don’t really own the CryptoKitty in your collection of jpegs without the corresponding NFT.
For example, consider the cryptocollectible known as Mutant Ape Yacht Club (MAYC). This strange new collection of mutant apes (who may or may not be part of a yacht club?) is the latest rage among NFT collectors and is now the most active ERC-721 token out there. (See Figure 1-5.) But what exactly does it mean to own a particular MAYC?
FIGURE 1-5: MAYCs listed for public sale on OpenSea.
When browsing MAYCs for sale on OpenSea (one of the NFT marketplaces you can discover in Chapter 4 and Chapter 12), you notice provocative graphics and characteristics presented on the marketplace platform. (Refer to Figure 1-5.) What you’re seeing are the visual representations of each individual MAYC — but the NFT itself is the unique digital code that’s secured on the Ethereum blockchain.
For instance, consider MAYC #7632 in the upper left corner of Figure 1-5. Purchasing this NFT means that you’re now the rightful owner of record of TokenID 7632, which is in storage in the contract account 0x60e4d786628fea6478f785a6d7e704777c86a7c6 on the Ethereum blockchain. All transfers of ownership will be memorialized on the blockchain so that provenance of MAYC #7632 and its current rightful owner can always be known, as shown in Figure 1-6.
FIGURE 1-6: MAYC #7632.
As of this writing, 14,688 MAYCs exist across 7,709 holders. You can check out the individual details and ownership of each unique MAYC at https://etherscan.io/token/0x60e4d786628fea6478f785a6d7e704777c86a7c6.
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.
