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.
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
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 It All Began: Non-Fungible Kitties
NFTs can credit their existence to CryptoKitties (www.cryptokitties.com), a novel game that was launched in the fall of 2017, by Dapper Labs. (Dapper Labs also created the smash hit Top Shop, the platform that allowed users to purchase NFTs of their favorite NBA players.) The creators felt that the general population didn't understand what a cryptocurrency was or why it mattered, let alone how its technology worked. Likewise, the public perception of blockchain applications remained narrow-minded and focused on get-rich-quick scams, dark web utility, and new financial
