The ABCs of NFTs: A Musician's Guide

About author: Charlie Wall-Andrews is a Trudeau Scholar, Vice-Chair for Music Canada’s Advisory Council, and is the Executive Director at SOCAN Foundation.

What is all the fuss about non-fungible token art?

At the start of this month, an NFT – Everydays — The First 5000 Days – was sold for an eye-popping, record-breaking sum of $69,346,250. As you must have guessed, it created a widespread buzz online as the crypto community went into overdrive.

In no time, every artist, tech, and business-savvy person was googling what an NFT is. You are probably reading this, too, for the same reason.

At $69.3 million (£50M), the JPG image created by world-renowned artist Beeple is the third most expensive item bought at an auction by any living artist. What makes this sale even more interesting is the fact that the said artwork does not exist physically. It doesn’t make sense, right?

That’s because this art piece is a non-fungible token (NFT).

Trust this kind of news to catch the attention of the world’s elites like Elon Musk. The industrial designer, business magnate, engineer, and world’s richest man decided to join the fray by selling a song about NFTs as an NFT.

In the most surprising twist of the day, Beeple offered $69 million for it, but we’re yet to see if he’ll go through with the bid.

This new form of crypto art called NFTs exploded on the art scene at the turn of the year, and it has completely changed how we know and use art. Many artists from Beeple to musician Grimes, tech entrepreneur Jack Dorsey and a horde of other low-key players are cashing in on this trend.

Grimes, for instance, sold her NFTs (10 digital images) for over $6 million in February. A few weeks before, the legendary animated "Nyan Cat" of comic artist Chris Torres brought in nearly $600,000 at an auction.

In February, Lindsey Lohan made headlines when she sold a Daft Punk NFT for $15,000. She also sold an image of her face initially put up for sale at $17,000, but it was resold for $59,000. Recently, Twitter’s founder, Dorsey, turned his first-ever tweet into an NFT. As we speak, bids for the tweet have reached an unbelievable $2.5 million.

If you think NFT trading is only a hit for celebs and big-time artists, you’re sorely mistaken. According to recent estimates, the market is worth over $338 million, having grown 705% within the last three years.

Total value of NFT transactions rose from $62,862,687 in 2019 and almost quadrupled to $250,846,205 in 2020. In the first two months of this year, nearly 150,000 NFTs worth $310 million (almost 5x the sales figure of 2020) have been sold.

These sales are not from big names alone. Mid-tier players and small-time sellers and buyers have also had their fair share of the pie. By now, we're sure you want to know more about NFTs, their impact on art, artists, and how to get involved. Don't worry; we've got all that covered here.

This guide also includes bonus sections that show hidden pitfalls to avoid to ensure you have a profitable NFT ride and new opportunities to watch out for in the sector.

What are non-fungible tokens?

Non-fungible tokens (also called blockchain non-fungible tokens or NFTs) are a form of digital asset and cryptocurrency, just like Bitcoin and Ethereum. They differ from crypto coins because they represent artwork, music, videos, collectable cards, virtual land, video games, collectibles, and funnily enough, tweets.

Even though NFTs can’t be seen physically, they are still considered attractive investment options, like other tangible and intangible valuable items. Also, their value is primarily determined by demand and the market.

The term “non-fungible” in the name NFT implies that each asset is unique, and you can't exchange them with one another since their value differs. For instance, if you have 2 Bitcoin, they'll have the same price across the board at all times.

Likewise, a one-dollar bill can perfectly interchange with the next one-dollar note since they always have the same monetary value. This is not so with non-fungibles. Each one is unique in and of itself as they appreciate in value independently.

To explain things a bit further, think of NFTs as an autographed art print. Sure, you can print a hundred or more copies of the original, but the one print with the most significant value is the real autographed copy. The same thing applies to NFT images, music, tweets, and so on.

Most NFTs you see around now are made from the Ethereum blockchain. The creation process involves verification using blockchain technology, where a network of computer systems record all sales and issues a proof of ownership and authenticity to buyers.

That is why you may download or replicate Beeple’s image or Dorsey’s tweet as many times as you like. The NFT technology won’t stop you.

However, your digital copies will show who the original creator or owner is and won't command the kind of price the original file would (that is if it even sells at all).

How NFTs are impacting arts & artists (and what the future holds)

1 - Copyright protection & Proof of authenticity

If you've ever worked as a digital artist, one of the industry shortcomings you'll be familiar with is the difficulty in protecting artwork's online copyright. However, if your work is made into an NFT, copyright problems will become a non-issue.

Your identity and all other vital information can be easily traced due to blockchain verification. So, whenever you or a customer you sold to wants to resell your piece, it's easy for buyers to check whether the item is an original.  Furthermore, buyers can also confirm who the current owner is.

2- Third-party sellers eliminated equal higher profits.

NFTs offers digital artists an opportunity no other platform has ever given them, and that is the opportunity to sell directly to their global target market. This is vital for upcoming artists as they don't have to start looking for exclusive galleries or auction houses that "will be kind enough" to carry or auction their work.

Not only are well-known third-party sellers – the galleries etc. – hard to get into, but they are also entitled to a greater portion of your profits. While the high percentage they take from art sales is understandable because of their effort, it will nonetheless reduce how much you end up with at the end of the day.

3 - Passive income generator

Formerly, whenever artists sell their work, that’s the end of it. They don’t get any gains from that work again. Even if the image appreciates 100x in value, the artist cannot benefit from that, only the lucky investor and auction house that facilitated the sale.

Fortunately, NFTs have changed the story. As a digital creator, you can program a royalty feature into your work such that whenever that work is resold, you get a certain percentage of the sale profits.

In 2020, actor William Shatner, whose character in Star Trek is Captain Kirk, designed 90,000 digital cards featuring several images of himself. He created the cards on the WAX blockchain and sold each for $1. He also activated the royalty feature, so now, anytime a card is sold to a new buyer, a given percentage always comes back to him.  

4 - Opportunity for aspiring artists to profit more and grow

Getting galleries to exhibit artwork is hard – extremely hard – and getting paid after the show. This problem isn't peculiar to aspiring creators alone. Professional artists who have made a name for themselves sometimes experience this too.

With non-fungible tokens, you can bypass all third-party agents and market your creations directly to interested audiences.

How to create your own NFT and bring it to market

Before we start, we’d like to assure our non-technical interested readers of some things. While the “non-fungible token” industry may look like something from NASA, it really isn’t. Even with that, we’ll also try to make the instructions as simple as possible.

Last up, before we proceed, we’d like to point out that non-fungible tokens can be created on different types of blockchain, e.g. Binance Smart Chain, Polkadot, Tezos, Trons, EOS, etc.

However, because the Ethereum blockchain has the most extensive NFT ecosystem, our instruction will focus mainly on creating non-fungibles using that platform.

So let’s get right to it.

1. First off, on your computer, create the artwork you want to turn into an NFT. It could be an image, GIF, short video, music, or whatever digital work takes your fancy.
2. Choose the blockchain you want to use (it’s the Ethereum blockchain for us here). Take note, the blockchain you choose will determine the type of platform where you'll sell, the wallet service, and the NFT token standard you'll use. Hypothetically, if you select the Ethereum blockchain, you can only sell on marketplaces like OpenSea, Mintable, and Rarible as they support Ethereum. The same goes for other blockchains.
3. Before you can "mint" or create your NFT digital piece, you need to get the Ethereum wallet (ERC-721) that accepts the NFT token standard. Examples of such ERC-721 wallets are MetaMask, Coinbase, and Trust Wallet.
4. Get between $50 to $100 worth of ether (ETH) for your wallet. You can purchase the ether from a crypto platform.
5. Go over to your chosen Ethereum marketplace. We’ll be using OpenSea for our instruction since it’s currently the most widely-used Ethereum-based NFT marketplace.
6. On the top right-hand corner of your screen, click on the blue-coloured “create” button there.
7. You’ll be directed to another page and asked to connect your wallet to the marketplace. Enter your wallet password and follow the other instructions you’re given.
8. Once you've created your wallet, go over to the top right-hand corner of your homepage, hover on "create," and click on "my collections."
9. From there, select the blue-coloured "create "button. A different screen will appear; here, you can upload your art along with its name and description.
10. Next, it’s time you beautify your page with a banner. To do that, go to the top right-hand corner of your current window and click on the pencil icon.
11. Now, time to create your NFT.  Select the "Add New Item" button on the screen and sign a second message with your wallet. A new screen will open where you'll need to upload your digital drawing, audio, GIF, etc. Follow the subsequent instructions and click on "create" at the end to finally have your NFT masterpiece.

Top pitfalls new NFT traders should avoid for a successful investment

When going into NFT trading, one of the pitfalls that could see you losing 3x or more of your investment is the gas fee. Are you wondering what a gas fee is? Well, here’s your answer:

What is a gas fee?

The definition of “gas fee” is that of Investopedia.

“Gas fees are payments made by users to compensate for the computing energy required to process and validate transactions on the Ethereum blockchain.”

So let’s get back to how gas fees can sink your NFT investment if you’re not careful?

To mint a token (meaning to turn your digital work into an NFT), the marketplace you’re using will charge you a gas fee for that. And the price doesn’t come cheap. Recent reports put the minimum cost of minting a single NFT on an Ethereum blockchain between $70 and $100.

When you’re also selling your NFT, you’ll be required to pay a sum for using the platform. What confuses novice traders about gas fees is that the price is not fixed. It fluctuates according to demand.

So when demand shoots up or there’s congestion because several people are on the network, the gas fee increases. If you don’t carefully factor this fluctuation into your selling price, you may lose money at the end of the day.

Conclusion   

Lastly, it is essential to note that the NFT phenomena are relatively new. Future or existing opportunities and threats will continue to emerge and be clarified as the engagement with NFTs mature over time.  This article aims to provide foundational insights to help artists and industry leaders continue to study core concepts to inform their future engagement and exploration about NFTs.