An NFT (Non-fungible tokens) is a digital asset that represents real-world objects like art, music, in-game items, and videos. These tokens are based on Ethereum blockchain technology, cannot be replaced by any other value, and are unique in that sense. If we take as an example a real image from the market, NFT token can be considered digital works of art, such as graphics, images, photographs, music, parts in video games, whose value is expressed in Ethereum or Bitcoin cryptocurrency whose value is later translated into dollars.
NFT behaves like a cryptocurrency — it exists on a blockchain, it has value, it can be traded. On the other hand, it is visually striking enough to be better called NFTs creation or even simpler NFTs digital assets.
These tokens are characterized by uniqueness — just as a work of art can be unique. There are also partially unique tokens, but also those that are more but are limited in number. Among others, this is a feature that significantly affects the price. NFT is also indivisible, this token cannot be divided into halves, or into several parts, but acts exclusively in its entirety, unlike, for example, bitcoin.
One of the largest markets for NFT, more precisely virtual assets, is OpenSea, where there are a variety of GIFs, animations, simple graphics, and whose creators can earn millions of dollars by buying some of these works of art, which we will talk about later in the webinar.
How do NFTs work?
Although they’ve been around since 2014, NFTs are gaining notoriety now because they are becoming an increasingly popular way to buy and sell digital artwork. In 2017 the world witnessed the birth of CryptoKitties. NFTs are a unit of data, specifically blockchain-based digital files, but it is important to say that access to any copy of the original file is not limited to the owner of the token. Although the digital files themselves are infinitely repeatable, the NFTs that represent them are tracked on their core blocks and provide customers with proof of ownership of the NFTs.
As the NFT principle is based on uploading digital materials to the Ethereum blockchain, this procedure leads to the codification of NFT, which later leads to the establishment of price, ownership, and transfer records, thus preventing digital forgery or file replication. Once shipped, NFT will exist permanently on the blockchain as long as the system itself is operational.
There are no two NFTs that are completely identical because each piece contains unique digital properties. Even if the artist publishes two works without clear physical differences, the metadata encoded in each NFT is different. However, what is important to say here is that within the NFT system and tokenization, it is necessary to fully protect intellectual property.
Apart from artists, celebrities also had their notable and significant share in NFT token trading. Namely, in 2019, the NBA league released Top Shots, more precisely short summaries of games in reels format, which generated 230 million dollars via blockchain. The clip of LeBron James and Zion Williamson alone had a value of 200,000 dollars. A well-known musician in the United States, 3LAU sold his first crypto-album through an auction in less than 24 hours for 11 million dollars. YouTuber Logan Paul also sold his NFT, more precisely his graphical version of Pokemon for $ 5 million.
NFTs are typically held on the Ethereum blockchain, although other blockchains support them as well.
Some of the biggest marketplaces are
NFT marketplaces have a variety of non-fungible tokens on sale, from both famous artists and amateurs. There are loads out there to choose from, but one of the biggest is OpenSea — the world’s first and largest digital marketplace for crypto collectibles and non-fungible tokens. It launched in 2017 with $2 million in start-up funding. The company recently raised an additional $23 million in April 2021 with the help of the venture capital fund of Andreessen Horowitz.
Sellers of NFTs pay a 2.5% commission on any sales made through the OpenSea system. Sellers have to set up a wallet, create Collections, upload their work and list them for sale. OpenSea allows the secure exchange of digital items between two parties without the need for trust between them or a centralized authority. The unique contract for each NFT is stored on the peer-to-peer Ethereum blockchain.
Submit your NFT for approval by OpenSea and then sell it on OpenSea.
The default payment via the OpenSea system is made in ETH. However, sellers have the option to receive payment in over 200 cryptocurrencies.
Buyers use the OpenSea system for free. To get started, all you need to do is create an account to browse NFT collections. Assuming you already have a crypto wallet, connect it and you’re ready to explore NFTs. OpenSea is free to use by the buyers of NFTs.
All the purchase transactions conducted by a buyer are made in the cryptocurrency called Ethereum (ETH). The OpenSea system converts ETH into wrapped Ethereum (WETH). A buyer who wants to purchase an NFT on OpenSea needs to have a digital wallet that contains ETH or WETH of a sufficient amount to either pay the fixed price for the NFT (if it has one) or pay for a successful bid in an auction of that NFT.
How to build an NFT marketplace like OpenSea?
Now when you understand what is NFTs and how OpeanSea works, you may decide to build your NFT market like OpenSea. Empire Global can help you in the whole process of creating a marketplace. If you want to build it from the scratch, here are some basic steps:
- Select the right blockchain
- Identify audience
- Create suitable UI for NFT Marketplace
- Specify operational domains
- Chose tokens
- Develop Smart Contracts
- Test and Deploy Marketplace
Or, you can simply use the OpeanSea Clone Script. OpenSea Clone Script is a ready-made script that helps to launch your own P2P NFT marketplace.
How are NFTs taxed?
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. In most cases, yes, NFTs (non-fungible tokens) are subject to the same tax laws as fungible cryptocurrencies.
NFTs have allowed charities, celebrities, and individuals to auction off their digital creations, with all the proceeds going to a charity of their choice. If you’ve donated your NFTs, to eligible charities, then you may qualify for the reduced tax liability. When you donate an asset, you can claim the appreciated fair market value at the time of donation as a deduction against your taxable income. For example, if you own $50,000 worth of artwork and choose to donate it to a charity you regularly support, you may be able to write this off as a charitable deduction on your return.
If you need help with launching your own Marketplace like OpenSea, get in touch with the Empire Global team. We will help you with all steps. An individual approach is important for us, and we take care of the needs of your business.