ELI5: NFTs and Ethereum Basics

What is an NFT?

An NFT is non-fungible token that exists on the blockchain. This post will explain many of the concepts related to NFTs. Let’s start with some terminology:

Fungible vs. non-fungible

Fungible means something is able to be exchanged or substituted and will hold the same value. It is interchangeable, like the dollar, casino chips, or Ethereum. For example, if I lend you $100 and you return to me two $50 bank notes, that would be okay because even though they are different notes, they hold the same total value and they are fungible.

NFT stands for Non-Fungible token. Non-fungible means that it is an asset that cannot be substituted with something else. It has unique attributes and cannot be replaced with something else because it is one of a kind, like a painting, a concert ticket, a trademark or a crypto key. Some non-fungible assets are physical and tangible (paintings, concert tickets, etc.) and others are digital and intangible (crypto keys or game skins). The token refers to the digital smart contract stored on a secured distributed database called the blockchain. NFTs are digital assets, publicly verifiable intellectual property that is authenticated on the blockchain.

What is Ethereum?

A majority of NFTs today exist on the Ethereum blockchain. Ethereum is an open-sourced, decentralized blockchain with smart contract functionality. The native cryptocurrency of the platform is known as Ether, or ETH. You can think of Ether as the digital fuel that powers the automated smart contracts on the Ethereum blockchain.

What is a Smart contract?

A smart contract is a self-executing contract where the contents of the buyer-seller agreement are written directly into the code. They make transactions traceable, transparent, and irreversible.

For example, if I want to pay someone 5 ETH to paint the outside of my house, I can use a smart contract. The transaction would look like this: IF the painter paints the outside of my house, then I will pay them 5 ETH.

Because the smart contract is digital and automated, there is no paperwork to deal with and the contract will be executed as soon as the condition is met. As soon as the house is painted, the painter will receive payment. The painter will not get paid if they do not paint the outside of the house, so they cannot cheat.

What is gas?

Just like a car needs gas to run, we need gas to run applications and execute transactions on the Ethereum network. The Ethereum blockchain currently relies mostly on Proof of Work to secure the network and verify transactions. This requires a lot of computing power for and ETH is used to pay miners for doing this work. Ether is used to pay for the computational resources and transaction fees for any transaction executed on the Ethereum network. If you want to do a transaction on the blockchain, you will have to shell out gas in the form of Ether.

How do I get Ethereum?

You can purchase Ethereum from an exchange using your bank account, credit card, or debit card. To find where you can purchase Ethereum where you live, check out this link https://ethereum.org/en/get-eth/#dex

I have ETH. What now?

Once you have your Ethereum, only you have access to it and only you are responsible for it. If you buy ETH on a centralized exchange like Coinbase or Binance, you will want to move your ETH from your exchange account into a wallet that you have custody over like MetaMask or a hardware wallet if you own one.

What is MetaMask?

MetaMask is a hot wallet app (there are others but it is the most common on the ETH network) that lets you access your ETH on the blockchain. You can install it as a mobile app or as a browser extension. To interact with most crypto websites (WEB3), you will be given the option to connect your MetaMask wallet to the site. Instead of typing in a username and password to login, you will simply be prompted to connect your wallet. https://metamask.io/

What is a Seed Phrase?

When you create any wallet you will be given a 12 or 24 word Secret Recovery Phrase, or Seed Phrase, depending on the type of wallet you are using. These 12 or 24 words are what allow you to restore your wallet and access your funds if you delete your login data, reinstall the app, or access your wallet from another device. You should view losing this phrase the same way as losing your wallet. If someone gains access to this phrase, they can load your wallet on their computer and access your funds the same way you can. Giving out your seed phrase is giving someone your wallet, it’s that simple.

  1. Never share your Seed Phrase with anyone for any reason. Any person or website asking for your seed phrase is trying to scam you out of your cryptocurrency.
  2. Never save your recovery phrase in a text file or as a photo on any digital device. Many people have had their wallets stolen simply from having their albums, cloud storage, phone, or computer hacked. Don’t be like them. Be smarter!
  3. Write down your seed phrase on a piece of paper and keep it secured in a place where it will not get lost, thrown out, or stolen. Keep multiple copies in case you lose one. Always assume you will need it in the future.

In addition to never sharing your seed phrase or storing it electronically, you should always be cautious of scammers on the internet. When you join a crypto-related discord, remember that scammers are persistent and will wait for an opportunity to cheat you out of your money. If someone sends you a link and you do not know this person, do not click on it. Never share your screen with people you do not know, and remember that Mods and Admins will never DM you first.

Now that you have ETH in your MetaMask and you know how to stay safe, how do you find and purchase NFTs?

You can purchases NFTs through a marketplace. Two of the most popular are OpenSea and Rarible. OpenSea is the largest NFT marketplace and Rarible a community-owned platform that exhibits a broad range of digital art and collectibles.