What can you do with NFTs?

By Kraken Learn team
8 min
22 may 2024
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A beginner's guide 📖

  • A non-fungible token (NFT) is a digital record of ownership and authenticity.
  • NFTs can be used to track digital item such as a JPEGs or audio files, but can also represent real world assets (RWAs) like real estate,
  • NFTs have become an integral part of play-to-earn games and the developing metaverse.
  • Creators can use NFTs to directly interact with their fans and provide unique digital and physical experiences.

A non-fungible token (NFT) is a blockchain-based asset used to record a person’s ownership of another item, whether it be physical or purely digital.

Each NFT token is entirely unique, even those linked to identical items. For example, an artist could release 1,000 NFTs linked to 1,000 identical digital images of a cartoon cat.

While on the surface it might seem as though each NFT is the same, each NFT contains distinguishing information that gives each digital token a different value, such as a unique serial number or subtle rare trait.  

Since their creation, NFTs have become an important part of the cryptocurrency market and offer a growing variety of uses. While some involve more complex platforms and procedures, there are plenty of activities new crypto users can explore with their NFTs.

NFTs for beginners 👩‍🎓

Collect and showcase NFTs

In 2020, NFTs became popular as a way for holders to express their personalities across online forums and social media channels. 

Profile picture (PFP) collections such as CryptoPunks consist of unique images of cartoon characters, each with their own traits and attributes.

It quickly became fashionable for holders to display their PFP NFTs on X, Discord and other networking platforms. While some may have done this to demonstrate their wealth, many others shared their PFP here to show support for a particular collection.

The extensive range of NFTs now available means traders can accumulate their own distinct collections, in the same way a person might collect various physical art pieces.

Join a community

Purchasing NFTs from a specific collection can sometimes grant the holder access to private members-only communities.

NFT communities are online spaces where fellow enthusiasts can network, build relationships, earn additional rewards and gain early access to in-person events.

An active community behind a collection can help increase the appeal of its NFTs and, in some cases, push up prices too. The Bored Ape Yacht Club (BAYC) collection is a popular example of a highly-acclaimed NFT collection that boasts a number of exclusive communities

Traders could mint BAYC NFTs for 0.08 Ether (ETH) during the collection’s initial launch, around—$200 at the time. However, following the collection’s viral rise to fame between 2021 and 2022, new buyers looking to get their hands on a BAYC NFT will need to part with a considerable amount of money.

Many of these NFT communities leverage social messaging apps to connect members. Namely:

Users can prove they own a given NFT by linking the wallet that holds that NFT to their Discord account. 

Outside the cryptoverse, companies like Starbucks are beginning to reward their customers with collectible NFTs that grant holders unique perks and immersive experiences. Doritos also partnered with Nike-owned NFT platform RTFKT to launch a $25,000 NFT merchandise giveaway.

Access play-to-earn games

Play-to-earn (P2E), or GameFi, is a sector of the digital asset market centered around blockchain-based video games.

Unlike most traditional video games where in-game items have no real-world value and players cannot own the things they accrue, P2E games leverage NFTs and cryptocurrency to represent all in-game items and currency. 

This advancement means any digital items they collect, such as weapons, property or gold actually belong to the players themselves, not the underlying company that developed the game.

These games also incorporate cryptocurrencies to reward gameplay, which players can exchange for fiat or other crypto assets through secondary market crypto trading platforms like Kraken.

Axie Infinity (AXS) is a popular P2E game developed by Sky Mavis on the Ronin network (RON). Users breed, raise and battle Axies, creatures represented by NFTs. Playing Axie Infinity previously required all players to purchase at least three starter Axie NFTs (using ETH) to begin the game. However, in 2022, the company released a free version of the game to entice new players, called “Axie Infinity: Origin.”

By completing quests and battling others, players can level up their Axies, earn native cryptocurrency and trade NFTs with other Axie gamers.

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NFTs for advanced users 🧙‍♂️

Advancements in NFT technology have created new ways for more experienced crypto users to interact with these unique digital tokens. 

Create and monetize art

For people with experience creating digital artwork, creating and selling their own NFT collections can boast a number of advantages over physical artwork. 

First, creators can easily market and sell their NFTs to a global audience of prospective traders without involving expensive intermediaries such as auction houses or galleries. This feature allows artists to retain more of the total sale proceedings.

Second, artists can program creator earnings into their NFTs. Creator earnings allow artists to automatically earn a portion of any future secondary market sales of their work, provided NFT marketplaces support the functionality. This innovation allows artists to theoretically continue generating revenue from their works long after the initial sale of their work, provided demand remains strong for the pieces.

Marketplaces make it easy for artists to create NFTs using their platforms, and charge minimal gas fees to do so. 

Popular options include:

Artists can customize every aspect of the creation process from how many NFTs will exist in the collection, to what rare attributes each NFT will have and how they’re sold on the platform (auction or fixed price.)
 

Create and monetize in-game experiences

Play-to-earn games and metaverses allow creators to develop highly-imaginative immersive experiences underpinned by NFTs. 

Online games like The Sandbox (SAND) and Decentraland (MANA) (MANA) offer vast digital world experiences where all characters, wearables and parcels of land are represented as NFTs.

Gamers have the opportunity to purchase plots of land and construct any kind of virtual structure they wish, from casinos and zoos to theme parks. They can then charge other gamers cryptocurrency to access and enjoy their in-game creations, creating a fully-enclosed gaming economy.

Large publicly-traded companies can also develop their own experiences within these worlds. Arcade gaming giant, Atari, partnered with Decentraland in 2021 and opened its first metaverse casino within the “Vegas City” realm of the game. In the same year, PwC Hong Kong purchased land in The Sandbox to better-understand the sector and help advise other companies on how to leverage virtual worlds to drive their businesses. 

Loan out your NFTs or deposit them as collateral

The advent of decentralized finance (DeFi) has opened up new opportunities for holders to utilize their idle cryptocurrency and NFTs.

Using these autonomous platforms, NFT holders are able to lend their assets to other crypto users and earn interest. Smart contracts manage the entire process, reducing counterparty risk (provided platforms are secure).

Borrowing against your NFT is another way to gain access to liquidity without needing to sell the digital asset. Several DeFi platforms now offer this functionality, including: 

An NFT holder can offer their digital token as collateral, locking it on the lending platform and borrowing an amount of cryptocurrency against it. The user must pay back his or her debt plus interest in full to reclaim their NFT. Hoever, if the NFT’s price drops below a specific value before the borrower has repaid their loan, the lender may liquidate the loan and take possession of the NFT unless the borrower provides additional funds. 

Blur (BLUR) is an NFT lending marketplace for specific NFT collections. If a CryptoPunk holder wants to borrow against their NFT, they can sign into Blur, select how much ETH they’d like (for example, 20 ETH) and how much interest they’re willing to pay. Blur facilitates a transfer of 20 ETH from a willing lender to the NFT holder, and then locks the CryptoPunk in the Blur smart contract until either the borrower repays the loan with interest or the NFT’s value drops to the point that the loan is liquidated.

This process offers the lender a way to earn interest on their ETH and possibly acquire an NFT if their loan is liquidated. The borrower, for their part, gets liquidity for his previously illiquid NFT without needing to sell it. An NFT holder who wants to use the value of his NFT to enter into some other trade or purchase a different NFT can borrow against their NFT instead of selling it. 

NFTs can't be broken down so that only part of them can be sold/transferred in the same way that fungible tokens like ETH can. Borrowing against an NFT offers a solution to this issue.

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Ready to start your NFT adventure?

The first step to beginning your NFT journey starts with exploring the world of NFTs to see what it offers.

Kraken NFT offers hundreds of the top NFT collections across three of the most popular chains. To help better understand the industry, learn more about the latest NFT stats and trends.

You can get started by signing up today.