NFTs and Governance Tokens

What are NFTs?

NFT which is short for Non-Fungible Token are unique tokens uninterchangeable, consisting of digital data, stored in a blockchain. Unlike Cryptocurrency which is fungible, meaning it can be interchangeable or can be substituted for another. NFTs are simply personal or market value placed, and cannot be substituted. In simpler terms, whilst all Ethereum (a Cryptocurrency) are the same and of the same value, NFTs differ in value and are mostly not the same because although they are all stored on the blockchain, they have different creators and owners.

They can be created by anyone because it requires few or no coding skills, and their ownership is stored in a Blockchain and can be transferred by the owner, initiating buying and selling. NFTs can be anything from a picture, screenshot, audio, artwork, writing, name it.

A tweet can be sold as an NFT, even a voice note can be sold as an NFT, once listed on the marketplace, and stored on the Blockchain, gaining its uniqueness, it can be sold for ridiculously high amounts, depending on the value placed on it by the owner. Some prominent examples of NFTs are: The Bored Ape Yacht Club, Haze monkey, Cryptopunks, etc

How are NFTs Created?

The process of creating an NFT is also known as Minting. As earlier stated, anybody with an internet connection, can create an NFT and list it for sale.

Steps to create and list your NFT for sale:

1. Decide what form or forms of NFT you want to create, is it artwork, a recording, writing, etc.
2. Choose a marketplace (as implied, it's a site where buying and selling of NFTs take place) you'd want your NFT listed on. Some popular marketplaces include OpenSea.com, Rarible.com, etc.
3. Connect your Crypto wallet to the marketplace, then click on Create.
4. Upload your proposed NFT piece, and complete the form, giving it a name and possible description, choose the network you want the NFT to be listed on, and click on Create.
5. Your NFT has been created, and its uniqueness is stored on the Blockchain.
6. Now you can list your NFT for sale, this process is known as Minting. With your wallet already connected, you'll be asked to authorize the deduction of the minting fee from your crypto wallet. On authorization, successful procession, and deduction, your NFT is listed on the marketplace for sale, at the stipulated price you set.

It is important to note that some marketplace Rarible.com in particular allows you to list your NFTs for free https://link.medium.com/o80F3DUFAqb and whosoever purchases your art, gets to ensure the Minting fee. For a more simplified guide on creating and listing NFTs, read https://link.medium.com/MYdSFhZFAqb

NFT Prices

There are no fixed prices for NFTs, their prices are dependent on the value the owner placed on them, or that is perceived by the market. NFTs are bought and sold with Cryptocurrency. The most used Cryptocurrency for NFTs is the Ethereum network, others include polygon, Solana, etc, depending on the network the NFT was listed on, and the price set. A beautifully designed artwork could be valued at 1eth by its owner, whilst simple writing or say a tweet could be valued and even sold for more than 100eth. It is important to note that gas/minting fees are not included in listed NFT Prices.

How to Buy NFTs

Buying NFTs is as easy as shopping online, only this time, you don't pay with your card. There are a thousand and more NFTs listed on different marketplaces, and although their prices are set, it is not certain that there'll be appreciation in the value of the art. In the case of a purchasing a piece from a collection, knowing the story behind the characters or in cases like "haze monkey" the ecosystem plan is vital because provided there's an issue with the ecosystem, or the storyline behind the NFT character collection is weak, the value of the piece you got, will most likely reduce. If buying an NFT piece from a collection, it is advised you thoroughly go through the white paper of the project, to avoid scams and rug pulls.

Steps to buying an NFT

1. Go to your desired NFT marketplace, and connect your wallet.
2. Pick the NFT(s) of your choice, and click on buy.
3. If it's an NFT that you have to bid on, then you can place your bid and wait for its acceptance, but if it isn't a bid, then on clicking buy, a prompt comes up, asking for authorization to deduct the NFT price from your connected Crypto wallet.
4. Upon approval and successful procession, the NFT would be transferred to your wallet, and it becomes instantly visible to you (if it's set to reveal on purchase, but if it's not, there'll be a reveal date, and you'd get to see the NFT you purchased).

NFT Art: Its Uses, Problems, and Skepticism

Copyright: A user buys an NFT, from a creator doesn't necessarily mean he bought the copyright of the creator not to create a replica, or a close replica to the one just sold. Therefore except the copyright of art is specifically sold by the creator, the user faces a likelihood of duplication.

Gas emissions (environmental hazards): For every blockchain transaction, greenhouse gases are being emitted into the atmosphere, because of their high energy usage, and the heavier the transaction, the more gases are emitted. You might be wondering about the relationship between blockchain and gases, well the blockchain is built of heavy machines (miners) and these machines in turn emit gases due to their workload.

Money Laundering: Criminal activities could be easily carried out in disguise by buying and selling NFTs. On the high-value market transactions originally for other purposes could be disguised as an NFT trade, and it is nearly impossible to trace.

Games: NFTs have been used to claim and own assets and properties in games. In an example of an online game that incorporated the use of NFTs in the Cryptokitties, cats seemed to have been the assets in the game, and some cars sold for over $90,000, generating a revenue of approximately $12.5 million.

Ponzi's/Rug pulls: These are situations whereby creators, intentionally devalue their NFT collection by wholly selling off and dumping off the project, removing liquidity whilst enriching their wallets. They initially pump up the project, inviting investors and enlarging their community, once a good amount of investment and commitment has been made, they dump the project, leaving everyone In massive losses. Intentionally reading and understanding a project's whitepaper, would give you insight, into the success of that project. With the level of technological advancement ongoing, owning an NFT now is highly advised, buy and mint as much as you can. Its value would be priceless in years to come.

GOVERNANCE TOKENS

These are rights, privileges, and influence, in form of tokens. Just as in the normal government, lawmakers are elected, and votings are being made on laws to be enforced, it is slightly similar here, just that, in this case, anybody in possession of a governance token automatically has rights and a say in that organization. These tokens give rights to members of a DAO(Decentralized Autonomous Organization). In a decentralized protocol, members in possession of these tokens earn a bit of ownership of the protocol, an astute definition of the government of, and, for the people.

Holders of these tokens influence changes by submitting proposals and if put up for voting in the community, they use the right apportioned to them as a result of their token ownership. These tokens are vital in the decision-making of DAOs.

Value of Governance Tokens

Apart from the fact that owning these tokens accrue a certain amount of power to their owners, certain privileges come with their own. They include:

Increased voting power: although all in possession of the Tokens, have the right to vote if a change or feature is brought up for voting, individual voting power differs. Individuals with more holdings of the token have more voting power/rights. Example: If Jake has 50 UNI governance tokens, and Jenny has 150 UNI because Jenny possesses more of the Tokens, her vote would be three times that of Jake, giving Jenny more voting power, but on the other hand, Jake has more rights and voting power than a member of the community without it's token.

Revenue Allocation: In a case where fees are charged for transactions in the DAO, these fees become revenue, and can be shared among its members.

Growth Influence: Owners of these tokens, influence the growth direction of the protocol, they also influence the pace at which it grows.

Top Examples of Governance Tokens In the Crypto space

Uniswap (UNI)

Maker (MKR)

Terra (LUNA)

Compound (COMP)

STEP (GMT)

Although there are more governance tokens out there, these are very popular and serve very unique purposes.

Drawbacks on the use of Governance Tokens

Unequal Allocation: The initial allocation of these tokens most times favors the founders, team members, and investors in the protocol, thereby giving them the majority power to enact and make rules. There's been a development where some projects and protocols have decided on a "fair launch", distributing tokens evenly across the board to all its members, but still, the whales in the Crypto space will tend to acquire more, thereby shifting the scale one-sided.

Vesting Periods: founders' and investors' tokens are locked during this period. It is usually during the initial launch of the project. This leaves investors hand-tied no matter the turbulence in the market until the schedule is complete, and sometimes when these tokens are now released, the investors are already in losses.

Government policies and organizations are also threats to the splurge of governance tokens, with lots of regulations and name tagging, these tokens stand the risk of being like the usual stocks and securities. The World's evolution points to advanced digitalization, and these will play major roles in its sustenance and advancement.