Three Basics about NFT

Three Basics about NFT

In the previous chapter, we introduced the basic concepts of NFTs. Next, we will explain the Three basics about NFT. They are Mint, primary and secondary markets, and smart contracts. I hope it will help you to understand the terminology of NFT in the application more quickly.

Mint

When NFTs are released, they will not use Sale, but Mint and Mint will be divided into Whitelist Mint and Public Mint. In addition, there is another way to obtain NFT called Airdrop. The following will briefly introduce the differences between the three.

Mint is a proper term for purchasing cryptocurrencies or NFTs on the blockchain. Converting cash into cryptocurrencies, or cryptocurrencies into NFTs, is a process called Mint.

Difference between Mint and Sale

The primary market means that consumers directly trade with the official to obtain NFT. The secondary market is the consumers who buy NFT from the official and later put the NFT on markets for secondary sales and bidding. The transaction in the primary market is called Mint, and the trade in the secondary market is Sale. We understand that the primary market is the first market, and the secondary market is the free trading market.

The distinction between Mint and Sale comes from one of the most significant reforms of NFT to the creative industry - traceable copyright tax. By tracking each transaction record on the blockchain, creators can extract from each transaction (resale) a fixed percentage of the royalty tax set when the NFT was created. In this way, when NFTs are sold twice, or three times in the secondary market, the creator can continue to profit from it. In addition, there is a particular Mint method, "Free Mint," which means that the official price of NFT is set to 0, and consumers only need to pay the Gas Fee (handling fee) that will be recorded on the chain when Mint is recorded.

What is Whitelist? 

Once we understand Mint, we can learn more about the differences between Public Mint and Whitelist Mint. To put it bluntly, Whitelist is a "priority and privilege list." The project party officially announced that the date when everyone can buy it together is Public Mint, and in the first day or two before a certain number of people can buy it is Whitelist Mint. Sometimes it can enjoy a lower price than Public Mint.


Most reasons for setting up Whitelist are that the project team reserves a certain amount of NFTs for other collaborators, which may be collaborative studios and KOLs who assist in publicity. In addition, some projects will hold various activities in the community to attract the public's attention in front of Public Mint, and the event reward is to give Whitelist places to publicize the project. The more common ones are to invite a few friends in the project's Discord discussion group, to help forward relevant messages on Twitter and IG, to participate in various entertainment activities held in Discord, and so on.

What is Airdrop? 

Airdrop is a more direct method than Mint. The project party directly sends NFT to the user's cryptocurrency wallet. Like the actual airdrop, the user does not have to pay fees, including the Gas Fee. The implementation method is that the project party will collect the cryptocurrency wallet address (public key) from the user and then directly transfer the cryptocurrency and NFT to the wallet.

Airdrops are generally applied in two directions.

1.nitial publicity of the project - Many cryptocurrencies and NFTs are in the market. To gain public attention and increase the number of audiences, some project parties will hold events to draw the qualifications for the airdrop.

This way, it can gain popularity and allow users who receive airdropped cryptocurrencies and NFTs to become part of their community, achieving a win-win situation.

2.Welfare feedback in the later stage of the project - Some project parties will assure users that they will continue to receive free new series of NFTs or related benefits after holding NFTs. At this time, users will accept them free by airdrops without paying a Gas Fee.

Risk of airdrops?

The fact that users receive free airdrops is not without its drawbacks. While there is no risk in simply knowing the public key address, fraudulent groups could use this to send complicated smart contracts to users. The standard method is to airdrop virtual currency or NFT to users. Then, when the user sees an additional asset in the virtual wallet, they are naturally pleased and want to go to the website to confirm the content. Suppose a user accidentally clicks on the website and signs an agreement to connect the virtual wallet to the fraudulent website without checking. In that case, they can transfer the assets to the cryptocurrency wallet within seconds, leaving the user losing everything.

What are the primary market and secondary market?

The primary and secondary markets mentioned earlier will be explained in detail in this paragraph. We understand that the primary market is the first market, and the secondary market is the free trading market. In the traditional financial industry, taking the stock market as an example, the IPO of a company is considered the primary market. IPO, full name Initial Public Offering, also commonly known as fundraising or listing, is the process of a company trading shares to initial investors. The secondary market refers to the general public's transactions on significant stock exchanges.

Primary market and secondary market of NFT

Applying the above concepts to the NFT trading market, the primary market is where users directly trade with NFT creators and creative teams to obtain NFT, which is Mint. The secondary market is where users who hold the NFT (sometimes the creator will also) put the NFT on the major NFT trading platforms for secondary and tertiary sales and bidding. This process is called a general transaction.

What are Smart Contracts? 

Smart contracts refer to particular protocols used to formulate contracts in the blockchain and will be automatically executed and recorded through the characteristics of the blockchain without the supervision of third-party units. When creating a smart contract, the terms of the agreement between the two parties can be chained to the blockchain record to ensure that it will not be tampered with, and automated execution provides fairness.

Ethereum is the first public chain that allows users to create their smart contracts. Therefore, many decentralized financial services and NFTs were initially built on the Ethereum chain. Various financial transactions on the blockchain that can be automatically executed using smart contracts include lending services, investments, trading NFTs, and more.

The benefits of smart contracts

1.Smart contracts do not require the intervention of third-party institutions and can ensure openness and transparency. The encrypted records of transactions are shared among participants, and data cannot be changed.


2.Because the intervention of third-party agencies is omitted, the execution of smart contracts can save a lot of money and has the characteristics of high speed, efficiency, and accuracy.

The downside of smart contracts

1.When the requirements specifications of smart contracts are not rigorous enough, developers will misunderstand the requirements, and the execution results of the programs will not match the user's expectations. Generally, when we sign traditional contracts, we ask lawyers to review the contract terms in advance. However, in the future, we may also need professional, smart contract detection tools to review smart contracts and reduce errors.

2.Smart contracts have many legal issues and challenges to consider. For example, is there any legal restriction when hackers discover program loopholes, take many assets, and cause losses to others?

The above is a brief introduction to the standard terms in the NFT industry, hoping to help you understand the industry more quickly.