NFT? What's that?

NFT? What's that?

A deep dive into the world of Non-Fungible tokens

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Enitan Bello
ยทApr 1, 2022ยท

9 min read

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Every now and then, new trends emerge in the cryptocurrency space. In 2016/2017, the trendy thing to do was an ICO (Initial Coin Offering). A couple of years later, a market crash birthed another trend: stable coins and security tokens. This trend didn't last long though, as it was quickly replaced by IEOs (Initial Exchange Offerings), DEXs (Decentralised Exchanges), DeFi (Decentralised Finance) etc. Today, NFT is the buzzword.

What does "Non-Fungible" mean?

Before we start to learn about NFTs, let's clear up a few things that might be confusing. What does it mean to be non-fungible? Fungible goods, such as fiat dollars or Bitcoin, all have the same value and can be traded for each other. Goods that are not interchangeable, like a Picasso painting and a Davinci painting, are unique, have different values, and can't be traded for each other.

What is an NFT?

Most NFTs are based on the Ethereum blockchain and are digital tokens. Many blockchains have also started to use NFT standards, which is something to keep in mind. On these blockchains, you can buy, sell, or trade NFTs. They are unique digital assets, with their identifying information stored in smart contracts. This information is what makes each NFT different.

Because NFTs are unique, they can not be traded for one another. They differ from fungible commodities such as bitcoins. Additionally, fungible objects are divisible, so you can swap fractions of bitcoin, such as 50 cents for a dollar. Non-fungible tokens are not divisible, so sending a fraction of an NFT is impossible. For example, you can not give someone half a ticket or a collectible item. Each ticket is a unique object that contains information about the person who purchased it. Due to the uniqueness of the dataset, the ticket can not be swapped.

The NFTs are nearly entirely based on the Ethereum blockchain. As a result of this, they utilise two sorts of Ethereum token standards; the ERC-721 and ERC-1155 tokens are the two types. These token standards provide assurance to developers that the asset will behave in a specific way at all times.

Other blockchains, such as Tron, Solana, and EOS, have established their own token standards in the hopes of attracting developers to create NFTs on their platforms. Ethereum, on the other hand, is the favoured platform for most developers. Polygon, a Layer 2 scaling solution for the Ethereum blockchain, is giving Ethereum a run for its money.

nft-art-1.jpeg Beeple, Everydays: The First 5000 Days. Sold for: $69.3 million

Characteristics of NFTs

NFTs have several characteristics that set them apart. Some examples are

  1. NFTs are non-interoperable, which means that one NFT cannot replace another. This is due to the fact that each NFT is distinct, with its own set of characteristics and information. The game CryptoKitties is an example of this. A user would be unable to use a game asset in another game.

  2. Because all NFT data is stored on the blockchain, it is simple to trace back to the original owner. This makes it simple to authenticate NFTs.

  3. NFTs are indestructible because they run on blockchain technology and use smart contracts. Because of the blockchain's inherent transparency and immutability, NFTs cannot be destroyed or duplicated.

How do NFTs Work?

Let's look at how NFTs work; a collectible item or a work of art is unique. No two are alike, and this is what gives those items their value. Digital assets, on the other hand, can be replicated indefinitely. This is where NFTs come into play.

For digital assets, NFTs generate a digital certificate of ownership, which can then be bought or sold. The blockchain keeps track of who created or owns the NFT, ensuring that the information about who owns the NFT cannot be changed in any way, granting the individual complete ownership of the digital asset.

Smart contracts enable the addition of information about the NFT's owner, proving digital ownership of an asset. The use of blockchain technology ensures that ownership of the NFT is assigned, and smart contracts ensure that the owner receives a cut of any future token sales.

Benefits of NFTs

So far, we've talked about what NFTs are, what they look like, and how they work. Now, let's look at what makes NFTs stand out: their benefits.

  1. NFTs are transferable. The owner of an NFT can talk directly to a buyer who wants to buy the NFT and transfer ownership rights without a third party.
  2. An NFT makes it impossible to have more than one set of ownership rights. As a result, it is very easy and straightforward to show the "proof-of-ownership" needed to claim your own work.
  3. NFTs can't be faked because they are based on blockchain technology and can't be copied. NFTs have solved a problem that has been plaguing the digital art and collectibles industry for a long time: how to prove where something came from.

Why are NFTs so valuable?

When you like something, you give it a lot of importance. When it comes to NFTs, it's the same story. We want NFTs to have value, so we give them value. Take a look at an example. If you like wrestling and want an NFT that looks like your favourite wrestler, for example. If you like football, you might want an NFT that shows off your favorite team. An NFT's value is completely based on what you or anyone else is willing to pay for it.

NFT Use Cases

NFTs are becoming more and more popular in many fields, not just the digital art space. Here are some ways that NFTs have been and can be used.

  • Popular games like PUBG and popular game companies have used NFTs because they saw how useful they could be. Formula 1 has teamed up with Animica Brands to let people collect NFTs in a game based on Ethereum. Rabbid tokens have been released by Ubisoft, one of the biggest names in gaming.

ubisoft-Chick-2.jpeg Rabbids by Ubisoft

  • Fashion: Brands like Gucci and Louis Vuitton have started putting NFTs on their products, which makes it easier to check if they are real. Nike is getting a patent for its NFT-based shoes. People who own Nike NFTs can turn them into real shoes. Top players in the NBA and NFL are now shown on NFT cards.

lv-nft-voguebus-louis-vuitton-apr-22-story-inline.gif Louis Vuitton Voguebus NFT collection

  • Identity: NFTs are a great way to prove who you are. Some examples of digital records that can be used to prove someone's identity are medical records, school records, etc.

  • Digital assets: Non-fungible tokens (NFTs) are a great way to use digital assets. Ethereum Name Service is an example of this (ENS). All ".ETH" names on ENS are ERC721-compliant NFTs, which gives users the direct right to own unique domain names.

Screenshot 2022-06-01 at 21.24.27.png enitan.eth ens domain purchased as NFT

Why do so many people use NFTs?

The way ownership works is being changed by NFTs. NFTs are specifically changing how digital ownership works, making it possible for people to buy animations, digital pictures, and digital art. A person can turn just about anything into an NFT.

NFTs have had a tremendous effect on the world of digital art, for example. Fans of sports collect NFTs of their favourite players or teams and trade them with other fans. Fans can also get NFT video highlights of all the most important parts of important games.

What are some NFT projects that people like?

As NFTs become more popular, several projects are getting a lot of attention. Here are some:

  1. Ethereum Name Service (ENS) is a domain name service that represents .ETH domain names by using NFTs.
  2. CryptoKitties: The game that started it all, CryptoKitties, brought NFTs to everyone's attention and made them famous.
  3. Cryptopunks: 10,000 unique collectible characters with proof of ownership stored on the Ethereum blockchain. This project inspired the modern CryptoArt movement.
  4. BAYC: A limited NFT collection where the token itself doubles as your membership to a swamp club for apes.

NFT Token Standards

In the NFT space, token standards play an important role. For NFTs, the tokens are.

  1. ERC-721: This is the most popular standard for NFTs. It was first used in CryptoKitties and is now used in many other places. The first standard for NFTs was made with the ERC-721 token standard. The standard makes it easy for developers to make new smart contracts that comply with ERC-721.
  2. ERC-1155: The ERC-1155 token makes it possible for NFTs to be almost interchangeable (semi-fungible). This token represents a class of assets instead of just one asset. This makes smart contracts more efficient and less complicated, so developers can make big changes to them.

What does the future hold for NFTs?

As NFTs become more popular, brands and industries will license more and more of their content to NFTs. At the moment, they are mostly used in digital art, games, and crypto-collectibles.

NFTs are used to represent items and collectibles in games. People can trade these things with each other. NFTs could also be used in copyright, intellectual property, and ticketing in a big way.

NFTs can be used to tokenise properties in the real estate market, which introduces the idea of shared ownership. Since the tokens aren't interchangeable and live on the blockchain, it's easy to find out who owns them. NFTs can also be used to keep track of birth and death certificates and licenses for software.

Some Prominent NFT Sales

Most people who buy NFTs are people who know what digital assets are worth. Still, NFTs have a huge market, and cryptocurrency fans are the main people who buy them. NFTs are a big business in both digital arts and games.

  • On December 2, 2021, almost 30,000 collectors paid a total of $91.8m to buy Pak's The Merge. This made it the most expensive NFT ever sold. pak-merge-nft-1024x575.jpeg
  • The most expensive NFT ever sold to a single owner was Beeple's Everydays: the First 5000 Days, which went for $69.3 million. nft-art-1.jpeg
  • In 2019, the 1-1-1 car from F1 Delta sold for 415.5 ETH ($872,550).
  • "Clock," a piece made by Pak and Julian Assange that looks almost exactly like a clock and counts the days that Assange has been in jail, sold for $52.7 million.

assange-clock-nft-e1644582165588.jpeg

  • On February 12, 2022, when it sold for more than $23 million, CryptoPunks, 5822 shocked everyone.

cryptopunk-5822-630x420.jpeg

  • A digital collectible card of LeBron James sold for $100,000.

lebron.jpeg

Conclusion

NFTs are slowly but surely making their way into the mainstream. The number of people using them is steadily growing, and recent events have brought even more attention to them. Since NFTs are digital assets, they can't be compared to physical assets. NFTs, on the other hand, can be just as valuable as rare physical collectibles and might even keep their value for longer.

As with every cryptocurrency trend, there are always people who try to scam people out of their hard-earned money by putting up fake projects. They do this by putting out projects quickly or by copying already successful ones. To stop this, NFT marketplaces have started putting in place strict KYC (Know Your Customer) and AML (Anti Money Laundering) rules. But there may always be fake projects. It's not a flaw in NFT. It's a flaw in people.

NFTs have helped digital artists, musicians, and people who make digital content get more value out of what they make and get the credit they deserve. With NFTs, the blockchain technology makes sure that artists and digital creators get their share of the money made from their future sales.

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