What are NFTs?
NFT means non-fungible tokens (NFTs), which are generally created using the same type of programming used for cryptocurrencies. In simple terms, these cryptographic assets are based on blockchain technology. They cannot be exchanged or traded equivalently like other cryptographic assets.
Like Bitcoin or Ethereum. The term NFT represents it can neither be replaced nor interchanged because it has unique properties. Physical currency and cryptocurrency are fungible, which means that they can be traded or exchanged for one another.
NFT is a non-fungible token, meaning it can neither be replaced nor interchanged because it has unique properties.
Features of NFTs
Digital Asset: NFT is a digital asset representing Internet collectibles like art, music, and games with an authentic certificate created by blockchain technology that underlies cryptocurrency.
Unique: It cannot be forged or otherwise manipulated.
Exchange: NFT exchanges take place with cryptocurrencies such as Bitcoin on specialist sites.
How do NFTs get started?
The history of NFTs and the man who first created one, Kevin McCoy, began on May 3rd, 2014. He minted his non-fungible token "Quantum," way before the crypto art market exploded. The one-of-a-kind "Quantum" art piece (2014-2021) sells for seven million dollars.
2017: The CryptoKitties
As Rare Pepes trading picked up, John Watkinson and Matt Hall, the creators of Larva Labs, created unique characters generated on the Ethereum blockchain. No two characters would be the same, and they would be limited to 10,000. Project Cryptopunks was referenced to an experiment with Bitcoin in the 1990s and can be described as an ERC721 and ERC20 hybrid.
Breaking down the different ERC standards- ERC20 vs. ERC721 vs. ERC1155
CryptoKitties NFTs hit the ground running using ERC721. They are a blockchain-based virtual game that allows players to adopt, breed, and trade virtual cats using Ethereum. They exploded in popularity and landed features on major news stations, including CNBC and Fox News. CryptoKitties was created by a Vancouver-based company called Axiom Zen and quickly went viral, earning funding from top investors due to their rise in users. Axiom Zen later spun off CryptoKitties into Dapper Labs.
2018: NFTs grow
Between 2018 and 2021, NFTs slowly moved into public awareness before exploding into mainstream adoption in early 2021.
The underground movement taking the crypto community by storm has slowly transitioned into more mainstream art. It has gradually gained traction, with artists excited to push their creative boundaries.
- This transition reached an inflection point on Valentine's day 2018 when artist Kevin Abosch partnered with GIFTO for a charitable auction. The partnership led to a $1M transaction of a beautiful piece of CryptoArt called The Forever Rose.
The NFT market is more efficient and more liquid than incumbent methods of transferring assets. Numerous platforms have surfaced online, each hosting differentiators for creators and collectors alike. The main area of disruption is focused on limiting centralized fees, where traditional art brokers, and auction houses, often take up to 40%.
- The Open sea is considered the largest marketplace for art, music, domain names, collectibles, and trading cards.
- Mintable's platform makes the minting process super straightforward for the creators.
- Other platforms like Niftex allow users to buy fractions of NFTs or "shards," which are ERC20 tokens representing a piece of the full NFT.
Present: the development of NFTs in the present
Many blue-chip NFT projects emerged as broadly popular in 2021, and all had varying importance for increased adoption of NFTs. The five main categories of NFTs emerging as influential for increased adoption are fiat-accessible, generative profile picture projects, one-of-one art, photography, and play-to-earn gaming. These categories had blue-chip projects appear, which helped propel NFTs from mere buzzwords to household talking points.
How do NFTs work?
NFTs exist on a blockchain, a distributed public ledger that records transactions. Blockchain đã quen thuộc nhất như một quy trình cơ bản giúp tạo ra tiền điện tử.
Specifically, NFTs are typically held on the Ethereum blockchain, although other blockchains also support them.
An NFT is created or "minted" from digital objects that represent both tangible and intangible items, including:
- Videos and sports highlights
- Virtual avatars and video game skins
- Designer sneakers
NFTs are like physical collector's items, only digital. So instead of getting an actual oil painting to hang on the wall, the buyer receives a digital file.
They also get exclusive ownership rights. That is right: NFTs can have only one owner at a time. NFTs' unique data makes it easy to verify their ownership and transfer tokens between owners. The owner or creator can also store specific information inside them. For instance, artists can sign their artwork by including their signature in NFTs metadata.
The Difference between Cryptocurrency and NFTs
Cryptocurrencies are digital or virtual currencies that use encryption to prevent counterfeiting or double-spending. Blockchain technology is the foundation of many cryptocurrency-decentralized networks, a distributed ledger enforced by a dispersed network of computers.
NFTs are non-fungible tokens. Therefore unlike conventional cryptocurrencies like Bitcoin, NFTs cannot exchange them for one another. Since each NFT is distinct, they all have different values. NFTs frequently depict digital objects like music, art, and other virtual assets. Due to how simple it is to buy, sell, and trade them on decentralized platforms, they have been growing in popularity.
A difference between crypto and NFT trading is that NFTs are unique and non-fungible digital assets, meaning each NFT is unique and cannot be replaced by another NFT. On the other hand, cryptocurrencies are fungible digital assets. Meaning another cryptocurrency of the same value can replace each cryptocurrency. When trading NFTs, one sells the asset itself, but one changes its underlying value when trading cryptocurrencies.
The primary purpose of an NFT is to establish proof of ownership for a digital asset. NFTs can represent videos, photos, audio files, and other forms of digital content. NFTs can also represent physical objects, such as works of art, collectibles, and even real estate. NFTs are unique and cannot be replicated, making them ideal for establishing ownership and authenticity. NFTs are saved on a blockchain, a distributed database that is secure and cannot be tampered with. If somebody enquires about NFT vs. blockchain, NFTs are blockchain-based tokens representing a unique asset like digital content, art, or media.
While comparing cryptocurrencies vs. NFTs, the former is often lauded for its volatility. Although some see this volatility as a positive point, others see it as a significant negative point. NFTs, on the other hand, tend to be much more stable because they are not subject to the same market forces as cryptocurrencies. Instead, NFTs are valued based on their own merits, meaning that their prices are not as susceptible to the volatility of the overall market.
5. Uses and Marketplaces
One of the main NFT and crypto differences is that NFTs have been used for various purposes, including digital art, gaming, and collectibles. In contrast, cryptocurrencies are primarily used for payment or investment. NFTs are often bought and sold on specialized marketplaces, while cryptocurrencies can be bought and sold on various exchanges.
Types of NFTs
1. FPs and Avatars
Without a doubt, this format is what most internet users outside the NFT sphere think of when they think of NFTs. Furthermore, that is by design — a quick search of 'NFTs' on Twitter will net you a sea of tweets from users with avatars consisting of Bored Apes, CryptoPunks, Cool Cats, Doodles, and all their offshoots and spinoffs.
2. One-of-one (1/1) artwork
During the minting phase of NFTs, creators can split up their work into multiple editions that may only differ on the blockchain. It means different editions of the same piece may appear identical to each other visually but possess different edition numbers or token IDs.
3. Generative art
Generative art is what it sounds like — art that a computer has generated in some way. While often created by a generative algorithm or artificial intelligence (AI), some works created by physical robots also fall under this definition.
The recent boom of the sports trading card and memorabilia market has not just happened IRL. It also occurs online, as evidenced by projects like NBA Top Shot. Despite that project's well-documented rise and fall, collectibles remain a viable format for NFT projects, especially related to already-popular IP.
5. Photography NFTs
Photography NFTs are growing in popularity and are poised to see continued growth in 2022 as more established photographers hop aboard the platform.
6. Music NTFs
At this point, most people are aware of the music industry's failure to provide artists with sustainable ways to make a living off of their work. While streaming services take most of the revenue, the musicians struggle. It is where music NFTs come in.
7. Gamified NFTs
With NFT-driven play-to-earn (P2E) games — also known simply as "crypto games" — players can own in-game assets like skins, weapons, digital accessories, characters, and virtual land in the metaverse and trade these digital assets to earn financial rewards. Some popular games include Axie Infinity, Gods Unchained, and Decentraland.
8. NFT event tickets
As the Web3 ecosystem grows, NFT use cases evolve beyond digital art and avatar NFTs. Event tickets have become a way to build music and other event presence tallies on the blockchain. NFT ticketing enables holders to use tokens as access passes for live and virtual events. This ticket is different from regular digital tickets because it helps issuers maintain a more profound record of attendance numbers while also serving as a means of sending out notices, offering surprise giveaways, and setting up exclusive sites and services for fans.
9. Membership passes
Although NFT-based memberships are their unique sector of the NFT space, for the most part, they have grown and developed alongside PFPs to provide incentives to holders. These exclusive programs use NFTs as access keys to unlock several services and rewards, including virtual and real-life experiences. At times, NFT memberships are enforced via "token-gating," which uses blockchain technologies to verify ownership of the NFT and grant holders access to whatever member-exclusive perks are on offer.
10. Domain names
Domain name NFTs have been a prominent part of the NFT ecosystem since before the term "NFT '' was even coined. Nowadays, powerful platforms like Ethereum Name Service and Unstoppable Domains have made it extremely simple for users to purchase and manage domain names for their websites, wallets, NFTs, and other digital assets. These domain names live on the blockchain as tradable NFTs — with some, like "beer.eth" acquired by Budweiser, fetching hefty sums on the secondary market. Considering the idea for Ethereum domain names dates back to 2015 — when Linagee Name Registrar launched only a week after the Ethereum blockchain went live — it is no wonder domain names have continued to grow in popularity alongside the evolution of the NFT ecosystem.
How to verify NFTs' authenticity?
NFTs metadata contains the details of what constitutes the NFT. It discloses details like the asset’s owner, the asset’s name, and its rarity. One of the simplest and fastest ways to verify the authenticity of an NFT is to scrutinize the NFT’s metadata using a blockchain explorer like Etherscan or an NFT explorer like Solana explorer.
All you need is to find the NFT on the blockchain or ask for the seller’s wallet address; this wallet address should be the same address where the particular NFT is stored. This will enable you to verify if the supposed seller is trying to catfish.
What is the future of NFTs?
OpenSea co-founder Alex Atallah said in an email that "the possibilities of NFTs are endless since they can be used to log ownership of any unique asset." Using NFTs as event tickets, software licenses, fan club memberships, or other interactive experiences is already an everyday use case for NFTs.
Nike and other well-known American companies are already experimenting with new ways to use NFTs. However, NFTs in consumer products could be just the beginning. Isn't it possible to prove your identity using an NFT?
A shift from artist-driven NFTs to NFTs that focus on access or authorization has been observed, and At a recent New York party, attendees gained entry by purchasing an NFT. Regarding digital identity, I am curious to see how NFTs will be utilized."
There is much potential for NFTs in the $85 billion video game industry. Some of the bigger studios are already trying them out. The metaverse, a virtual 3D world proposed by Meta (formerly Facebook) CEO Mark Zuckerberg and other tech industry heavyweights, could make use of NFTs as building blocks for a future digital universe.
According to Atallah, "gamers are already used to caring about digital goods, so the potential for NFTs is enormous: A few million NFT users compared to almost 3 billion gamers." Some exciting developments are taking place regarding integrating NFTs, gaming, and the metaverse.
Digital collectibles can extend the utility of blockchain technology far beyond conventional financial applications. By representing physical assets in the digital world, NFTs can soon become a vital part of the Web ecosystem and broader economy.
NFTs’ use cases are vast, and many developers will likely develop new and exciting innovations for this promising technology.
Frequently Asked Questions about NFTs
Why does NFT art have value? Why are NFTs so expensive?
Similar to physical art, four factors contribute to the value of NFT art — how expensive it becomes.
- The first is the "market-driven value," which depends on the artist's speculated resale value and popularity.
- The second is the "subjective value." It involves the moral statement or political message that is conveyed by the art — how it makes you feel.
- Another value determinant of NFT arts is the "objective value." It involves the experience and technical skill by which it was created.
- Lastly is the "historical value" the piece of digital art has.
All these factors contribute to how people value NFTs. Each NFT created or minted is unique; it can trace its right to the owner, and blockchain technology protects this right of ownership.
Are NFTs a good investment? What is the risk of NFTs?
NFTs can be categorized under the High Risk, High Reward investment type. The NFT market is fueled by scarcity and desirability, which explains people's craze about them.
However, pundits warn potential investors — who are over-excited by the unimaginable prices NFTs are being sold — against staking their financial security on NFTs. Same as Initial Coin Offerings, there are high chances of getting scammed in NFTs. You also have to consider that you do not own the content of the NFTs when investing.
Before investing in NFTs, invest in knowing what you are getting into NFTs. You need incredible knowledge in the cryptocurrency industry or ever going to have a bleak chance of success.
With NFTs, the philosophy of time and chance is a real thing. They are only worth the amount people are willing to pay for them.
Can I create my NFT? How much does it cost to create NFTs?
Yes. You can create your NFTs and even sell them for a profit.
The process of creating or minting an NFT is listed below:
- Choose a platform where your wish to sell your NFT
- Set up a Wallet
- Connect your Wallet
- Create an NFT (the cost of creation depends on the quality and size of the artwork).
- List your NFT
Note: There are some popular NFT hosting sites where you can create NFTs for free.
Can JPEGs be NTFs?
No. Many people seem to mistake NFT for the external media it is tethered to, such as documentation, tickets, JPEGs, and more, — which diminishes the concept of the token itself.
Can NFTs be copied?
No, and Yes. While the NFT cannot be replicated because of security factors inherited from blockchain, everyone can copy the media quickly.
Take, for example, the Mona Lisa painting by Leonardo da Vinci. At the same time, there are many lookalikes and iterations of the original image, and there are no two original Mona Lisa artworks. The same goes for NFT; it is impossible to fake the creator's wallet even though copying the contents of an NFT can be done.
NFTs contain unique codes — stored on the blockchain in an immutable form — that makes it possible to trace them back to the creator. Please read our detailed article here on where NFTs are stored.
Will NTFs last?
Questions about the durability of NFTs have generated mixed opinions due to the many uncertainties as regards their use case.
Projects based on solid fundamentals will likely survive the test of time. However, that can be said about weaker ones.
Projects that are most likely to lose the fizz are NFT collections that lack utilities.