After a digital-only artwork sold at auction house Christie’s for $69 million, everyone is getting excited about unique digital tokens called NFTs. If bitcoin is presented as the digital version of the currency, NFTs on the other hand are the digital conversion of works of art and collections. In this guide, we will present the basics of the NFT universe, its role, and everything that revolves around these tokens. But first, let’s define what NFTs are.
What is an NFT? What does NFT mean?
Non-fungible tokens (NFTs) are certificates of authenticity that use blockchain technology to prove ownership and scarcity of digital assets. These are, for example, digital and cryptographic data from music, a painting, or a certificate that is inserted into the blockchain. Unlike NFTs, classic cryptocurrencies are fungible assets. In other words, they can be substituted or exchanged for another identical asset of equivalent value. Therefore, a bitcoin is fungible since you can exchange it for another bitcoin, and you will have exactly the same thing.
In contrast, NFTs are non-fungible, i.e. they are not interchangeable. In fact, a non-fungible token cannot be equivalent to another non-fungible token. Each asset here has a unique value.
What makes NFTs so unique?
Traditional works of art such as paintings are valuable because they are one of a kind. But they are not immune to illegal reproduction or property theft. Thanks to NFTs, it is now possible to create a digital certificate of negotiable title deed. As in the case of cryptocurrencies, the identity of the owners registers in a shared ledger called “blockchain”. However, it is impossible to tamper with the computer data of the blockchain, because the ledger is secure thanks to the contribution of thousands of computers around the world. Additionally, NFTs sometimes feature smart contracts that give the artist, for example, a portion of the eventual sale of the token.
What is NFT digital art?
While digital art has been around for a while, NFTs are starting to transform the way we buy and sell digital art. When something exists in physical space, it is easier to understand why it has value. But, it can be more difficult to understand why digital art or any other digital file has value.
Digital art has long been undervalued, largely because it’s freely available. In order for artists to be able to put a monetary value on their creations, NFTs incorporate an element of rarity into them. Indeed, some collectors, if they know that the original version of an object exists, are more inclined to seek out the “authentic” piece. Scarcity, therefore, explains why baseball card collectors are willing to pay $3.12 million for a picture of Honus Wagner.
What are examples of NFT?
It seems like world history was made on March 11, 2021, when digital artist Mike Winkelmann aka Beeple sold a non-fungible token (NFT) artwork for $69 million at Christie’s in a sale to the auction. No paintings, engravings or sculptures were exchanged during this sale. But, it was more of a GIF sold through a digital transaction of obtaining an NFT digital token, also known as bitcoin for art.
However, earlier, on February 19, 2011, an animated GIF of Nyan Cat; a flying pop-tart cat fetched over half a million dollars at auction. In addition, a week later, the musician Grimes obtained more than 6 million USD with the sale of certain digital works. But, it’s not just the sale of art that is symbolic in the NFT universe. Jack Dorsey, the founder of Twitter launched a sale of his first tweet with bids reaching $2.5 million.
Projects like Decentraland, Landgraze, Cryptovoxels, and Somnium Space allow you to own virtual land in the form of NFTs. People who own land build whatever they want, from conference centers to art galleries.
In addition, NBA Top shot recorded a sales volume of more than 100 million dollars. These are not only NFT collectibles, but also sports products that can be incorporated into several online games. In fact, an entire ecosystem of sports games is being built today around these NFTs. Digital and physical assets are another use case for NFTs. Metafactory, for example, sells real-life custom hoodies that come with an NFT.
How do blockchains and the NFT universe work?
It is best to think of a blockchain as a special type of database. It stores data in groups (called blocks), digitally chained together. Each data block has a limited capacity. Thus, when this capacity is full, the additional data is placed in another block, chained to the original. This protocol makes it possible to secure the blockchain and the exchange of NFTs.
Because of this, NFTs have an important advantage. By being backed by an already known piece of finance (e.g. Ethereum), there are mechanisms to issue, register and sell them. NFTs, therefore, have similarities with crypto-currencies. They are borderless and easy to create and then transfer.
In addition, it is the creators who set the level of rarity of an NFT. It often happens that the artist conceives many versions of his creation, but there is always a noticeable difference. For example, if you are mining NFTs in the form of tickets to an event, then each ticket will be essentially identical except for the seat number and the date/time of the event. You can, however, strike tickets at different levels for different types of seats. You can also choose to make each banknote totally different and make it a collector’s item. Each NFT has a unique identifier. In addition, some NFTs are even programmed to automatically pay royalties to their creator each time they are sold.
Cryptocurrency and NFTs?
Some believe that NFTs are a new type of cryptocurrency. It’s wrong !
NFTs are not cryptocurrencies. Cryptocurrencies like bitcoin are blockchain-native payment currencies.
Unlike NFTs, cryptocurrencies are deemed fungible and interchangeable, like any traditional commodity or currency. In contrast, an NFT is a unique token that is designed, for the most part, on the Ethereum blockchain. As such, NFTs are governed by Ethereum smart contracts . In addition, transfers of ownership are registered in the blockchain.
In addition, these smart contracts consist of a specific code that contains all the essential information. They therefore manage all the important actions relating to an NFT such as its transfer and its verification. These actions form the basis of Ethereum’s ERC-721 protocol in which the uniqueness of an NFT is defined. In general, the information held on an NFT is stored in the metadata of the NFT. And, among the stored information is a “token ID” which refers to an image; a web domain, artwork, or another valuable digital asset.
Non-Fungible Tokens and DeFi
DeFi stands for “decentralized finance”. It is a form of financial application in cryptocurrency or blockchain. DeFi extends the use of blockchain from the simple transfer of value to more complex financial uses.
On the other hand, most DeFi applications are built on Ethereum, the same cryptocurrency platform that introduced the Non-Fungible Token standards. Some projects are considering using NFTs as collateral for loans. For example, if you purchased a rare NFT item in the past, you can use it for a cryptocurrency loan today.
You can also buy shares of certain NFTs, rather than buying them directly. This means that you can be a co-owner of an expensive NFT, for example, a unique piece of digital art. It is even possible to market these shares.
Are NFTs overrated?
It’s hard to say whether NFTs are overkill or not. Today, NFTs are certain to thrive due to their novelty and ability to create a new approach to authenticity in digital art. Chances are they are used in many industries like real estate and advertising.
How to make money with Non-Fungible Token?
The easiest way to make money with NFTs (Non-Fungitible Tokens) is to create or sell them. The procedure is quite simple. Thus, if you wish to sell your works in the form of NFT, then you must register on a market place. Then you will have to “mint” digital tokens by uploading and validating the information on a blockchain. This operation usually costs between 40 and 200 dollars. You can then auction your coin on an NFT marketplace.
How to buy NFTs?
You can buy them online from various marketplaces. Some of the most common marketplaces include OpenSea, Mintable, Nifty Gateway, and Rarible. These are digital collection sites. You’ll find lots of digital artwork, rare items, and even more interesting things to collect. In addition, there are sites or niche markets specializing in the sale of digital works. For example, at NBA Top Shot, you’ll find basketball highlights videos, while at Valuables, you’ll find tweets on sale as was the case with the Twitter founder’s first tweet sale.
In effect, the system works like an auction house where you bid on items and hope to be the winner. But there are a few things to consider before buying. For example, you need to decide which market you want to trade in, which digital wallet to use, and what type of cryptocurrency you will need to complete the sale. Some marketplaces charge “gas” fees. These correspond to the energy required to carry out the transaction on the blockchain.
Are there any risks in buying/selling digital works?
There are a few concerns about NFTs, such as valuations, storage, and regulation. Additionally, if NFTs offer a certificate of ownership, the creator of an NFT does not have to prove ownership of the original work. NFT marketplaces are already dealing with cases of art theft and copyright infringement. For example, according to Yahoo, an artist known as Ashtoshi claims that a selfie was auctioned off on Rarible, without her consent, for over $1,051 in crypto.
What are the big brands that are getting into digital designs?
Brands have embraced NFTs as a way to engage with their audience and promote their products. In recent days, some brands have jumped on the multi-million dollar NFT wagon. We distinguish among others companies like Taco Bell, Charmin, Pizza Hut, Nike, Pringles which are in the process of minting their own non-fungible tokens.
What is the future of Non-Fungible Tokens?
Non-Fungible Tokens are already the main catalyst for digital economic innovation. Indeed, they captivate the world with their technology and embody new business possibilities.
NFTs have already established themselves in the entertainment and luxury industries. Above all, they can still develop in order to reach other well-contained markets such as transport or sports tickets. On the other hand, the art sector will remain an important segment of the overall NFT market. These should gradually reach maturity over the next two years.