The early history of Non-fungible tokens is essentially the expansion of the blockchain ecosystem beyond Bitcoin. It was possible to create Non-Fungible “assets” in 2012 using early protocols based on Bitcoin through using a network, such as Colored Coins, Mastercoin (now known as Omni Protocol), and Counterparty. Counterparty Protocol has the earliest versions of NFTs, with a Trading Card Game (TCG) called Shards of Genesis launching in 2015.
In the third quarter of 2015, the Ethereum blockchain was released. However, in Counterparty’s early days, there were more important NFT achievements, spawning a series of Frog Memes known as Rare Pepes as unique digital items.
In the course of Ethereum’s development, a Pepe platform known as Peperium appeared, and this was one of the first times the Ethereum blockchain allowed NFTs other than Bitcoin. During the ICO boom of 2017 (for fungible tokens), CryptoKitties launched with unprecedented fervor on the Ethereum blockchain.
Virtual cats can be bought, collected, raised, and sold in the blockchain-based CryptoKitties game. The introduction of CryptoKitties also included creating the first significant non-fungible token (NFT) standard, ERC721. Since the introduction of CryptoKitties, the number of NFT projects has steadily increased. In 2020, however, we saw a significant increase in growth in both asset types and uptake.
The Introduction of CryptoKitties also included the creation of the first major non-fungible token (NFT) standard, ERC721.
Non-fungible tokens, or NFTs for short, are an increasingly popular asset class. If you’re reading this, that means you already know that these tokens are causing a stir in the crypto and non-crypto world alike. Overall, the market capitalization of the NFT industry has grown from just $31 million in 2017 to an estimated $315 million by the end of 2020.
From this data alone, it is easy to know that NFTs are here to stay. In this beginner’s guide to non-fungible tokens (NFTS), we’ll explain NFTs, the technology behind them, and some of the use cases that will emerge.
Non-Fungible Tokens: A Very Simple Definition
Simply put, NFTs are cryptographic tokens that use blockchain technology to allow users to define the uniqueness of a single asset. If this description still sounds a bit puzzling and you’re struggling to navigate non-fungible tokens, NFT art, or any other aspect of this burgeoning tech trend, don’t worry; we’ve put it together super easy to get started easily.
Suppose you were lucky enough to be in the market for an original Picasso painting. How would you check if it was the original? In this example, the enormous cost would mean that the items would come with certificates of authenticity and many documents from industry experts verifying their ‘provenance.’
However, when it comes to exclusively digital objects like Beeple’s artwork, how could you tell if his JPEG file was the original? It could easily have been duplicated thousands of times before you could get your hands on it.
Thus, is the purpose of an NFT. It allows someone to create a “digital file” for an item by using blockchain technology to assign a unique identifier that guarantees authenticity. NFTs can be used to demonstrate the originality of digital art and even music tracks, but in the future, they could sometimes be used to track real-world assets, such as a house, a car, or even an award-winning racehorse.
What Does The Non-Fungible Part Mean?
Cryptographic tokens like bitcoin are designed to replicate money – you can exchange your bitcoin for a friend’s bitcoin since they both have the same value. Similarly, you can divide a bitcoin among a group of people, like a $20 bill. This makes bitcoins “fungible.”
On the other hand, although a “non-fungible” token (NFT) is somewhat like Bitcoin in its technology, it cannot be shared or distributed, and it cannot be exchanged on an equal footing.
These properties make NFTs ideal for displaying individual assets, as they cannot be changed or split. Half a painting, for example, cannot be purchased, and while you may be able to exchange the artwork for a similar one, it should always exist as a single piece in its own right.
On the other hand, although a “non-fungible” token (NFT) is somewhat like a bitcoin in its technology, it cannot be shared or distributed, and it cannot be exchanged on an equal footing.
If something is fungible, it is interchangeable, and to clarify things, it can be exchanged for an identical item. The US dollar and the euro are two examples of fungible assets along with Bitcoin which is a fungible asset since each Bitcoin is interchangeable.
They are identical in every way. So if something is not fungible, it is the opposite. Non-expendable property is truly unique. An excellent example of this would be a limited edition baseball card, since there is nothing to trade it with on a similar basis.
It has its distinctive properties, including its year of manufacture, and value in general. Non-fungible tokens (NFTS) are unique digital assets, as they use the blockchain to issue and track immutable digital items.
NFT Standards and Adoption
While it is fundamentally possible to create NFTs on almost any blockchain network, some have risen to the top in terms of adoption.
Ethereum: The Ethereum network has the broadest developer community of all blockchains, which means that it has the widest acceptance for non-fungible tokens. Ethereum (ETH) has two primary standards for NFT, ERC-721 and ERC-1155.
EOS / WAX – Both the EOS main net and WAX, a platform based on a fork of EOSIO, support non-fungible tokens. WAX has launched its range of markets and games. Garbage Pail Kids and William Shatner recently introduced NFT to WAX.
Others: TRON, ESO, NEO, and NEM currently support NFTs. Additionally, Dapper Labs, the creators of CryptoKitties, have launched their own Blockchain: Flow, focusing on NFT use cases.
How Do NFTs Work?
Tokens like the ERC-20 tokens based on Bitcoin and Ethereum (ETH) are fungible. Ethereum’s non-fungible token (NFT) standard, as used by many platforms like CryptoKitties and Decentraland, is ERC-721. Also, non-fungible tokens can be created on other smart contract-enabled blockchains with non-fungible token (NFT) support and tools. Although Ethereum (ETH) was the most widely used, NEO, EOS, and TRON now have NFT standards.
Non-fungible tokens and their smart contracts allow the addition of detailed attributes such as the owner’s identity, extensive metadata, or secure file links. The potential for non-fungible tokens to invariably demonstrate digital ownership is a significant advance for an increasingly digital world. You could see that the blockchain promise of reliable security applies to the ownership or exchange of almost any asset.
Like the previous blockchain challenge, non-fungible tokens, protocols, and innovative contract technology are still being developed. Building decentralized apps and platforms to manage and create non-fungible tokens is still relatively complicated.
Also, there is a challenge of creating a standard. Blockchain development is fragmented, with many developers working on their projects. Consistent protocols and interoperability may need to be implemented to be successful.
How Does The Technology Work?
The technology behind NFTs is very complex, but if you familiarize yourself with how the blockchain works, you will quickly understand the basic concept:
A blockchain is a bit like a database—it stores blocks of data in a linked chain. However, unlike a typical database stored on a central server, the blockchain is completely decentralized. Each node in the chain is found worldwide, and each part contains a complete record of the data that has been stored there since its creation.
The order of the data in the blockchain is essential, but each block itself is useless, and manipulating any nodes would invalidate the entire chain. Combine that with decentralization, and you have a very robust and secure method of storing data. Since NFT items are transferred and traded within the blockchain infrastructure, ownership is traceable and guaranteed, with a complete transaction history embedded.
Why do people invest in NFTs?
Because they’ve been proved to work. The production of limited-edition digital products with both a collecting value and a particular utility value is valuable. What is possible and what will be developed with this technology has only just scratched the surface.
NFTs are constructed on platforms that may be easily customized. As a result, these resources may be utilized in a variety of different ways. As the market develops, the possibility to use NFTs as collateral for loans will exist. Content, as always, is king in the digital world. As more high-quality assets are tokenized, the adoption rate will rise.
Where is the most growth?
Near-term growth and validation are expected in the Digital Art industry, notably in 2020. Blockchain thought leaders like Anthony Pompliano believe that the future of the digital art industry will exceed the current one for conventional art. Artists will have greater visibility, more data analytics, and the inability to counterfeit works of art thanks to digital mediums. However, there is still work to do.
Decentraland, a project that allows designers to convert digital parcels of land into a virtual environment, has also been quite successful. Land plots are sold in a virtual real estate market, with both individual creators and corporations taking part. Nearly everything in Decentraland exists as a blockchain-based asset – either fungible or non.
What Are The Benefits Of NFTs?
Ownership
NFTs are already altering the way we think about what it means to be an owner. With blockchain tech, it’s impossible to copy, reproduce, or exchange an NFT token, and ownership is recorded in an immutable way.
Transferability
NFTs can be sent and received immediately. NFTs may now be bought and traded on a growing number of secondary markets.
Authenticity
Because NFTs are built using blockchain tech, they can’t be forged. With this, the art tickets and collectibles sectors may finally be free of a long-standing issue. A certificate of authenticity is commonly included with high-priced tangible items, and such a certificate is included as part of the NFT. This offers purchasers peace of mind knowing they are getting precisely what they paid for.
How To Buy NFT Tokens
Many NFT markets, including Rarible, OpenSea, and Enjin Marketplace, provide non-fungible tokens for sale. Here’s how to use Rarible to get your hands on some:
Step 1
Go to the Rarible website and click on the ‘Connect’ button in the upper right-hand corner. Enter your log-in credentials with the wallet you wish to link to the platform.
Step 2
Once you’ve logged in, use the platform’s search function to find the NFT you want to buy. We’ll use the example of purchasing Jango’s ‘Hand of Fate’ in our example. In any case, the procedure is the same regardless of whatever NFT you choose to buy (assuming it is available to purchase outright).
Step 3
Click the ‘Buy’ button when you’ve found the NFT you want to buy. A confirmation box will pop up, requesting you to check your order information one more time. Click the ‘Proceed to payment button to proceed to the next step if you’re happy to continue.
Step 4
Your wallet will then ask you to confirm the transaction through a pop-up window. Once more, if you’re content to proceed, all you have to do is confirm the transaction.
Your NFT will be transferred straight into your Ethereum wallet and will then be yours to retain after it has been verified. To avoid paying a disproportionately high gas cost, avoid purchasing your NFTs at peak periods.
Some Real-World Applications
So, you’re either a digital creator trying to figure out how NFTs can help you get your passion off the ground, or you’re an entrepreneur wanting to make a fortune with your passion. In other words, are NFTs merely marketing hype, or are there actual applications for them in the future? Even if it’s still so early to tell, we’ve already seen several intriguing implementations:
Digital Artists & Photographers
NFTs are excellent news for anyone who earns a career in digital art. The NFT markets allow you to display your work to the world and then exchange it digitally without worrying about it being duplicated. Due to the nature of blockchain, you will get a fair commission from every sale of your work when it is exchanged online, eliminating the need for an intermediary like an agency or a gallery.
Musicians
Kings of Leon are expected to be the first band to use NFT technology on an album. The album will be released in a limited edition, similar to a vinyl record, with bonuses including unique album art and front-row performance tickets.
NFTs are a perfect match for today’s musicians, as they allow them to distribute singles and albums digitally in small numbers without worrying about piracy or duplication. NFTs allow a recording artist to control the copyright for a track while selling it as a limited edition or a unique studio master on the open market.
Physical Items
But it’s crucial to remember that NFTs aren’t limited to digital products. What’s nice about blockchain tech is that it can store encrypted data in addition to a paper trail of every transaction the item has ever made.
- Real estate sales could be managed and tracked using NFT tokens.
- Classic car owners could use NFTs to trace a vehicle’s history and originality.
- NFTs could prove the authenticity of art and antiques.
Licensing & Record Keeping
A kind of NFT technology will almost certainly be employed in the future for sensitive data like medical records and even passports. At the same time, NFTs might also be used for awarding patents and licenses for many kinds of activity.
The Future Of NFTs
Much of the attention to non-fungible tokens is currently focused on artwork, games, and crypto collectibles. Well-known brands are increasingly licensing their content to NFT; Fantasy football game Sorare has signed up 100 football clubs for its platform, while shows like the BBC’s Smurfs, Minecraft, and Doctor Who have been rendered as NFTs.
For games, non-fungible tokens could represent game items, such as skins, which could be carried over to new games or traded with other players. However, its potential is much more significant with its possible application to copyright and intellectual property rights, ticket sales, and the sale and marketing of video games.
Non-fungible tokens increase the potential for creating security tokens, tokenizing digital and tangible assets. Physical assets like property can be tokenized for partial or joint ownership. If these security tokens are not fungible, the ownership of the assets is fully traceable and transparent, even if only the tokens that represent partial ownership are sold.
Another use for non-fungible tokens could be certification, for example, for ratings, software licenses, warranties, and even birth and death certificates. The smart contracts of a non-fungible token (NFT) invariably prove the identity of the recipient or owner. They could be kept in a digital wallet for easy access and viewing. Our digital wallets could contain evidence of every certificate, license, and asset we own one day.
The smart contracts of a non-fungible token (NFT) invariably prove the identity of the recipient or owner. They could be kept in a digital wallet for easy access and viewing.
Conclusion
OpenSea, as well as other NFT marketplaces, are still in their infancy. A result of the sound technical foundation underlying this new fashion trend may potentially herald the beginning of a revolution for digital artists, musicians, and other online producers while also providing practical solutions for offline applications. There’s little doubt that exciting times are ahead, and early adopters who do their homework might make substantial profits.
