What is an NFT?

The cryptocurrency community’s ability to innovate is surpassed only by its influence in setting new trends, as evidenced by the rise of NFTs. But what do NFTs stand for? NFTs refer to nonfungible tokens, which are digital objects that are verified on the blockchain and hold features such as uniqueness and non-interchangeability. They can fall into pretty much any category but are most notably appearing in the form of art, music and as items in blockchain-based video games and video. 

Among other areas, NFTs have had a monopolistic hold on the art world where digital tokens are being auctioned off for millions of dollars by renowned houses. Artists who were previously posting their work online for free or selling it at low prices now understand that they can make a fortune from their talent through blockchain technology and NFTs.

It’s still the early days for nonfungible tokens, which were thrust into the spotlight in 2017 with a decentralised application (DApp) called CryptoKitties, where users can buy, trade and collect virtual cats.

NFTs, or nonfungible tokens, have surged in popularity over the past year, with transactions nearly doubling to 222,000 and the market ballooning by 300% to $250 million. These digital assets are appealing to traders and creative types alike for their uniqueness and potential value.

NFTs have quickly become a hot topic, even for those who are not involved in the crypto community. If you find yourself interested in exploring this phenomenon, it is advisable to understand the ecosystem and what NFTs represent. By doing so, you can make more informed decisions about whether or how to invest in them.

How do NFTs work?

NFTs differ from ERC-20 tokens such as DAI and LINK in that each token is unique and cannot be divided. NFTs allow for the assignment or claim of ownership of any unique piece of digital data, which can be tracked using Ethereum’s blockchains as a public ledger.

So, what is NFT digital art? An NFT digital artwork is an asset that uses Ethereum’s blockchain technology in order to verify the piece’s certificate of authenticity and ownership. This allows for a more secure way to trade or sell the work while also ensuring that it cannot be replicated.

At any given time, an NFT can only have one owner. The uniqueID and metadata that no other token can replicate are used to manage ownership. Smart contracts, which assign ownership and govern the transferability of NFTs, are used to create the uniqueID and metadata. 

When an NFT is minted, code from smart contracts that follow ERC-721 and other standards are executed. The data generated by these contracts are stored on the blockchain, which manages all NFTs.

NFT use cases:

Art

The most popular use for NFT crypto is programmable art, which combines creativity and technology in a unique way. Various limited edition artwork pieces are now in circulation. Surprisingly, they enable programmability to make changes in diverse situations. For example, smart contracts and oracles can let artists create visuals that can react to price swings in blockchain-based digital assets.

Fashion

With advantages for all members of the supply chain, blockchain has become a staple in the fashion industry. For example, consumers can use QR codes to check online ownership information and confirm that their garments and accessories are not counterfeits.

Licenses and certifications

In addition to providing indisputable evidence of authenticity, Non-Fungible Tokens (NFTs) can also be used for confirming licenses and certifications. For example, when a student completes a course, they are typically issued a certificate in digital or physical form. But before someone is offered a position at a corporation or institute, the university or employer will request additional copies of the completion document as references.

NFTs have the potential to drastically reduce the time administrators spend on managing licenses. With NFT-based certificates and licenses, it becomes much easier to confirm records and progress.

Sports

The sports industry is plagued by counterfeits, but blockchain technology can help to resolve this issue. Blockchain data cannot be altered, which would make it much harder for counterfeiters to create fake tickets or collectibles. This would not only protect businesses and consumers from being scammed, but also restore confidence in the sport industry as a whole.

Gaming 

NFTs have been a groundbreaking force in the cryptocurrency gaming industry and are continuing to revolutionize how we game. CryptoKitties was the first to marry NFTs with gaming features in 2017 by issuing digital cats on the blockchain that gamers could interact and trade with. The model’s runaway success caused congestion on the Ethereum network for a brief period as transaction numbers spiked.

NFTs have had a lot of success in the gaming industry, which makes sense given that there is already a large market for in-game sales of items like skins.

NFTs have allowed decentralised startups and traditional gaming companies to work together in order to create digital artwork, fashion and cards that are stored on the blockchain. This pairing has been beneficial for both sides as it provides opportunities for disruption within the industry. Gamers are not only interested in being competitive but also want to be involved investors, which is where NFTs come into play.

NFTs vs crypto and fiat currencies. What’s the difference?

The value in NFTs come from the fact that they can’t be replaced with other assets, as each one has unique properties. For example, someone created an attractive and rare virtual world inspired by Minecraft called Decentraland. The plug-in software used to buy land within Decentraland is an ERC-1155 nonfungible token (NFT). More than 90% of transactions on the platform are conducted using Ethereum’s cryptocurrency, Ether (ETH), but all land purchases and store rents require MANA.

BTC is a fungible asset. This means that if you own 1 BTC and exchange it for another bitcoin, nothing has changed in regards to the amount of Bitcoin you have.

To put it more simply, nonfungible tokens are like baseball cards—every card is unique and has a different value. This concept isn’t lost on the MLB, NBA, and other sports teams and organizations, who have started using these tokens.

How much are NFTs worth?

In theory, anyone can tokenise their work and sell it as an NFT, but recent headlines about multi-million-dollar purchases have piqued attention.

For instance, Grimes sold some of her digital paintings for more than $6 million. Art isn’t the only thing that is tokenised and sold. With bids reaching $2.5 million, Twitter CEO Jack Dorsey sponsored an NFT of the first-ever tweet.

Sorare, a French company that offers football trading cards in the form of NFTs, has raised $680 million (£498 million). But, as with crypto-currencies, there are concerns regarding the NFT’s environment impact.

Why are NFTs getting so much attention?

NFTs first made an appearance in 2012-2013, though their use became Ethereum blockchain exclusive in 2017. Most tokens nowadays live on the Ethereum blockchain due to its popularity. The main standard for NFTs follow ERC-721 guidelines.

Party A must pay a gas fee to Party B (the network’s miners) when a transaction occurs on the Ethereum blockchain. The nonfungible token issue with Ethereum is that it’s already an expensive blockchain, so these fees can become extremely high during times of peak demand for transactions.

The expensive rates are due to the NFTs’ popularity combined with the current Ethereum blockchain’s lack of scalability. However, this scaling problem is set to improve as the project transitions from proof-of-work (PoW) to proof-of stake (PoS), in a changeover popularly known as Ethereum 2.0 (Eth2). Until then, token creators have to consider if it’s worth paying high fees or if they should explore other options instead.

Recently, NFTs have become popular due to celebrity connections and exclusivity. For example, before his fight with Floyd Mayweather, Logan Paul offered supporters the chance to win first-edition packs of Pokémon cards if they purchased his NFT collector card.

With NFT trading sites seeing a major surge in popularity, some are calling it a “gold rush.” However, others remain skeptical and wonder if this is simply speculative hysteria that will die down once the novelty wears off.

While the overinflation of value has been a staple in art for many years, NFTs may provide new opportunities for smaller artists. With NFTs, creators always receive royalties whenever their work is resold- regardless of how much its value has increased.

Without the greedy middlemen always looking for their cut, artists would be able to keep more of the money from their music sales.

Not only is this platform a game-changer for content creators, but it has the potential to change lives. For example, meme culture artists can now monetize their work in ways that would have been dismissed by previous generations. This new era of digital comedy enables content creators to make a living doing what they love.

NFTs are a big deal whether you like them or not, and people are always looking for chances to make money quickly or avoid disasters with new concepts. It’s worth paying attention to what’s going on.

What makes an NFT valuable?

The relationship between monkey JPEGs and NFT scarcity is that they are both considered to be highly valuable. This is because NFTs have managed to create scarcity in the global digital market, which makes them worth a lot of money. So an NFT isn’t just a way to own an image, but it’s also a way to make some serious profits.

When you buy an NFT, you’re actually purchasing a token that will always lead back to a specific image or digital item noted on a blockchain. That being said, the price of an NFT can be increased greatly by its original creator limiting the supply when they first ‘mint’ it as an NFT.

Will NFTs transform the art world?

NFTs will likely create a paradigm shift in the art world as we know it. Prehistoric cave paintings, for example, date back to the Lower Paleolithic Era–that’s 290,000 BCE to 700,000 BCE. But of course, art has progressed significantly since then rock carvings. Thanks to NFTs though, creators have new ways of making money from their artwork and gaining attention from fans.

If you are wondering how nonfungible tokens have changed the art world already, just look to Christie’s auction house. With a history of more than 250 years, they sold digital artist Mike Winkelmann’s piece “Everydays: The First 5000 Days” in JPG format for a record $69 million. It was a sign of the times that proved just how much influence blockchain technology has had on modern art.

Beeple’s $69 million price tag places him among the top three most expensive living artists in terms of auction sales. And while NFTs may one day be found in museums alongside other famous Christie’s sales, for now their ownership is verified on the blockchain. Beeple’s story is also significant because he only began participating in the fine art world when he discovered NFTs, demonstrating how quickly a new artist can become successful in this digital age.

When Christie’s announced that it would be auctioning off a Beeple NFT, Asian investors were quick to respond, with nearly one-fifth of the 33 bidders for the digital art coming from Asia. In the end, “MetaKovan,” a Singaporean cryptocurrency investor, won the auction.

NFTs aren’t only benefitting Beeple. Another example is CryptoPunks, a 10,000-character collection of 24×24 images that includes zombies and aliens built on the Ethereum blockchain. This shows how popular NFTs have become in recent years.

Like Beeple, several digital artists have found success from their NFT artwork, including the sale of nine portraits totaling close to $17 million at Christie’s auction house. The limited-edition nature of CryptoPunks makes them valuable—for example, CryptoPunk 635 (which was part of the group of nine) is one of only nine alien portraits and sold for a high price due to its unique features, like sunglasses and a blue face.

Musician Grimes also got in on the NFT action, making a little over $6 million from selling digital artwork and videos. Her most popular piece was a video called “Death of the Old,” which only exists as one copy. This NFT alone went for nearly $389,000.

How are NFTs reinventing the digital world?

Nonfungible tokens have caught the eye of art collectors, investors and traders for their potential to authenticate digital artwork. Unlike regular cryptocurrencies, each NFT is unique – meaning it can be used to represent a physical item like a painting. The value in an NFT lies in its originality: having the one-and-only official version of an asset is worth more than owning a copy.

For example, think about the statue of David. Which would you rather have: the original sculpture or a perfect copy? The answer to that question is subjective and depends on your personal values when it comes to artwork. The same concept applies to NFTs; their owners believe that these digital assets – whose proof of ownership is verified on the blockchain – will add value (either increase measurably or immeasurably) to their collection.

Fungibility, or the lack thereof,) is what makes an NFT so valuable and special – it’s reinventing the digital world. Like in society, we value creative genius highly and give them credit for their work by giving the object they created value.

Nonfungible tokens can be bought or sold on many different marketplaces, but you will need a digital wallet and some cryptocurrency to actually make the purchase. You can also buy NFTs in person at some auction houses like Sotheby’s – not just online!

How to buy and sell NFTs?

Most NFT marketplaces operate like an auction house, where you place a bid and hope you win the item. Some platforms though, such as eBay, have “Buy Now” options that let users purchase an NFT for a set price.OpenSea.io, SuperRare, Foundation.app, Rarible are all some examples of common NFT marketplaces .

It’s crucial to remember that every marketplace has unique requirements for cryptocurrency wallets. At the moment, no single wallet can be utilized on all sites. The most commonly used crypto wallet is MetaMask, although others exist such as Formatic, Torus, Coinbase Wallet and Portis.

To sell an NFT, you can either trade one you’ve acquired or mint and sell a new one. Note that there will be fees for both selling avenues: gas fees and marketplace-determined final sale service fees.

NFTs that you have already bought can be sold on the secondary market, just like any other asset. In order to do this, make sure the NFT is in your crypto wallet and list it for sale on your chosen marketplace. Remember that while the value of your NFT might go up over time, there’s no way to know for sure how much an NFT will be worth in the future.

The “Buy Now” price can be determined by the service, or auction rules such as the reserve price to sell a minted NFT may be specified. In some circumstances, royalties might be paid every time your NFT is sold later on. Even though the value of your NFT could potentially go up over time, there is no assurance for its long-term or even short-term worth.

Are there any issues with NFTs?

Although NFTs don’t have a physical safe to protect them, that doesn’t mean there aren’t security concerns. Just like the cryptocurrency industry, the NFT market is still relatively new and developers are still working out some of the issues. In the meantime, there are bound to be some problems. NFTs have become popular even though their infrastructure is still being built, which could be dangerous if it falls into enemy hands.

People new to the cryptocurrency world may still have trouble sending Bitcoin (BTC) or Ether (ETH) to the right addresses. With the popularity of NFTs, they now need to learn about MetaMask wallets and various blockchains that NFTs can be built on. It could all be too much for someone new and lead to mistakes that cannot be fixed in a decentralised system where there is no company or entity to return funds or products back their rightful owner.

Unfortunately, security concerns are also present in the world of NFTs. Despite the immutable nature of blockchain technology designed to prevent fraud, scams still occur within the NFT space. Like other new markets, bad actors find a way to take advantage of inexperienced users in this domain as well. This has even led to copyright issues with some NFTs

Some scammers were recently able to post NFTs of other people’s tweets without their permission. Even though Twitter has taken steps to stop this from happening, it goes to show that there are still ways for unscrupulous people to take advantage of new markets.

Future outlook

NFTs have only exploded in the past year, with 2020 seeing little to no activity on NFT platforms and a sharp increase at the start of 2021. Even if growth slows down, the adoption rate of NFTs will be unrivalled in comparison to other years.

NFTs can be tough to value due to factors such as trade-ability, originality, and the artist’s involvement. The next stage of the NFT market could see the tokens integrated into decentralised finance (DeFi), which has exploded in popularity recently.