Non-Fungible tokens offer a new way to interact with the arts, music, sports, the media, and even more. NFTs show how blockchain technology can change people’s lives in ways that go far beyond the financial market. People all over the world are interested in them because they are a new way to interact with culture, music, sports, and the media. This has been clear from the hundreds of headlines about them in the past few months.
This article will explain what NFTs are, how they work, how the NFT boom started, and why blockchain ecommerce marketplace have made it possible for NFTs to create a new economy.
Why is everyone so Excited about NFTs?
NFTs are so interesting and fun to talk about because almost everyone likes music, art, games, and the internet. People who have never been interested in crypto assets or decentralised finance talk excitedly about nonfungible tokens on every social media platform. During the first half of 2021, NFTs were supported by a lot of celebrities and memes.
This past March, Twitter’s CEO, Jack Dorsey, sold his first tweet as an NFT for an amazing amount of more than $2.9 million. Edward Snowden’s NFT, which was a portrait of Snowden himself, was sold for about $5.4 million, or 2,224 Ether.
The NFT of the Zo Roth meme, better known as “Disaster Girl” because of the 2005 meme of her smiling meanly at the camera while a house is on fire in the background, was sold as an NFT for 180 ETH, which is almost $500,000.
Also, businesses in the traditional market have decided to ride the NFT wave. For example, the first NFT collection of Havaianas was sold at auction in Brazil last month.
Since December 2020, the number of NFT transactions has grown by more than 25 times. This is because people use NFTs every day. It could be one of your favorite songs, a show about your favorite superhero, or a game tool that your kids want to get. In the next chart, it’s easy to see how the number of NFT transactions and business volume have grown in the last six months and since the end of the third quarter, before the recent jump.
What do NFTs mean? How do they work?
An NFT can be thought of as a piece of software code that verifies the property of a non-fungible digital asset or as a digital copy of a non-fungible physical asset. For those who like a more technical look at things:
“An NFT is a pattern of smart contracts that makes it easy to figure out who owns an NFT and how to “move” non fungible digital assets in a standard way.”
In this case, an NFT can be based on any non-fungible asset, like a domain name, a ticket to an event, digital coins in a game, or even an identifier on a social network like Twitter or Facebook. All of these digital assets that can’t be swapped out could be NFTs.
An NFT has a data structure called a “token” that links metadata files that can be fixed in an image or file. This token is moved around and changed to meet the needs of blockchain networks like Ethereum, Kusama, and Flow, among others. When the art file is uploaded to a blockchain network, a metadata file is made in the token’s data structure.
Then, your NFT gets a cryptographic hash, which is a key. This is a register with the date and time that can’t be changed that is kept on the blockchain network. Artists need to make sure they keep track of important information and check to make sure it hasn’t been changed.
When you load your art on-chain, you may be able to see more clearly when the metadata of the art file was tokenized. Since the data of the piece of art is uploaded, no one can get it back or delete it. If your NFT is registered on a blockchain, there is almost no chance that your artwork will go away.
How has Blockchain Technology made NFTs even more useful?
Before 2008, traditional NFTs did not have a single digital representation. So, they weren’t standardized, so the NFT markets shut down and were only open on platforms that issued and made a certain NFT.
When coloured coins were added to Bitcoin’s blockchain, they were the first NFTs in a blockchain. Even though they were made to make Bitcoin transactions possible, their script language stores small amounts of metadata on the blockchain. This metadata can be used to represent instructions for managing assets.
On the other hand, CryptoPunks, made by Larva Labs, was the first NFT experiment based on the Ethereum blockchain. It was made up of 10,000 collectible, “unique” punks. Because the punks “live” on the Ethereum network, they can work with digital wallets and markets.
In 2017, CryptoKitties made NFTs popular on the Ethereum blockchain by letting users make digital cats and breed them with different pedigrees. This was a first-of-its-kind project to create a complex system of incentives. It found that NFTs could be used as a way to get people to do things. This increased interest in auction contracts, which have become one of the main ways to price and buy NFTs in recent years.
The cool thing about using blockchain technology to improve NFTs is that it has made their benefits and opportunities much bigger. Through the ERC-721 standard, it has led to the standardization of how digital assets that can’t be copied are represented. ERC-721 is a pattern of smart contracts on the Ethereum blockchain that is similar to the ERC-115 and ERC-998 standards. It provides a standard way to check who owns an NFT and a standard way to “move” non-fungible digital assets.
Even though most of the action is happening on Ethereum right now, it’s important to note that several NFT patterns are starting to show up on other blockchains. For example, dGoods, which was made by Mythical Games, is focused on using the EOS blockchain to make a cross-chain standard. Also, TRC-721, TRON’s first NFT standard, was made public in late December 2020. With this standard in place, the Chinese blockchain should be able to use more distributed ledger technology-based apps and keep up with the growing NFT sector on Ethereum.
Since then, an NFT registered on a blockchain has become a “unique” asset that can’t be faked, changed, or spoofed.
What are the Potential Advantages of Blockchain for NFTs?
As was said above, standardization is the first benefit of NFTs that are backed by blockchain technology. Blockchain technology makes it possible for NFTs to include extra features, such as instructions on how to get an NFT. This is in addition to standardizing the main features of NFTs, such as ownership, transfer, and access control.
Other key benefits are:
Interoperability is possible because of the NFT patterns. This means that NFTs can move more easily between different ecosystems. In a new project, non-fungible tokens can be seen right away in dozens of different wallets. They can also be traded in different markets and bought in different virtual worlds. This is only possible because blockchain technology allows for open patterns that provide a clear, consistent, and reliable application programming interface and the permission to read and write data.
Interoperability, on the other hand, has made it easier to sell NFTs by making free trade possible in open markets. Users can move their nonfungible assets outside of their original environments using NFTs that are based on blockchains. They also have advanced tools for negotiating, like auctions and bids, and can do business in any currency, from cryptocurrencies like Bitcoin and Ether to stablecoins and specific digital currencies from a specific application.
NFTs based on blockchains can be sold right away, which makes markets more liquid and able to serve a wider range of customers. This gives non-fungible assets a lot more exposure to a wider range of buyers.
The smart contracts let developers put strict limits on the number of NFTs that can be made and give them long-lasting properties that can’t be changed after the token is made. Since the properties of an NFT are written down in the blockchain, you can be sure that they won’t change over time. This is especially interesting for the art market, which is based on how rare an original piece is known to be.
In the market for digital art, being able to be programmed could be a good thing. Async Art, a platform for negotiating and making NFTs that lets the owners change their images whenever they want, is a good example of programmability. The ability for a song to change how it is put together is another example of programmability. That means that each time you listen to the music, it might sound different. You can make these two examples by separating a piece into layers called stems. Each stem has a few different options for the person who buys it. So, a single Async Music track could have many different sound combinations that couldn’t be found anywhere else.
Many people still don’t know how big the NFT boom is or how blockchain is changing the way we enjoy the arts. Maybe we should talk about the topic in more depth.
The problem with NFTs, though, is that smart contracts on the blockchain can be programmed. This means that whenever a piece of content is traded, the creator is always paid for it.
Let’s say that a certain piece of content (music, art, a domain name, a picture of Pelé scoring a goal, etc.) is sold hundreds of times. In that case, the person who made the content will get paid.
This could completely change how copyright and intellectual property work, because if a “division of income” is built into the code of the NTFs smart contract, content creators won’t have to worry about who owns the legal rights to their work.
In fact, the markets for nonfungible tokens and blockchain technology still have a long way to go before they can solve problems like scalability, marketing infrastructure, and which laws apply to NFTs with decentralised storage. Still, we won’t lose sight of the fact that it might be possible to write down the rights of the digital asset behind the transaction of an NFT. This makes it possible for new businesses and markets to pop up that aren’t run by institutions or other traditional trust checkers, but by the people who make the content that people enjoy in social and productive hubs.