You have probably heard about pictures of apes selling for millions of dollars and wondered what in the world is happening?
No matter where you discovered NFTs, you are in the right place. We will discuss why there is so much hype around them. Is NFT just a bubble that is about to blow up?
This blog post will introduce you to NFTs, what they are, how they work, and everything in between. Where did the idea come from, and what are their benefits? We will also share tips on how to create and own NFTs.
So, let us get down to business.
What is an NFT?
Image by Gustavo Pires Bertaco from Pixabay
NFT stands for Non-fungible tokens.
An NFT is a unique cryptographic asset built on a blockchain that is irreplicable once traded.
Cryptocurrency is fungible. NFTs are not. Let us say you like plain white T-shirts. When your white T-shirt wears out, you can always get a new one. Crypto is also replaceable, in that 1 BTC will always be equal to another BTC, so like your T-shirt, you can always get another one.
On the other hand, imagine meeting Lionel Messi or Lebron James, and he signs your white T-shirt. The T-shirt becomes unique and irreplaceable. That uniqueness is what an asset NFT.
The History of NFTs
Indeed, NFTs are associated with the Ethereum token. However, Bitcoin was the first one to execute the idea. Meni Rosenfeld published a paper called colored coins.
The colored coin concept showed how Bitcoins could represent physical assets on the blockchain. It also proved ownership of these assets. One of the Bitcoin users at the time, Vitalik Buterin, was impressed by the concept.
An artist called Kevin Mccoy minted a token called Quantum. The Quantum is an octagon that changes color and shape. He created the NFT in 2014 on a Blockchain called Namecoins.
Vitalik Buterin launched Ethereum in 2014. Three years later, cryptokitties and crypto punks built NFTs on the Ethereum blockchain.
Currently, the NFTs are not just on Ethereum and Bitcoin Blockchain. Other networks like Cardano, Solana, Flow, and Tezos have NFTs.
The Quantum NFT sold for a whopping $1.4 million at an auction called the Sotheby auction. Beeple minted an NFT called first 5000 days that sold for $69 million. NFTs are popular.
The big question would be, how do they work?
How do they work?
The idea behind NFT is that you are not buying the picture, music, GIF, or video. You buy the code that displays the actual item instead. You also acquire ownership and bragging rights for the asset in question.
NFT gives a way of verifying or authenticating the ownership of a digital or physical asset. Blockchain technology makes it difficult for third-party users to change, hack or reverse transactions.
A feature, smart contract, of the blockchain makes NFT transactions possible. The feature only allows transactions when they meet the conditions. The smart contract code automates transactions in the shortest time possible.
The NFT’s unique token identifier is in the smart contract. Therefore, the token ID moves to the new owner after a complete transaction.
The blockchain does not store the item because of the size and cost. It only has the web address that points to where the asset is stored.
Bear in mind that an NFT can represent any asset on a blockchain. Its uniqueness makes it scarce. The short supply makes them valuable.
What is the point of NFTs?
You are probably asking yourself why anyone would spend millions of dollars on an image they can download or screenshot on their phone. I mean, the item probably has millions of copies worldwide, right? Well, let’s find out why.
It is true you can download a copy of the NFT from your phone. However, it will not have the same value as the original item.
Imagine how much it would cost you to acquire the original Monalisa painting. Yes, you can download a copy of the Painting on the internet, but the value of the original and a duplicate is not the same.
Artists and creators can now monetize their work without worrying that someone else could benefit from their hard-earned creation.
The benefits of NFTs
Security of digital assets
The fact that NFTs are part of the Blockchains makes them secure. Blockchain technology prevents stored NFT data from being manipulated, altered, or removed.
A new unalterable block links to the chain after being verified by peers in the network.
Additionally, there is a guarantee that nodes in the blockchain network have a copy of every transaction. Therefore, nothing can happen to the NFT data. Any peer can view the transaction recorded in the blockchain.
Unique
Non-fungible tokes draw their value from their uniqueness. Blockchain technology ensures the transaction of the NFT is traceable.
The laws of the market dictate that low supply creates high demand. The creators of the NFT have control over the number of identical digital assets they release to the market. Thus, you can be sure you are one of the few individuals who own digital assets.
Decentralized market
NFT marketplaces are there to mint NFTs. The creators use the NFT marketplaces to create their digital assets. We will further talk about the NFT marketplace later.
The platforms store the original NFT. The blockchain stores the web address of the original file.
The storage platforms use a peer-to-peer network system that ensures the files are safe and decentralized. Therefore, the central authority does not control them.
Market efficiency
NFTs directly connects buyer and sellers. No middlemen. Artists can connect directly to their followers. The money they pay goes to the artist without passing through many hands.
The artist gets what they deserve. They can also get royalties from future sales if it is in the smart contract.
Transferable
The Smart contract feature makes it easy to transfer ownership of the NFTs when all conditions are satisfied. NFTs offer you a wide range of options to sell your assets.
This feature can allow you to add NFTs acquired in a closed ecosystem like games in your digital wallet. Imagine being able to sell an NFT you won in a video game.
Can You Create Your NFTs?
Image by Chetraruc from Pixabay
Yes. You can create your NFT. The question is, how do you do it?
To create an NFT, you need to have a unique digital asset that you own the copyright.
Secondly, you need to choose the blockchain to use. You can upload the digital asset to the blockchain in a process called Minting. Minting is converting the item into a digital asset stored on the blockchain.
After the minting process, you can now select your NFT marketplace. An NFT marketplace is a platform where people can buy NFTs. The NFT marketplace will need you to link it to your crypto wallet.
The marketplace allows you to sell your minted NFT at a small fee. Therefore, you may be required to buy some crypto. After finishing, you can wait for someone to buy your NFT.
Easy.
Right?
At least you now know how to mint NFT, but are there other ways to use your NFTs?
NFT use cases
NFT has many use cases, but we will mention some major ones.
Gaming
Photo by Yan Krukov: https://www.pexels.com/photo/gaming-chairs-and-computers-9072216/
As we speak, some games have already joined the NFT bandwagon. The Sandbox, Gods unchained, The Walking dead, and Axie Infinity use NFTs.
The players can easily trade them in-game since the transactions are quicker. Developers can offer NFTs that give players access to certain features or characters in the game.
Proof of ownership
NFT is a way to show proof of ownership of any physical or digital asset. Digital artists can mint NFTs of their art, and the blockchain can trace they own it. Third parties cannot claim ownership by getting copies because they do not have the token identifier which shows the owner.
Ticketing
Event organizers have started using NFTs as event tickets. Artists can sell NFTs for their music and give incentives to the buyers to get access to a meet and greet event when they are in town. You can use NFTs to replace packing tickets. It could help reduce paper usage.
Metaverse
Photo by cottonbro: https://www.pexels.com/photo/couple-hands-love-evening-4009622/
NFTs are one of the building blocks of the Metaverse. The Metaverse is a network of 3D virtual worlds where anybody from any location can interact in real-time to form an internet economy that spans and links the digital and physical world, as described by smart valor.
NFT tokens can buy avatars, art, and even land. It can be a place to store and view other NFTs.
FAQ
What are some of the popular NFT marketplaces?
The popular NFT marketplaces include Open seas, Rarebits, Cryptopunks, Cryptokitties, and Decentraland.
Which is the most expensive NFT?
The first 5000 days by the Beeples were sold for $69.3 million, making it the most expensive NFT at the time of writing.