NFT is an acronym for non-fungible token. Non-fungible means non-interchangeable, for example you can purchase gold bullion and trade it to someone else for another piece of gold bullion and you will have the exact same thing. However, an original Leonardo da Vinci painting is one of a kind. You can recreate the painting, you can print copies but there will always only be one. NFTs work in the same way, they are unique collectable tokens that are permanently attached to the digital asset they represent. Currently there is a vast range that is constantly growing from digital artwork, music, video footage or even an NFT that can be used as a playable character in a game.
Ownership is validated on a blockchain similar to the way networks would process and validate transactions for cryptocurrencies. Each NFT is unique, cannot be duplicated and ownership is attached to the NFT transaction history on said blockchain. For example, an individual may have bought a Bored Ape Yacht Club NFT from someone for some Ethereum. This is then confirmed on the blockchain, displaying the previous owners and buyer. The image can still be reproduced or saved, but you are its owner. This is what gives NFT’s their appeal, if you have a NFT you own an asset. NFTs cannot be claimed by another person while you own the original, and this gives them a uniqueness. As a result some NFTs can become very rare and collectable.
Non-fungible tokens (NFTs) date back to 2012 when Meni Rosenfeld introduced Coloured Coins on the Bitcoin network. Yet, their development and adoption have been on Ethereum, where popular NFT standards like ERC-721 and ERC-1155 facilitate easy minting and trading processes.
The NFT collectibles that gained significant popularity were Rare Pepes, followed by CryptoPunks, and the most successful and renowned NFT project to date, CryptoKitties.
During the Ethereum boom of late 2017 and early 2018, CryptoKitties drove a significant surge in NFT activity. But with the market crash in 2018, interest in NFTs faded until a resurgence in late 2020, led by projects like CryptoPunks, Hashmasks, Axie Infinity, and NBA Topshots.
Despite this resurgence, NFT adoption remains relatively limited compared to many cryptocurrency owners globally. Several roadblocks hinder the mass adoption of NFTs, including issues with accessibility, the novelty of the technology, varying transaction fees, the challenge of linking real-world assets to NFTs, and regulatory concerns.
Non-fungible token’s are unique and irreplaceable assets meaning they are not interchangeable and cannot be replaced by another of the same. For example a one of a kind trading card or your car that you drive. While you may be able to replace your car with another of the same make and model, they are still not exactly the same, you would have something completely different with varying factors affecting the value of the car.
In contrast fungible assets are interchangeable with one another such as global currencies, cryptocurrency and some commodities such as oil and gold. For example you can lend $10 to a friend, they are able to repay the loan with a completely different $10 note. Furthermore, they also have the option to repay as two $5 notes, and this will still be worth the same as the $10 note thus making it fungible.
NFTs differ from ERC-20 tokens like DAI and LINK in that each NFT is one-of-a-kind and indivisible. These unique tokens enable the assignment and verification of ownership for any digital data, with Ethereum's blockchain as a transparent public ledger for tracking these ownership claims.
NFTs can represent various digital or non-digital assets. For instance, an NFT may represent real-world items like legal documents, signatures, or digital art encompassing videos or music.
Each NFT is exclusively owned by a single individual and is managed through a unique ID and metadata that any other token cannot replicate. Smart contracts play a vital role in assigning ownership and governing the transferability of NFTs, helping create and manage the metadata associated with each token.
Generating or minting an NFT involves executing code from smart contracts that adhere to specific standards, such as ERC-721. The resulting data is stored on the blockchain platform for handling and managing the NFT.
As they can be essentially anything your mind can think of and create, the young world of NFTs is still being explored. From digital art by renowned artists, music by famous performers such as Billie Eilish, and video clips of pivotal moments in sport. Furthermore, they can be fashion items, collectables, tickets to concerts or events, some may be redeemed for a physical version of the NFT, and even unique in-game items for blockchain based games. Owners are able to display NFTs in both the virtual and even the physical world.
The digital artwork that is being collected at the moment, such as WonderPals, Azuki, and Invisible Friends have developed very large communities. These communities avidly follow and collect these projects leading to their huge growth in value. And as larger and larger companies start to get involved, the space will only continue to grow.
Initially, the NFT market primarily focused on digital art and collectibles, but it has since evolved into a broader landscape. Today, there are various categories of NFTs:
Despite debates over the long-term value of NFTs, NFTs have several benefits:
Authenticity: As each NFT is unique and verifiable on the blockchain, it becomes easy to ascertain whether a specific digital creation is genuine. This is particularly crucial in the art world, where the prevalence of forgeries and counterfeit works can be a significant concern.
Traceability: With NFTs, every transfer of ownership is recorded on the blockchain, facilitating easy tracking of an item's ownership journey. This proves invaluable for high-value items such as art or collectibles, where an item's provenance can profoundly impact its worth.
New Revenue Streams: By crafting and selling unique digital assets, artists and creators can generate income from their creations. NFTs can further be integrated with smart contracts; hence, creators can earn a percentage of each subsequent sale of their work.
Accessibility: As digital assets, NFTs can be accessed and traded in fractional shares from anywhere globally. Artists and collectors are therefore free from the constraints of physical location, enabling participation in the art market from virtually anywhere.
Innovation: NFTs are a driving force behind innovation in the art world and beyond. The capacity to create unique and verifiable digital assets has ignited a wave of exploration among artists and creators, leading to new forms of artistic expression and novel ways to monetise their work.
An NFT Marketplace is a platform for buying, selling, and trading NFTs. It’s similar to a traditional online market where buyers and sellers conduct digital currency transactions on a centralised platform.
There are three main types of NFT marketplaces: