Today, non-replaceable tokens (NFT) are reconfiguring the way art is perceived and the way ownership is formalized. So what is an NFT? These are unique digital assets that anyone can purchase using crypto coins. For the user, the purchase of such an asset means the right to own a specific item, from a rare collectible to tickets to a sporting event.
Innovative technologies like NFT have helped build a bridge and enable direct collaboration between cryavers and consumers. One of the most expensive works is The Merge. It was sold through the Nifty Gateway platform for $91.8mn. Interestingly, the owner was not just one person but 29,983 users.
The list of the strangest NFTs includes Jack Dorsey’s first tweet for $2.9mn or $145k per letter, a pixel image of Nyan Cat for $531k, and a Clock token created in support of Julian Assange and sold for $52mn.
According to Forbes, the market capitalization has already reached $68.51 billion.
You can read more about blockchain in the article: What is blockchain in cryptocurrency?
What is Called NFT
An NFT or fungible token is a unique digital asset that utilizes the blockchain. The uniqueness option is that it can be used to authenticate ownership. Unlike crypto coins and fiat currencies, where all bills/tokens have the same value, each NFT is one single version of any physical asset (stock, real estate, audio file, etc.) that has its value depending on the demand in the market. Although the principle of nft crypto is used, it is still not cryptocurrency, and these tokens are non-mutualizable.
This option is especially relevant for the art world when it is difficult to estimate the value of paintings because each of them is one of a kind.
One of the famous artists, Mike Winkelmann (Beeple), sold a painting that consisted of 5000 images for $69 million, the sale was handled by the famous auction house Christie.
Collectors pay such a huge amount of money to own something authentic, unmatched, and impossible to reproduce in one more copy. The value of NFT is rising by creating a scarcity of the digital commodity.
What is the Basis of Non-Fungible?
When asked what nfts are, they are unique digital tokens created by converting data into encrypted code. Blockchain is used to keep them safe while the assets themselves reside elsewhere.
Any user can create a painting/photo/audio/video, then tokenize it in the blockchain and put it up for sale on one of the online platforms. When the painting is sold, the encrypted keys/rights to that token are transferred to the buyer.
Users can buy, sell, and exchange NFTs for cryptocurrencies or use other tokens. No two NFTs from the same blockchain are the same or interchangeable.
One notorious one back in 2017 was the Crypto Kitties collection on the Ethereum blockchain. The game became so popular everyone wanted to buy Crypto Kitties, and the total number of transactions increased six times, which caused scaling issues on the Ethereum blockchain.
The big online platforms categorize NFTs for the convenience of users:
- Photography, where photographers translate their photos into digital objects and offer to buy the right to own one. One of the most famous photographers, Justin Aversano, earned $10 million with his portraits of twins, black and white images.
- Sports. Dapper Labs’ NBA Top Shot from 2019 is a huge hit with NBA fans, with the average price of one card reaching $68k.
- Music. The band Kings of Leon released the album When You See Yourself using NFT, where each token offered certain privileges (first places at concerts, access to audio files). DJ 3LAU (Blau) realized his album Ultraviolet with 33 NFTs for $11.6 million in just one day.
- Real Estate. Decentraland created a meta-universe in 2015, where virtual plots of land became available for purchase.
- Art. The highest-selling collections were Axie Infinity for $4.27 billion and Bored Ape Yacht Club (BAYC) for $3.16 billion.
Where did the History of Non-Fungible Tokens (NFTs) begin?
Kevin McCoy introduced the first NFT, Quantum, to the public in 2014, but he had a problem – there was no way to identify the author and then record all the changes. McCoy then registered Quantum on the Namecoin blockchain. In 2021, Quantum was sold for $ 7 million at a Sotheby’s auction.
After the widespread adoption of Bitcoin and Ethereum and significant price increases, there has been increased interest in NFT as well. In 2017, the Crypto Kitties game appeared, which was a real success and had many fans. Also, in 2017, CryptoPunks with 10,000 unique images appeared, which are still popular among collectors.
The wide spread of innovative assets was facilitated by one of the biggest crypto exchanges, Binance, in 2021, which launched their sale. Coinbase decided not to lose in the competition and also announced the creation of its marketplace with NFT. Many people realized what the NFT stands for and started actively buying them.
Interest in such assets was attracted in 2021 by digital artist Beeple, who signed a contract with Christie to sell his painting Everyday’s – The First 5000 Days for $69 million. It was the most expensive painting in digital art.
Big brands like Gucci, Coca-Cola, and Adidas also got interested in the technology and created their NFT collections.
Statista predicts that the market will continue to grow, showing an 11% CAGR, with the number of users increasing to 16.35 million by 2028.
What is the Basis of NFTs Work?
In most cases, the ERC-721 and ERC-1155 standards on the Ethereum blockchain are used to create and further distribute tokens. Information about the asset is encrypted in one of the blocks. Each token has its unique identifier (number/record) associated with the blockchain where it was created. Preservation on the blockchain makes it possible to trace the moment from creation to sale to the end user recorded in a smart contract.
In the Bitcoin blockchain, NFTs are called Ordinals; here, they are assigned numbers. They can also be sold and exchanged.
In NFT, meaning is embedded in the digitization of any object. NFT can be from GIFs, audio, and videographers to designer shoes. For example, the YouTube video Charlie Bit My Finger sold as an NFT for $693k.
Some of the biggest marketplaces right now are considered to be Binance NFT OpenSea. The cost is unstable and depends on the mood in the market, supply, and demand, the release of a new collection, or the sale of a unique item.
What do NFTs Give?
At the heart of how nfts work is the provision of trustworthy ownership of a particular object, as a certificate that the user owns something unique and unparalleled, from a piece of virtual land to NBA cards. With the advent of this type of asset, blockchain has expanded its use. Back in 2012, there were attempts to create an NFT called Colored Coins, but technical difficulties prevented further realization for such a project. Only in 2015, when developers tried to use the Ethereum network, virtual games (Force of Will) memes (Rare Pepe) began to be launched, and then in 2017, trading in such instruments began to gain momentum. Ten years later, it has grown into a multi-billion dollar market with an audience of millions.
The application of digitizing any item and putting it on the blockchain gives:
- Receive royalties to creators of music poems (the smart contract spells out the original creator and then tracks who used/used which asset). For artists, it’s a direct connection to the user without the need to involve galleries.
- Non-interchangeability is when each token has its unique identifier that confirms the authenticity and existence of a one-of-a-kind token. For collectors, it is a key factor when buying an asset; their purchases are based on the desire to have something that others do not have.
- Optimization of the sales process without intermediaries. Any creditor can list their authentic asset on the site without middlemen and commission fees. Smart contracts eliminate the need for lawyers and paper contracts.
- A new marketplace for investment when it is possible to purchase the exclusive item desired without having to physically visit auction houses. One of the largest consulting firms, Ernst & Young, has suggested that its clients use NFTs to prove the provenance of wine. The NFT can have stock ownership in a company sewn into it.
- Security for storing personal data in a blockchain where it is impossible to tamper with the data or make changes discreetly.
- Charity. When an NFT is put up to raise money for a specific cause, the process becomes larger with the possibility of raising more money.
The Main Difference From Cryptocurrency
Non-fungible tokens are different from cryptocurrency or fiat money in that there is no other token of the same value, and the value of each token will be different from one to the other. One dollar will be worth as much as another one dollar as Bitcoin or another crypto coin.
If concert tickets are stitched into NFT, they will not be the same as they include different characteristics like row number, seat number, and concert date.
NFTs use blockchain, and they can be bought with any cryptocurrency, but they are not digital money. One token cannot be equated to another, the value is determined by the market.
Step by Step Buy NFTs
To create a collection and purchase an innovative object, you need to:
- Set up a digital wallet. To purchase a digital token, it is necessary to purchase cryptocurrency, depending on what type of currency the seller accepts. It is worth remembering the commissions of exchanges when conducting transactions.
- Familiarize yourself with the platforms and their functionality, and create an account. There are a sufficient number of marketplaces on the market, among them, there are quite significant ones, such as OpenSea, Rarible, Foundation, and so on.
- Browse, sort digital collectibles and, select the necessary one, confirm the transaction for payment. Some platforms do not verify token holders to enable NFT for sale. In this case, the buyer needs to be vigilant and learn everything about the digital asset in detail. Although they apply what is nft crypto, there may be cases when they exhibit fakes of famous paintings.
- The selected token will be stored using a digital wallet.
There are many options for selling NFT, such as online marketplace, different social networks, cooperation with famous persons, groups of certain orientations, and own website.
Large Marketplaces
There are a large number of marketplaces that showcase works from established digital artists to amateurs trying their hand at a new direction. Usually, what are NFTs used for buying, selling, or exchanging?
One of the biggest platforms is Binance, which has made it possible to work with these new tokens since 2021. There is a really large user base and a wide range of tokens, including those from famous authors, there are rating boards where the top sales are presented.
If it is interesting to invest in real estate, then Decentraland and The Sandbox will provide an opportunity to choose a virtual plot of land, a collection of other participants, and a walk through the meta-universe.
OpenSea Rarible is more interesting for digital artists who want to sell their collections. There are features to sort by sales volume categories. To enter the Foundation platform, you need to get an invitation from other creators, and to release an NFT; the artist must purchase “gas.” Thus forming a certain high level of entry and exclusivity of tokens.
Dapper Labs has developed the option to purchase NBA Top Shot or Crypto Kitties.
When choosing a platform, check the listing requirements, some do not check the owner, while others, on the contrary, set strict norms for entry into the market.
Why Do People Buy NFTs?
When buying, NFTs explain that the buyer becomes the sole owner of a particular digital asset. However, anyone has the right to view or copy it.
In NFT, it can be sewn, GIF-file, played, posted on a social network, image, video file, etc.
This unique asset is purchased to:
- To replenish their collection and own something exclusive.
- To exchange or sell directly without intermediaries.
- Acquire the digital art of a certain famous artist, get an exclusive right to listen to a single from your favorite band, or get a ticket to a sports game.
- Become part of a community or meta-universe and take part in their events.
- To participate in a particular game when NFTs are used for more varied tasks and levels.
- To be in the trend of new trends, like the “meme gold rush”.
Summary
The structure of the definition of nft includes both the blockchain and the unique option of non-mutualizability. For a detailed explanation of what an NFT is and how it works, it is important to recall the process of cryptocurrency creation. NFTs have become a definite step in the evolution of encryption technologies, offering their owners a new experience of owning an asset. The use of smart contracts has reshaped the infrastructure of property identification and the way changes are tracked, giving the art world a new stage of development.