Like the metaverse, non-fungible tokens have risen in popularity in the recent past. It is a hot topic of discussion for internet users and several stakeholders. However, do you know what they are? This article looks at some of the things you need to know about NFTs to increase your knowledge and educate you on the subject. Let’s learn.
What are Non-Fungible Tokens?
Popularly known as NFTs, Non-fungible tokens are digital assets with personalized identification codes. They use metadata as distinguishing factors. They are generally found on a blockchain. However, unlike cryptocurrency, it is impossible to trade these assets.
These tokens can be used to represent artwork, real estate, and a range of other real-world items. From there, they can be bought, traded, and sold quickly and less fraudulently. They can also represent people’s identities and property rights, explaining why they have risen in popularity.
An NFT trade that caught the public’s attention was by Beeple, a digital artist who sold his art representation for $69.3 million at Christie’s. We’ve also seen NFTs released through collections of several unique personalized cartoons and going for millions, a good example being the Bored Ape Yacht club.
Now that you know about some of the highest-selling NFTs, let us learn about the history of these tokens to understand what they really are.
History of NFTs
The development of NFTs is divided into three stages. We have the early stages between 2014 and 2017, which saw the release of Quantum, the public awareness stage, and finally the buying surge, where lots of people learned about these tokens. Let’s delve further.
NFTs began in May 2014, when Kevin McCoy and Anil Dash created Quantum, the first token. McCoy sold it to Anil at $4 after registering it on the Namecoin Blockchain at a conference in New York, referring to it as monetized graphics.
Namecoin enabled the linkage of a non-fungible and tradable Blockchain marker to a piece of art through on-chain metadata. More than one year later, in October 2015, Etheria, the first NFT project, was launched. It was part of the Ethereum Blockchain. It had 457 tradable assets untouched for five years until March 2021, when NFTs experienced a renewed interest. The founders sold them for a value of over one million dollars.
The name NFT was later proposed in 2017 through Etherium GitHub, creating a name for some of the projects released the same year, including CryptoPrunks, which facilitated the trading of cartoon characters.
The second stage on the development and popularity of NFTs occurred between 2017 and 2021. The public became more aware of these tokens when CryptoKitties, an online game that let people adopt and trade virtual cats, became successful. It was adopted in the ERC-721 standard and officiated the term NFT.
Later on, in 2018, Decentraland managed to raise $26 million after selling its tokens and achieved an internal economy of 20 million dollars by the last quarter of the year. Axie infinity also came up in the same year, and within two months, managed to have the most expensive NFT collection.
Nike also came up with a patented system known as Cryptokicks a year later to be used to confirm whether physical sneakers were authentic. It also gave a virtual representation of the purchased shoes to the customers.
Later in 2020, CryptoKitties developer released a system that allowed the sale of tokenized collectibles of different NBA highlights. He used a newer and superior blockchain, and within the first quarter of 2021, it had grossed over $230 million.
Most of the growth occurred in the same year, with the value of NFTs tripping to a quarter of a billion.
The buying surge of these tokens started in 2021. By March 2021, investors had already spent over 200 million dollars on NFTs. This, in turn, increased people’s interest. Grimes, are owned artist, sold his physical art of the Nyan cat meme. Some of the most renowned sales made in March included Everyday by Mike Winkelmann, an NFT promoting the album When You See Yourself, and Jack Dorsey’s (the Twitter boss) first tweet NFT.
Over time, NFT experienced even more extensive sales and trade volumes. Most experts termed this surge as an economic bubble. They might have been right since prices significantly reduced by the end of April 2021. However, those who had bought the NFTs earlier didn’t undergo any loss. Other notable trades happened from June, with several special NFTs going for millions of dollars.
How Do They Work?
Non-Fungible tokens were made so that they are all unique, hence distinct. This allows for different use cases. They can represent vehicles and digital property such as real estate.
To understand their working mechanisms, one first needed to define the term fungible. One can exchange a fungible item for something similar in terms of value. An excellent example of something fungible is cryptocurrency.
Since NFTs are non-fungible, they are normally bought and sold through Blockchain technology. However, they are not fungible and are therefore quite different from cryptocurrency. They are a different breed of assets.
These creations work like cryptographic tokens representing different assets and having varying values. They are generally bought and sold in specialized platforms such as OpenSea, regarded as one of the best platforms for non-fungible tokens.
It is worth noting that the sale of an NFT does not mean that the object resembled by the token has been transferred. For example, if the NFT of a painting is sold, the buyer will not receive the portrait. What they receive is the certificate of ownership, which in this case, is safely tucked away in a digital wallet.
This is where it gets interesting. These wallets usually exist in different forms and can be accessed through a Metamask, which is an internet browser extension. One can also reach the wallet via a secure physical device. Another common form is a code written on a piece of paper.
Therefore, when purchasing an NFT, you should ensure that your wallet has enough cryptocurrency, similar to the blockchain you are buying your NFT from. When getting a token on the ETH Blockchain, ensure that you have enough ETH crypto in your wallet. You can also easily mint or make your tokens if you have the required technical knowledge.
All in all, it is worth noting that these are digital contracts, and therefore, several rules that parties should respect apply.
NFTs and IP Rights
One of the biggest concerns of those venturing in NFT is the intellectual property rights on their purchases. Well, it is worth noting that owning an NFT does not essentially offer someone rights to the art or digital asset it represents. For example, if you buy an NFT of a piece of art, you do not own the physical art but rather the NFT unless there is a clear and explicit transfer.
An original owner can also create more NFTs of the same work since copyright privileges do not pass with purchasing the NFT. Therefore, you cannot bar them from producing tokens of assets they own. An NFT does not offer you copyright as it is a mere proof of ownership.
Uses of NFTs
There are different current and future uses of NFTs made possible by their unique identity and ownership, which the Blockchain ledger can verify. Its ownership gives the buyer a license to use the digital asset for personal, non-commercial, or commercial use. Here are some of the everyday use cases:
NFTs usually represent in-game assets controlled by the gamer and not the game developer. Once the developer agrees, these assets can be bought and sold on third-party marketplaces.
Ubisoft came up with Ubisoft Quartz, allowing people to obtain scarce, artificial digital items via cryptocurrency. However, it didn’t go well as most people criticized it, including its developers.
2. Digital Art
This is the most common use of NFTs. In fact, it is one of the first use cases made possible by the ability of blockchains to verify the ownership of NFTs through unique signatures. Artist Beeple sold his digital art, every day, for a cool $69.3 million in 2021, making it one of the most lucrative NFT deals and earning it a place in the list of the highest auction price for pieces made by living artists.
He later sold Crossroads, a short video, for $6.6 million in the same year, becoming one of the highest earners in the NFT world. Other examples of digital art in NFT include Curio Cards, a set of 30 unique cards that were the first NFT collectibles in the Ethereum Blockchain. It went for 1.2 million dollars at an auction at Christie’s.
NFTs are also used in generative art, which allows the creation of different images after combining several simple picture components in various combinations.
All in all, it is worth noting that most of the NFTs that have been purchased in the recent past have been of digital art.
NFTs also have their tentacles in film, with a good example being in May 2018 when 20th Century Fox, in partnership with Atom Tickets, released digital posters of Deadpool 2 to promote it. They posted these in OpenSea, one of the best market platforms for NFTs and GFT Exchange. Three years later, Claude Lazman: Spectres of the Shoah was auctioned as an NFT making it the first motion picture and documentary film to win such an achievement.
We also expect an exclusive NFT artwork collection of Godzilla vs. Kong and an NFT of the horror movie Kilroy soon. Rick Dugdale’s film, Zero contact was also released as an NFT, adding to the vast library of NFTs in cinema. We further saw the release of seven NFTs based on some of the uncut scenes of Pulp Fiction, even though a lawsuit was subsequently filed detailing violation of the film rights.
Other uses/ future uses of NFTs include:
Uniswap socks came up with a mind-blowing idea, which saw the creation of socks that can be traded like any other NFT and redeemed for a real pair of socks. These tokens in the Ethereum blockchain sell for $100k or $16k in the Mango Markets cap.
This guarantees that the original condition of the products, and in this case, the quality of these socks, are guaranteed. Owners are able to trade the NFT for unused socks and are assured that the items they receive match the NFT.
FTX, a cryptocurrency exchange platform, has also hopped on the trend, offering redeemable sweatpants and condoms.
5. Virtual Reality
An excellent example of virtual reality in NFT is Decentraland, a VR game that allows people to buy NFTs to be part of digital real estate. Users have total control of the associated environments and all the applications they create.
Like in the ordinary world, the prices of these assets are determined by their proximity to amenities and facilities. Gamers can then split these lands into themed communities, with each parcel selling for slightly over $6000. It is also possible to purchase clothing items and names.
6. Sports Collectibles
We have also seen the application of these tokens in sports. NBA Top Shot allows people to collect different NFTs of licensed video highlights. It sold a clip of Lebron James emulating the iconic Kobe dunk for $387k, the most expensive shot NFT ever to be sold.
Another platform, Autograph, backed by Tom Brady, has also partnered with Tiger Woods, Simone Biles, and Naomi Osaka for the same purpose. NFTs are therefore getting more popular by the day.
Even though this is a concept that is still underway, we should expect NFTs in the hospitality industry, and especially restaurants, in the coming year. Through the efforts of entrepreneur Garry Vaynerchuck, we should expect a restaurant that requires one to own NFTs before dining.NFT ownership will allow the customers access the restaurant, which plans to have a cocktail lounge and at the same time offer a private culinary experience for all its customers.
One of the world’s most decorated and celebrated chefs, Marcus Samuelson, developed an NFT of a fried chicken for people to redeem as a serving for four. He also came up with a piece of art representing fried chicken, thus incorporating culinary skills in our rapidly changing world.
Relationship Between NFTs and Blockchains
At this point, you definitely know that NFTs cannot work without using blockchains. The first blockchain to support these tokens was Ethereum, thanks to the ERC-721 standard. In fact, it is the most used standard and blockchain for NFTs.
As NFTs continue growing in popularity, we have seen other blockchains support or pledging to support these tokens. Let’s further explore these:
The first standard for representing NFTs in the Ethereum blockchain was ERC-721. It is a solidity intelligent contract standard that can generate new standards simply through replications from reference implementations. We can track the owners of unique identifiers and even allow owners to transfer different assets to others through it.
Another standard is the ERC- 1155 standard which provides semi-fungibility. It can also be used to build its counterpart, ERC-721. Its unique ID represents several assets, unlike in ERC-721. A user can transfer as many assets as possible to others, given that the assets in the same class are often interchangeable.
Gas fees in Ethereum transactions have also seen the emergence of layer two solutions that support NFTs. These include Immutable X which uses rollups and thus allows users to avoid the transaction gas fees. We also have Polygon, previously known as the Matic network, supported by renowned networks such as OpenSea.
We also have other blockchains, which like Ethereum, serve the same purpose. These include the Bitcoin Cash blockchain that supports NFTs as well as power the Jungle NFT marketplace, Cardano, which allows people to create NFTs without using the required smart contracts; Flow, a blockchain that has a consensus model and will be supporting CryptoKitties in the future; Solana and Tezos. We also have the GoChain, a blockchain that calls itself eco-friendly and is responsible for the VeVe app and the Zeromint NFT marketplace.
What are Some of the Concerns Surrounding NFTs?
Several concerns have come up with the rise of non-fungible tokens. However, the biggest is environmental concerns occasioned by the purchase and sales of these digital assets.
1. Environmental Concerns
It is argued that the transactions are powered by high amounts of energy and produce greenhouse gas emissions, like all other forms of Blockchain transactions. Ethereum requires proof of work protocols to regulate and verify the different transactions performed by users, which in return use enormous amounts of electricity.
The carbon footprints of NFT transactions are also pretty high owing to the way the transaction is set up, the economic behaviors of the miners, and the amount of renewable energy used by both the equipment and the transactions.
However, recently, we have seen developments with some technologies using alternative validation protocols, including proof of stake that requires less energy for the validation cycles. With the increased reception and popularity of NFTs, we should expect a number of sites to use technologies with lower footprints. We have even seen several artists refraining from selling their work to counter the carbon emissions problem.
2. IP Issues and Fraud
There have been several cases of people selling other people’s works as NFT without permission from the original creators. One of the most devastating examples was Qin Han, who, after her untimely death, had her identity taken by one fraudster who sold a number of her works as NFT. Another fraudster also sold art by Qin Hang for $336 000 but refunded the money after it hit the headlines.
There are also cases of fraudsters minting NFTs in artists’ wallets and transferring them without the owners’ consent through sleepminting. Beeple’s art has come under such attacks in the recent past.
Unfortunately, the NFT marketplace doesn’t have measures to counter such issues. However, Photoshop and Adobe recently mentioned that they would create an InterPlanetary file system database that will help establish the authenticity of different digital works.
These two are the main concerns different stakeholders and NFT users have about these tokens. Hopefully, the promoters and respective sites will find ways of dealing with them as the tokens become more popular over time.
Strengths of NFTs
NFT technology has several key benefits that most users are currently taking advantage of. These include:
1. Enhanced Security
NFT platforms allow the trading of these tokens in secure and transparent ways saving traditional art collectors the risk of buying and selling artwork. They don’t have to study, check the art and take extra security measures before closing in on a transaction.
The Non-Fungible tokens act as immutable digital signatures, thus furnishing collectors with the confidence they need when making such transactions. It is also worth noting that art stored on the blockchain cannot be censored or physically tampered with, provided that they are appropriately stored.
Lastly, the technology that NFT uses allows for the massive transfer of assets securely.
2. It Guarantees Increases Accessibility
NFTs have increased in popularity because it is easier to collect assets digitally thanks to the remote working policies and increase in remote projects.
Once you have a crypto wallet, you can quickly view your art anytime you want instead of mounting it on a wall. Other applications also require you only to have an email address. It is also worth noting that there are several 3D immersive art exhibitions in VR spaces that people can take advantage of.
3. It Earns People Revenues and Royalty
One of the most significant advantages of NFTs is that it has phased out the need to have unions, agencies, and guilds that overwhelm artists’ revenue. The NFT creator automatically receives a given percentage when it is sold or resold, explaining why these tokens are becoming increasingly popular among different artists.
4. They are Transparent and Authentic
It goes without saying that NFTs offer creators and buyers a means of confirming the ownership and authenticity of different pieces. It, therefore, continues from where the internet left.
All transactions can also be easily traced, which enables valuation. We can also track the edition sizes of different pieces, meaning that various collectors can trace both individual and different pieces of NFT collections.
5. NFT Has a Growth Potential
NFTs, just like cryptocurrency and other crypto assets, have great potential. Buyers can therefore expect an increase in value once they buy the token. A good example is CryptoPunk #31000, sold for $2127 in 2017 by a collector who refused lots of offers until March 2021. He ended up raking millions when he decided to let go of it, which explains just how lucrative these creations are.
6. They are Unique
The mere fact that these tokens are non-fungible makes them unique. No one can’t replace them. Collectors are, therefore, usually satisfied since they own one-of-a-kind pieces. These range from digital images, paintings, furniture, and a range of other digital assets.
Therefore, it brings a sense of fulfillment and pride, given that it is unique and one of a kind.
7. It Allows for Record Keeping
One of the hardest things about valuable artwork is that it is difficult to maintain authenticity records and identify a chain of ownership. This is the reason why NFTs will continue towering over other traditional forms of art transactions.
The mere fact that NFTs exist on the blockchain means that people get to enjoy clear ownership records of all the tokens, which eliminates the possibility of theft and authenticity issues.
We can all hope that NFTs will allow us to manage and control sensitive data in the future and not just act as a means of dealing with digital collectibles.
Weaknesses of Non-Fungible Tokens
NFTs also have their fair share of disadvantages, just like any other form of technology or any recent inventions that have come up over time. However, most people overlook these drawbacks since NFTs have several advantages. Here are the disadvantages:
1. It is Impossible to Digitalize Physical Art
This is one of the most significant disadvantages of NFTs. People have different reasons for owning physical and digital art. Even though these tokens intend to replicate digital art, they can’t have the same allure as physical art. Imagine looking at digitalized versions of some of the most lucrative artworks in the world and their physical versions. Which ones would you prefer? The physical versions, of course.
2. Impacts on the Environments
With the increasing carbon emissions and greenhouse effects, debates about the environment have become more popular. Activists are increasingly calling for environmental preservation and reductions of such emissions. It goes without saying that Ethereum blockchain entries require lots of computing, which calls for increased amounts of energy.
Indeed, trading of NFTs and blockchain assets is not environmentally friendly. This explains why Ethereum and Bitcoin have come under significant criticism in the recent past.
3. Confusion Regarding Value
Unlike cryptocurrency, which favors some experts, NFTs are highly confusing. This is because, first, you don’t get the copyright for the art when you buy a non-fungible token.
People can still find copies of the same art online even if they own the token. One might pay millions for NFTs only to come and see them exposed online or on different social media platforms.
All NFTs offer you is a record showing that you own the token behind an original asset, meaning that you can derive much value from it as you don’t control it.
Let’s hope different stakeholders and creators will explore this issue further and allow people to own more than an ownership record.
Popular NFT Sites that You Can Explore
Several NFT sites should help you out if you are new to this technology. Due to their increasing popularity, developers have been working overtime to cash on it and therefore develop applications and platforms that support NFT. Take a look at the following:
OpenSea.io is one of the most renowned marketplaces for digital art. If you are a beginner, this is the friendliest site you can explore. It has some of the most popular NFTs such as CryptoPunks and CryptoKitties, and a number of crypto-related art such as sports tokens, digitized images, virtual worlds, trading cards, and a range of other collectibles.
Decentraland, like the name suggests, is a digital or virtual world supported by the blockchain. This platform allows different users to buy and sell digital assets such as land, games, artwork, among many others. Users can also establish their creativity by developing their digital networks. This platform, therefore, allows you to try working as a digital artist while also buying creations bought by others.
3. NBA Top Shot
NBA Top Shot is one of the best platforms for basketball fans. It allows them to collect and own game-related collectibles. You can easily buy and sell licensed video highlights that act as trading cards. These cards can be purchased on a card-to-card basis or by the entire pack.
These cards have varied costs, ranging from a few hundreds to thousands of hundreds of dollars.
If you are a GIF lover, then Nifty Gateway is the best platform for you. It has several GIF-style image assets that you can purchase. These short animations can move instead of the standard static assets that most platforms stock. Depending on what you are buying, you will spend a few hundred dollars on nifties to tens of thousands.
CryptoKitties allow users to buy personalized digitized cartoon cats that cost between $10 and millions of dollars. The pricing also depends on age, as the oldest cats have incredibly high price tags.
NFT doesn’t have to be a wild concept. We hope that this article has furnished you will all the information you need to know regarding these creations. You can start by exploring the NFT sites to have a real-life experience of what you have just discovered. Hope to see you soon.