NFTs Explained: Everything You Wanted To Know

NFTs Explained Everything You Wanted To Know

In that last twelve months NFTs (non-fungible tokens) have become a mainstream technology and an ever-present buzz word. In the aftermath of Christie’s sale of Beeple’s, now infamous NFT art piece for $69.3 million, NFTs have captured the world’s attention.

With NFTs, you can create digital scarcity without relying on a centralized intermediary. NFTs are limited-edition tokens based on blockchain technology. Even though many bitcoins can be in circulation, NFT can only be used once and cannot be divided.

NFTs have so far been used primarily as certificates of authenticity in conjunction with digital artworks. These use cases have evolved rapidly over the years–they can now be used to prove ownership, grant access to VIP perks, and grant rights to certain assets. 

So, what are NFTs?

By design, NFTs turn digital artwork, collectibles, and other items into unique, verifiable assets traded on the blockchain. NFTs, or non-fungible tokens, are digital content pieces linked to the blockchain, the digital database that underlies cryptocurrencies like Ethereum and Solana. These assets are fungible, which means they can be exchanged or replaced with another identical one of the same value, just like a dollar bill.

However, unlike physical money, NFTs are unique and cannot be interchanged.

There is no doubt that NFTs are creating scarcity among otherwise infinitely available assets – and there is even a certificate of authenticity to prove it. These networks are commonly used to buy and sell digital artwork, represented by GIFs, tweets, trading cards, images of physical objects, or video game skins.

The payoff has been enormous for many artists, musicians, influencers, and others, as investors spend top dollar to own these NFT versions of digital images. A decade-old “Nyan Cat” GIF sold for $600,000, while Jack Dorsey’s first tweet sold for $2.9 million.

Nevertheless, NFTs aren’t exactly a new technology. The digital trading game CryptoKitties on the cryptocurrency Ethereum platform was one of the original NFTs, allowing people to purchase and sell unique, blockchain-based virtual cats.

Why are NFTs gaining traction now?

Many of those interested in purchasing the works of independent creators do so for the pleasure of supporting their work. Some are attracted to the idea of claiming ownership over digital assets that anyone can copy. New crypto millionaires and billionaires diversifying their bitcoin holdings and increasingly interested in the crypto ecosystem may have driven recent headline price records for NFTs.

But to understand NFTs, first, you need to know how blockchain technology works. 

Blockchains function as a type of shared database in which data is stored in blocks linked together by cryptography. New information is added to blocks as it becomes available. The block is then chained onto the previous block, chaining the data chronologically.

Several different types of data can be stored on blockchains, but their most common use has been as a transaction ledger.  Using the blockchain, Bitcoin is a decentralized system so that no one person or group has control. Instead, all users retain control collectively.

Data entered in a decentralized blockchain is irreversible, which cannot be undone. In the case of Bitcoin, this means that all transactions are permanent and can be viewed by anyone. This is the same technology that smart contracts for NFT trading and ownership are created. 

What are smart contracts?

These contracts run when predefined conditions are met and are stored on a blockchain. It typically automates the execution of an agreement to ensure that all participants are aware of the outcome immediately, without any involvement from a third party. Similarly, they may automate a workflow by triggering the next step based on certain conditions.

To ensure that the task is satisfactorily completed, there can be as many stipulations in a smart contract as needed. As part of defining the terms, participants ought to determine how transactions and their data are represented on the blockchain, agree on the “if/when…then…” rules governing those transactions, explore each exception, and establish a dispute resolution framework.

It can then be programmed using a smart contract – although increasingly, blockchain-based businesses are offering templates, web interfaces, and other online tools to simplify the process. NFTs are one example of this. 

An overview of the NFT market today

There’s nothing to suggest that 2021 won’t go down as the year of NFTs. Whether legacy auction houses sell blockchain-based artwork and accept cryptocurrencies for payment or fashion brands release digital wearables, 2021 is undoubtedly a year to remember. The non-fungible token market has seen its best year yet, with over $23 billion in trading volume, according to DappRadar data. 

In the first half of the year, about 5,000 wallets were interacting with NFTs daily, while at the end of the year, approximately 140,000 wallets were engaging with NFTs.

The dominant marketplace in the sector, OpenSea, is now valued at $10 billion, generating new unicorns in the category. But that’s not all. Celebrities and big brands can participate in the NFT market, auction houses, and venture capital firms. 

Potential future applications of NFTs

A remarkable technology called NFTs emerged from the advent of the blockchain. Today, NFTs are primarily used in digital art and collectibles. NFTs are best illustrated through art projects like these. We will soon see NFTs revolutionizing other applications. They will mainly revolve around ownership. Who you are in a game or what you own will drive the next wave of NFT applications.

Here’s are the major applications we’re predicting: 

  1. Games 
  2. Events 
  3. Content 
  4. Identity 

Read on for a brief description of each significant application we’re anticipating in the (not-so-distant) future. 

Games

NFTs are already becoming more valuable because of games. Though I’ve played a few blockchain games, I’ve never played one utilizing NFTs. NFTs will allow the player to control the game. In the same way that companies profit from microtransactions, players will also profit from digital assets. 

Also, users can create unique experiences on the platform by providing the content. Building a metaverse could begin with designing these games. This would give the users more than just a place to hunt monsters. School may even become available, as well as virtual concerts and shopping.

Events

A rise in NFTs could also affect ticketing. NFTs could be used for virtual and physical events alike. From lectures to concerts, virtual events can take many forms. The metaverse and games will also be available through virtual events. It might be fun to visit a virtual city where entry requires an NFT. In the real world, NFTs could be used to authenticate attendance and to grant access to things. Like tickets for famous games, these NFTs could gain value. Imagine owning an NFT from one of the Superbowls or other renowned sporting events. If you had one today, it would be pretty valuable.

Content 

NFTs could reveal who owns certain songs, movies, and other kinds of content. Various comic book covers might be sold as NFTs. If a musician makes a unique version of their album, they could give out special NFTs to those who buy it. Movie studios could give you an NFT to allow you to see a movie early. Virtual objects are challenging to dispute on blockchains because they are virtual. Proving ownership and verifying ownership are simple tasks. 

The decentralized nature of blockchains will also help content censorship. You cannot be told not to publish something by a central authority. Whether or not this works out, in the end, remains to be seen.

Identity

This utility can potentially change the internet, especially with the rise of bots and deep fakes. It is common for bots to buy large amounts of digital devices each year, including gaming consoles. Scalpers and bots also plague the sneaker industry. If the latest sneakers require an NFT to purchase, it could reduce the number of units sold to scalpers. 

I believe that most people will have several private wallets and a public wallet in the future. By year’s end, your public wallet may have an NFT for human authentication. Your purchases can still be kept private by using another wallet that you have kept confidential.

Takeaways 

In my opinion, these are the directions the NFT market is heading in the 2020s. Many people could never have anticipated these developments. It’s not a matter of “if” in the case of NFTs; it’s a case of “when.” The NFT technology can change the world, and I can’t wait to see what applications will arise.

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