NFTs are undoubtedly taking the world by storm. You probably live under a rock if you already haven’t heard about them. Tech news everywhere has seen terms trending, like Bitcoin, Blockchain, and NFTs. Of these, NFTs have caught everyone’s attention in a short span.
The digital art and collectables market has seen an upward spike in terms of value because of NFTs. However, unlike popular belief that digital art is only one of the ways you can deploy them, NFTs find tremendous usecases. In fact it could be any piece of art, a video, a drawing, music or even the image of your brain scanned and uploaded as digital asset. To be honest, you can use them to represent literally any unique digital item to have ownership of that asset.
Talking about the history, all this started in 2014 with the supposed release of the first-ever NFT named Quantum, created by Kevin McCoy. It was a pixelated graphic of an octagon minted during a time when the NFT market merely existed. Since then, NFTs have garnered huge attention among artists, traders and even the common public across the world.
Many are actively investing in its creation and trading, while a few struggle to understand what exactly NFTs are and how do they work. To simplify the understanding, this articles will talk about the relevant terms, followed by how does the technology works, uses and the future of the same. Without further ado, let’s get started.
First, let’s have a sneak peek into the world of NFTs by learning about some key terms to have a broader context:
Non-fungible tokens or NFTs are digital assets ledged on a blockchain that carry unique identification codes and metadata to create distinction among them. That probably means little to almost nothing for many people at this stage as the terms’ fungible’, ‘blockchain’, and ‘digital asset’ are unknown.
Shedding some light, fungible describes anything that another asset of the same value can replace. The best examples of fungible assets are Cryptocurrency or shares. We can trade them equitably as each entity holds equal worth across the ecosystem. Fungible assets usually have an unending supply that keeps their value equivalent throughout.
On the other hand, NFT is non-fungible that is something holding a unique value, and its ownership is recorded on a digital ledger known as Blockchain. Hence, they can’t be copied or stolen without the owner’s authorisation. As mentioned earlier, they can be both tangible or intangible items such as art, real estate, tickets, videos, and many more.
Anything that can exist or be represented in digital format and is functional is called a digital asset. Hence, NFTs are digital assets that carry value and are not interchangeable like many other tokens. Things like audio or visual content, images, documents, and other similar data can be considered digital assets.
A type of database for electronically stored data is what Blockchain is all about. It comprises a series of blocks linked together that share a digital ledger helpful in accessing the information within the chain. It simply means that anyone on that Blockchain can verify each other’s entries to avoid discrepancies or tampering with the existing data. NFTs are stored on these blockchains, ensuring uniformity across the database as it’s permanent and unalterable.
NFTs are not created but minted. To explain it better, they are worthless digital pieces before these assets are uploaded to the Blockchain. Minting is the process of adding your digital asset to a blockchain (mainly Ethereum) to make it non-fungible and provide it with a monetary value to be traded.
Unlike any other digital asset, NFTs are special. They have specific characteristics that make them unique and valuable. Hence, to understand NFT better, it’s best to break down the features to have a clearer picture.
The total number of NFTs today and at any given time is very few. The scarcity of these assets not only makes them unique but also increases their worth.
Non-fungible tokens are digital assets stored in the blockchain network where the ledger used provides a certificate of authenticity that also works as a proof of ownership. This way, one can claim ownership of an NFT and the information attached with it.
Interoperability is sharing or trading of assets across different blockchain networks without any hindrance. As we already mentioned about NFTs being recorded on a standard digital public ledger, it makes them non-interoperable. One has to switch back and forth across blockchains to access different NFTs. Hence, this is the only way to alter, use, or trade NFTs.
Blockchain guarantees a higher level of security for NFTs due to the highly secure data embedded in it. It ensures that the NFTs are safe enough to be destroyed or tampered with.
NFTs use Blockchain to keep their authenticity intact. It also helps in understanding the distinction between the original items from replicas. Simply put, there can only be one NFT of that kind whenever it’s minted.
A staggering $174 million has been spent on NFTs for the past five years. Artist Mike Winklemann, also known as “Beeple”, has sold NFTs like “EVERYDAY: The First 5000 Days” for vast sums of $69.3 Million or ₹571 Crores.
True that all of this seems fascinating but how do NFTs work?
As an NFT is a digital asset on the Blockchain, anyone can view it for free. That’s another one of the misconceptions about the working of NFTs that needs squashing. Similarly, understanding the mechanism makes understanding the NFT market better.
NFTs work on blockchain technology, allowing the buyer to own the original item. A built-in authentication serves as ownership proof of that digital asset. Considering this, every NFT can serve different applications due to its structure. The digital bragging rights of the asset are owned more than the item itself.
NFTs are digital assets that potentially omit intermediaries, help with more efficient transactions and create newer markets.
Unlike popular belief, NFTs are not limited to mere collectables. Since their inception, NFTs have developed an ecosystem that is at a point where it keeps exceeding its original purpose. In fact, owning an NFT in today’s times can be extremely useful. It can possibly yield some special utility along with being a significant investment.
Today, NFTs are used to represent physical objects, virtual content and, even intellectual property. It is evident how these can be used in everyday life and add value to lifestyle.
Let’s learn about some popular NFT use cases:
One of the most common uses of NFTs is digital tickets. In the ticketing system, the organizers mint a specific number of NFT tickets on a blockchain platform. NFTs are then listed for a price or auctioned depending on its value. Once the sale amount is transferred to the organizer, the buyer gets an NFT ticket directly from the ticketing company
Any ticket from one event can’t be replaced or interchanged with one from another as it may not hold the same value. So, if tickets sell as non-fungible tokens, any exchange or reselling of that ticket will be recorded on the Blockchain, making it tough to counterfeit them.
Over the years, the fashion industry has faced the wrath of various issues like trademark infringements, counterfeiting, and quality control. NFTs can solve this major problem of the fashion industry by identifying and eliminating counterfeit goods. Similarly, an NFT can hold critical data about the material used, its source, and how far the item has travelled.
Some art aficionados have consistently relished collecting memorabilia and other precious stuff. Hence, NFTs give them proof of authenticity, a form of digital signature or approval stamp. This in turn adds value to the collected asset.
NFTs work as in-game currency and items for games like ‘Axie Infinity’ and ‘Sandbox.’ These power the gaming ecosystems and provide the game with a unique identity.
NFT is undoubtedly an exhilarating new technology that every digital artist should try at some point. NFTs have gone from strength to strength, being an experimental concept to significantly more valuable.
With better collaboration between the artists and the collectors, NFTs can become a part of everyday life before we even realise it. Having said that, it’s a bit early to predict the future of NFTs, considering how many people have shown interest in the space.
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