NFT: A comprehensive guide
Everyone has been talking about NFTs (Non-Fungible Tokens) since Jack Dorsey – CEO of Twitter – sold his first tuit for 2.9 million dollars as a NFT. These trending news have accelerated what many experts were saying: NFT might be the future of digital payments.
But, to begin with, what are NFTs? What are they for? How are they bought? We explain it to you in our definitive guide on NFTs.
What is a NFT?
NFT is the acronym in English for Non Fungible Token. An NFT is a digital asset created using blockchain technology. It’s the same technology as bitcoins, but unlike cryptocurrencies, NFTs are unique.
Fungible vs Non-fungible
Fungible tokens (Bitcoin or other cryptocurrencies for example) can be divided into sub-units and are exactly the same to one another. Eg: You cannot differentiate between a bitcoin and another.
On the other hand, a non-fungible token is a cryptographic token that has the ability to be a unique and unrepeatable token. One that cannot be divided but that can be used to represent objects in the real or digital world along with their own characteristics, as well as the ownership of it, while maintaining all of this within a representation on a blockchain through a smart contract.
Characteristics of non-fungible tokens
Unique – Deep inside a non‑fungible token, metadata describes what makes this asset different from all the rest. This is a permanent, unalterable record that describes what this NFT represents — almost like the certificate of authenticity that you’d get with a rare painting.
Rare – Scarcity is an important ingredient in the recipe that makes NFTs so attractive. While developers have the freedom to generate an infinite supply of certain assets, they also have the power to limit the number of rare, desirable items in existence.
Indivisible – For the most part, NFTs cannot be split into smaller denominations — they can only be bought, sold and held whole. Remember the rules of non‑fungibility: you can’t purchase 10% of a plane ticket, or collect 50% of a baseball card.
Main benefits of NFTs
There are three key reasons why tokenization has the potential to make things even better:
Ownership – Blockchain technology helps to prove your ownership while making the change of ownership right a much easier process almost instantly.
Transferable – NFTs can be freely traded on specific markets. NFTs can also solve the problem about ”walled gardens” in games, that means that an item can be exchanged for items in a different game, even with a completely different publisher.
Authentic – The biggest benefit, fraud prevention, a problem affecting everything from art to tickets, collectibles and even fashion. The blockchain powered NFTs is the perfect weapon against counterfeiting while giving buyers confidence that they’ll get what they paid for.
Pros & Cons
+ They could unlock new revenue streams in gaming, sports, arts, and technology.
+ NFTs could introduce millions of people to cryptocurrencies for the very first time.
+ They can transform our attitudes toward ownership, making it possible to own a real-world asset that’s thousands of miles away.
– NFT items can have a ”bubble” effect. People can buy an asset in the hope of selling it on for a profit, but if the market collapses, they can make a nasty loss.
– Building decentralized apps for non‑fungible tokens can be hard and time consuming.
– Much more simplification is needed so NFTs are easy to use for people who know nothing about blockchain.
NFTs can be used for:
- Event tickets
- In-game items
- Item in virtual universes
- Real-world assets
- And many more…
NFTs have been lately all over the news. The trending digital asset is now tapping into the passions of the masses and onboarding them into the blockchain world.
Just a few months ago, Bitcoin-code-inspired artwork was sold for over $130,000 and a blockchain-based trading card of Paris Saint-Germain forward Kylian Mbappé was sold for $66,850. Now, those records have been shattered by the recent auction of Twitter CEO Jack Dorsey’s first ever tweet and even more mind-blowing: the sale of a single digital artwork for $69M.
However the NFT craze is not over. Major brands and celebrities have signed deals to release their own non-fungible assets soon, and even Elon Musk’s girlfriend Grimes has taken advantage by selling almost $6 million worth of digital artwork in minutes.
Some of the best-known projects
CryptoKitties is a blockchain game on Ethereum developed by the studio Dapper Labs that allows players to purchase, collect, breed and sell virtual cats. The game’s popularity in December 2017 congested the Ethereum network, causing it to reach an all-time high in the number of transactions and slowing it down significantly.
Sorare is a fantasy soccer game using NFTs that lets you purchase, verifiably own, and resell digital player cards from more than 100 licensed teams. Sorare raised a $50 million Series A funding round in February 2021.
Decentraland is a virtual world run by its users. Every piece of land and every item in the virtual land is a non-fungible token. The boom has recently boosted Decentraland, with prices on its digital land skyrocketing. At the beginning of the year, Decentraland averaged about 1,500 daily active users. In March, it hit 10,000.
Big Brands and NFTs
In what could be a huge boost for mainstream adoption, major companies are starting to dabble in non‑fungible tokens too.
- Formula 1
F1® Delta Time is a blockchain game licensed by Formula 1®, and developed and published by Animoca Brands. The game consists of a collectible element based on NFTs as well as different racing game modes, such as Time Trial and Grand Prix™ Mode, utilising those NFTs.
NBA Top Shot is a blockchain-based platform that allows fans to buy, sell and trade numbered versions of specific, officially-licensed video highlights. OnOn February 22nd, Jesse Schwarz set an official NBA Top Shot record by buying the most expensive Moment on the platform ($208,000 for a massive LeBron James dunk).
In 2019, Nike Inc was granted a patent that calls for a “system and method for providing cryptographically secured digital assets.” The patent includes digital assets for articles of footwear. Recently, there is convincing evidence to suggest the sportswear giant is gearing up to launch a digital offering called CryptoKicks.
Samsung is a backer of Dapper Labs, startup that specializes in digital collectibles. The two companies partnered last year to release a mobile app on Samsung Galaxy phones related to NBA Top Shots.
- Louis Vuitton
LVMH is another luxury group with an anti-counterfeit blockchain AURA that is used to track brands such as Louis Vuitton and Parfums Christian Dior to fight against fake versions.
How to create an NFT
Several different standards exist for non‑fungible tokens. The very first was ERC-721, a cousin to more common ERC-20 tokens. ERC-721 tokens are driven by smart contract code that embed the unique details that make them rare or desirable. This metadata can be stored on the blockchain, or off.
Other standards improve the utility of NFTs further. ERC-1155 tokens can be used to develop fungible and non‑fungible tokens.
This token contains all the details of the item it represents therefore, whoever owns it can prove they have certain rights over a specific asset.
As these tokens are non-fungible, they can’t be replicated and each one is completely unique and identifiable and since it’s stored on a public blockchain everyone can verify its authenticity.
But don’t worry, there are simpler ways to create them for non-geeks, there are many websites that allow you to create NFTs in a quick and easy way such as WAX.
How to buy NFT
There are some questions that need to be answered before buying an NFT
- Where are you buying the NFTs from?
- What wallet is required to buy and store your tokens?
- Which cryptocurrency is needed to buy them?
- The NFT you want to buy is being sold? Is being auctioned? Is it sold alone? In a pack?
Certain NFTs are only available on specific platforms. For example, if you want to purchase NBA Top Shot packs you will need to open an account with NBA Top Shot, create a Dapper wallet and fill it with USDC or other FIAT currencies. You will also have to wait for one of the card pack drops to be announced and be lucky trying to buy them before they are sold.
Pack and art drops are becoming common as a method for selling scarce NFTs. These drops normally require users to sign up and fund their accounts beforehand so that they don’t miss out on the opportunity to purchase NFTs when they drop. Pack and art drops can be over in seconds, so you need to have everything ready ahead of time.
Once you’ve bought them and stored in your wallet you can follow the reverse procedure to sell it.
Although there are dozens of marketplaces where users can buy, sell and auction their NFT there are few players that are currently dominating the game.
Some Industry Stats
Even though NFTs have been around for a long time, it’s been 2021 when their popularity has exploded, partially because of their promotion by celebrities such as Elon musk or big institutions like NBA.
In 2021, the value of NFTs for gaming declined, but those for arts and collectibles have increased.
Big name brands, such as Taco Bell, have started offering NFTs of their own by creating digital collectibles for sale.
In February 2021, monthly sales on OpenSea were over $95 million.
By March 2021, trading volumes for NFTs on Ethereum totaled more than $400 million.
Some analysts anticipate the NFT market will exceed $1.3 billion by the end of 2021 as more artists, brands and icons join the space to create their own distinctive tokens. With more blockchains competing to produce better NFT services too and a growing range of platforms to choose from, now is a great time to take part in the space.
There is no discussion at the moment as this is experiencing a big boom and people are rushing to jump into this new trend, particularly when it comes to art-based NFTs.
Sooner or later this NFT fever will fade out and all those who jumped in with a speculative mindset will probably amount to big losses as the “bubble” explodes as many others have done times and times before.
Nevertheless this does not mean the end for NFTs but the opposite, as with many other technologies and trends, these fashions act as popularity boosters making something that was relatively unknown to a vast majority of the users more popular and finally becoming mainstream.
This popularity is making thousands of creative people break their minds and come back with new and innovative ideas on how to put NFTs to use meaning that 2021 is just the starting point and that we should expect many more use cases for it in the future.
Eventually NFTs will get into our day to day and people will be able to use them seamlessly like we are used to do with things such as certificates of authenticity or baseball cards.
In conclusion is a thrilling topic worth to keep an eye out for, once again proving the disruptive power Blockchain is bringing to the market.