NFT — Another Blockchain Application
NFT — Non Fungible Tokens are in limelight in 2021. It is also a blockchain application and it has become a big market lately in 2021.
We shall discuss the NFT in layman’s terms.
Talking at a high level, NFTs are a part of the Ethereum blockchain. The Ethereum blockchain supports NFTs which store extra information exactly like a digital signature.
Well, these non-fungible tokens are cryptographic assets on the blockchain with some unique identification codes and metadata which distinguish them from each other. NFTs are not cryptocurrencies. They cannot be traded or exchanged at an equivalency. Unlike them, cryptocurrencies are fungible tokens because they are identical to each other.
If I discuss the features of NFTs,
They are unique cryptographic tokens that exist on a blockchain and cannot be replicated.
They can be used to represent real-world items like artwork and real estate.
They help in tokenizing these real-world tangible assets. This allows them to be bought, sold, and traded more efficiently while reducing the probability of fraud.
NFTs can be used to represent people’s identities, property rights, and more.
Sounds a bit confusing? How is this all done?
Well, let’s start by understanding fungible and non-fungible assets.
Fungibility
Fungibility, in our topic, refers to anything which is replaceable or exchangeable. So, going by our definition, gold is a fungible asset. We can replace a 10gram gold coin with another 10-gram gold coin. It does not make a difference if I replace one 10 gram gold coin with another. Hence, gold, silver, currency, oil are fungible goods. Or to extend my definition, common items which are not rare, not unique are fungible assets.
Non-fungibility
The opposite of fungible assets is non-fungible assets. Non-fungible are unique and irreplaceable.
Let’s take another simple example. Say, 1000 copies of a book are printed. These 1000 copies are a fungible asset. Now, on one copy, the author gives his autograph with time and date. With the date, time, and autograph, the copy of the book becomes unique. It becomes a non-fungible asset because it is now a rare and unique copy.
Now, back to non-fungible tokens. NFTs are basically unique and irreplaceable. NFT allows to buy and sell ownership of unique digital items. So NFTs are blockchain tokens that represent a unique digital item. NFT can represent any art, graphic, music, video, image, etc.
Why are NFTs in limelight this year?
NFTs have become popular and are being sold today at a hefty price. Recently, a digital artwork known as “Everyday’s: The First 5000 Days”, created by an artist known as Beeple was sold for $69.3M at Christie’s Auction House.
The first and most famous use case of NFT is CryptoKitties. CryptoKitties was launched in November 2017. They are digital representations of cats with unique identifications on the Ethereum blockchain. Each kitty is unique and has a price in ether. Within a short period of the launch of CryptoKitties, they had a big fan base. This became a $20 million business with the cryptokitty community purchasing, feeding, nurturing their kitties.
CryptoKitty was the beginning. Now, people are using NFTs in private equity transactions, real estate dealings to artworks into a single financial transaction.
NFT market has seen rapid growth recently with its value tripling to $250 million in 2020. In the first three months of 2021 alone, more than $200 million were spent on NFTs. The economic momentum NFTs have in the crypto market has exploded because of a trend towards digital collectibles. NFTs are also accelerating a larger trend of digital economic innovation as the public is increasingly favoring a crypto-economy.
NFT gives explicit proof of ownership that is completely online. And when you own an asset, you have the right to license and re-sell it. In a way, it gives you the rights and ownership papers when it comes to selling.
One of the benefits of NFTs is market efficiency because of the conversion of a physical asset into a digital asset and removing intermediaries. NFTs are also excellent for identity management. The best example can be physical passports at the entry and exit points. If physical passports are converted into NFT with some unique identifying characteristics, then it is possible to be used at the entry and exit points with digital technologies. Another exciting possibility of NFTs is representing real estate trading by incorporating metadata into each unique NFT.
Present Use of NFT
As already mentioned, NFTs of artworks are similar to autographed items. The unique identity of an NFT is verifiable with a blockchain ledger. The metadata of the NFTs is processed through a cryptographic hash function.
Digital Art
Digital art is the most popular use case for NFTs. Everyday — The First 5000 Days”, by artist Mike Winkelmann, also known as Beeple, sold for US$69.3 million in 2021 as already mentioned above. Another Beeple piece entitled “Crossroad”, which consisted of a 10-second video was sold for US$6.6 million at Nifty Gateway, an online cryptocurrency marketplace for digital art.
As per information available on the internet (and on Wikipedia specifically), the highest-paid NFT transactions are:
Figma CEO Dylan Field sold a digital avatar entitled “CryptoPunk #7804” for US$7.5 million and a second avatar “Ape, Fedora #6965” for US$1.5 million in February 2021.
A 3D-rendered model of a home named “Mars House”, created by artist Krista Kim was sold as a piece of digital real estate on the NFT market for over US$500,000.
A digital portrait of the Fyre Media logo was sold by rapper Ja Rule at an auction for US$122,000 through NFT at the digital art marketplace.
Another artwork “Gucci Ghost“, was sold as an NFT for US$3,600 on the NFT market in February 2021.
Also in December 2020, an NFT artwork depicting seasons inside a series of vertical-rising rooms was sold for US$22,938.
Collectibles
NFTs can represent collectibles like card collections but in a digital format. In February 2021, a LeBron James slam dunk NFT card on the NBA Top Shot platform sold for $208,000.
Music
Blockchain and the technology enabling the network have given the opportunity for musicians to tokenize and publish their work as non-fungible tokens. This has extended the list of options for musicians and artists alike to monetize and profit from their music as well as other content surrounding the themes of the music and the artists’ public image.
NFTs have given an opportunity to artists and touring musicians alike. NFTs reportedly generated around $25 million within the music industry. On February 28, 2021, electronic dance musician 3LAU sold a collection of 33 NFTs for a total of $11.7 million to commemorate the three-year anniversary of his Ultraviolet album.
On March 3, 2021, rock band Kings of Leon became the first to announce the release of a new album, When You See Yourself of an NFT. This NFT generated $2 million in sales.
There are many more examples like Mike Dean, Shepard Fairey producer Eminem, rapper XXXTentacion, YellowHeart company to name some from the big list.
Film
The motion picture industry has been slower to react to the boom in NFTs. But it too has examples of 20th Century partnering with Atom Tickets and Deadpool2, Adam Benxiine’s documentary Claude Lanzmann: Spectres of the Shoah.
The sports and Fashion industry to have adopted the NFT route to sell their products.
How to buy NFT?
There are specific sites where you can buy and sell NFTs. Depending on the marketplace, you will be able to purchase the type of art or collectible. Each website will be operating a little differently.
Opensea.io is a website that operates on Ethereum. You need to have an Ethereum based wallet. The best would be Metamask. Opensea has a variety of collectibles.
SuperRare is a social network for NFT. You can buy and sell NFT on this platform also using Ethereum.
Nifty Gateway is an NFT buy/sell website owned by the popular cryptocurrency exchange Gemini. Here as well Ethereum is used for transactions.
NBA Top Shot is a licensed website for NBA collectibles. Here, the digital items are related to basketball cards. These digital cards are more interactive than traditional trading cards.
Blockchain used for NFT
Ethereum ERC-721 standard of CryptoKitties and the more recent ERC-1155 are used for NFTs.