Diving into NFT world
NFT is short for non-fungible tokens and it’s basically a unique asset. It usually represents the ownership of a digital or physical asset. Physical assets include property, car or gold while digital assets include bitcoin, ethereum or digital arts. NFTs can be owned, collected and traded, and must be unique. Fungibility means assets share the same characteristics, are interchangeable and can be divided. The token is like a certificate of an asset that it represents, therefore NFT can be seen as a certificate of ownership and origin of an artwork.
By tokenizing an asset we guarantee that we own the asset that’s unique.
The ownership of NFT is managed in a decentralized manner by the Blockchain.
Tokenization of non-fungible assets has created endless possibilities for asset digitalization. Blockchain offers the collectable markets much more security and digital scarcity, especially it ensures the authenticity of the assets and eliminates counterfeiting. NFTs are quite popular in the gaming ecosystem. But besides gaming, NFT can also be used to digitize any valuable object.
We can briefly classify NFT creation into 2 sections. The first section involves Blockchain that handles maintenance and book-keeping of NFT. Blockchain ensures that the metadata of NFT is immutable and secure by replicating it across thousands of computers around the globe. However, a catch here is that storing such a substantial amount of data becomes extremely expensive across numerous nodes. Here comes the second section into play, storing the data. The majority of NFT data is stored outside the blockchain hence it needs to be stored securely.
Anybody can create an NFT, but there are some important steps to understand as well as the technologies involved along with its features and constraints. Non-fungible tokens can be created on the top of the ethereum blockchain with NFT tools and support. For creating a Non-fungible token, you must use the ERC721 token standard. You need to choose a marketplace where you’d like to make an NFT and sell your artwork. In order to create an NFT, you should connect your crypto wallet to the chosen NFT marketplace, have a small amount of crypto, pay the blockchain gas fees and make a digital art file for your NFT, upload your artwork on any selected marketplace.
NFTs allow us to create digital and virtual assets for fine art, for trading, for any digital scarce asset. Here are the best use cases for NFTs
CryptoPunks are 10,000 unique pixelated characters, released in June 2017. Various types of CyrptoPunks are Apes, Zombies, and Aliens. They are non-identical and unique. It is the first NFT project created in 2017 using the ERC-721 standard. CryptoKitties is the same as CryptoPunks, some CryptoKitties are also being traded for close to a million dollars. So rare is a fantasy football game. Unstoppable domains basically provide domains for different purposes such as to receive crypto.
Audius is a decentralized music streaming protocol disrupting the music, radio, podcast, and audio streaming industry. Content creators have control over their work and get paid directly by their listeners. Users mint audio files on Ethereum as an NFT. The content creator receives up to 90% of the revenue.
Theta is a decentralized video streaming platform. Every video is an NFT token. Users watch videos and reward content creators. Many YouTubers publish videos now on Theta since they receive 100% profit.
Forward Protocol is a knowledge exchange protocol disrupting the education and work experience. Students, teachers, experts, and employers being the main participants. It uses Proof of Owner logic. When a teacher uploads a course, the NFT standard protects the authenticity and ownership of the material.
A centrifuge is a new project that bridges real-world assets like invoices, real estate and, royalties to DeFi. It helps businesses and individuals gain access to liquid capital markets. The centrifuge uses NFT standards to tokenize real-world assets.
How can anyone invest in NFTs? In order to invest in NFTs one needs to understand the parameters involved. Let’s break it down into simple terms.
A painting by Jackson Pollock was sold for $200 million. Why? Well, the answer is simple because the purchaser believes in its worth. The value of an asset such as art is sometimes abstract but usually corresponds to whatever people believe its worth is and what they are willing to pay for.
Although thousands of Pollock painting’s copies are available in cyberspace, the original is owned by Griffin.
NFTs are basically the same, they represent artwork and its ownership. Although the market is quite new, there are a few options to digitize physical artwork.
There are 3 ways in which digital art can be represented. Option one, the artist can create a physical work and create an NFT via photography or other techniques and keep both the physical art as well as the NFT. In this case, the physical art can either be sold separately or together with the NFT. The second option, destroy the physical artwork after digitization. It is coherent to eventually destroy the physical artwork, in order to have the NFT as a unique asset. For example, a Banksy artwork bought for $95,000 by Injective protocol, was burned after being digitized into NFT. In option three, the physical artwork is treated as a tool for the tokenization process. Only the NFTE is sold which is considered the final version of the artwork. In some cases when the NFT is created from a physical artwork, it ends up being worth even more.
The value of an NFT is related to the perceived value of the artist and his artwork itself, also the supply-demand for it. Before purchasing an NFT, we need to ensure that it is unique and part of a limited edition, how many NFTs has the artist issued and it’s important to understand the trends as well. Different marketplaces like Open Sea provide a lot of useful information regarding price trends. The most well-known marketplace for minting and trading of NFTs are OpenSea, Raible, SuperRare and NiftyGateway. Most of the marketplaces are in auction format, NFT can be purchased through placing a bid.