What is a Non-Fungible Token (NFT)?
NFTs can be described as crypto tokens that uniquely define an asset. It can represent digital assets such as images, but it can also track real assets such as homes, cars, and songs. Because you can clearly define your assets, you can prove ownership of those assets and even prove their credibility. You may be wondering why you don't need a substitutable token to track your assets uniquely. The problem with regular tokens created with the ERC20 standard is that they are separable and interchangeable. It is not desirable for this property to track unique assets. This means that digital images or physical cars can be split and distributed into separate tokens. Since we want only one of them to point to a single asset, it invalidates the entire purpose of the non-fungible token. In addition, if you can make a copy of the token, you will not be able to uniquely define the token. For this reason, non-substitutable tokens solve compatibility issues. Regular ERC20 tokens can be exchanged for other ERC20 tokens. Again, the ERC721 corresponds exactly to this property. Therefore, each NFT token can track different assets and cannot be redeemed for other assets. To better understand, let's look at an example of substitutability. Fungibility properties are most important for digital currencies like Bitcoin. This allows people to freely exchange Bitcoins with each other, as it doesn't matter what Bitcoins they own. However, when you apply substitutability to digital assets, users are free to trade them and exchange them for other assets, so they cannot prove ownership of the assets. This is a problem if you want to uniquely identify an asset. This created an irreplaceable token.
What are the characteristics of non-fungible tokens?
Therefore, we have already discussed the importance of NFT non-fungibility. Let's look at three qualities that make NFTs highly desirable: uniqueness, rarity, and inseparability.
We have already explained the importance of uniqueness. NFTs allow you to uniquely define an asset by describing it and providing metadata to distinguish it from other assets. For example, projects like Decentraland sell virtual lots. To uniquely define each part of the land, the metadata consists of virtual coordinates and land properties. B. Percentage of grass-covered land or the buildings it has.
Rarity, also known as rarity, makes NFTs a popular element. Traditional ERC20 gives token developers the freedom to define token boundaries. Let's say you need a stash for 1,000,000 tokens. Yes, it is possible. Need more tokens? It only increases the overall supply within the smart contract (different algorithms set different rules for this possibility or are totally banned). You cannot use NFTs to create an infinite number of new assets. Rarity allows each asset to be defined only once on the blockchain. This makes NFTs very popular with collectors. Assets are rare because someone else can't register the same asset twice. In other words, as long as people want to spend money on NFTs, rarity adds value to NFTs. Going back to the Decentraland example, you can actually own the land in the game and exchange it like real land.
Finally, NFTs cannot be split. For example, you can own a complete Bitcoin. However, if you don't have enough money to buy a complete Bitcoin, you can split it into smaller denominations and buy 1/10 of Bitcoin. The denomination Bitcoin unit is known as satoshis. To extend this example, I don't want to allow users to buy 10% of train tickets. In other words, if Bitcoin has irreplaceable properties, you could only buy full Bitcoin.
How do non-fungible tokens work?
As mentioned earlier, Ethereum has introduced the ERC721 standard. This allows developers to define their own assets. It was completed on January 24, 2018 and defines the functionality of the compliant Ethereum contract. However, the ERC721 metadata contract is much more interesting to us as it is where the real magic happens. You can specify both the name and symbol of the NFT to be defined. You also need to provide a URI that points to a JSON file that describes the unique properties of the NFT. JSON files are another form of data representation that further defines NFTs by tracking properties such as names, descriptions, and image URLs.
Why do we need non-fungible tokens?
NFTs are very useful for the digital economy. For example, there are many micro-economy in the gaming industry. Check out games like CS: GO, League of Legends, Fortnite: Battle Royale. every day
Here, players are willing to pay for beautiful skin to improve the gaming experience. However, players don't actually own these assets, and in many cases the game can control the price of in-game assets or make changes to specific skins. This can significantly reduce prices. This has happened with CSGO skins in the past.
To avoid this:
"NFTs are a great use case for the gaming economy, so you can't change digital assets, you can control their rarity, and players can trade those digital assets."
This Further expands the possibilities of inter-game economy. Create weapons or avatar skins for use in different games.
In addition, the movement of distributed IDs will also benefit from NFTs. This is a proof of true ownership that allows you to confidently transfer your assets in the global market, as you can link physical assets such as your home or car to a decentralized ID.
In summary, the possible list of possible expressions for NFTs is:
- Art: both physical and digital
- In-game items such as skins and stickers
- Virtual world objects (eg B. Part of land
- Tangible assets such as cars and homes
- ID-related properties such as certificates and medical history.
Next, let's list five popular projects that use NFTs.
Which projects are actively using NFTs?
Many projects have implemented NFTs. Let's take a look at some of the most famous projects that use this technology.
CryptoKitties was the first use case for NFTs that hit mainstream media, so it's impossible not to talk about them. The concept is closely related to the Pokemon GO concept. Instead of collecting Pokemon, each with its own characteristics, you can collect digital crypto cats with specific characteristics. By breeding cats, you can create new cats and discover new characteristics.
Second, Decentraland is a virtual reality world where you can own virtual land. In this game you can develop land and build things on the land. All of these details are stored in the NFT's metadata. Most importantly, in this game you can exchange virtual lands with other players to create a large virtual community.
Don't forget to play card games and exchange with friends such as: B.YuGiOh? Some collectors even offered cards on eBay and other online marketplaces to complete their collections. As you can see, trading and collecting cards was not easy at the time. Card collectors face a variety of uncertainties –
- What if they pay for a card but don't receive it?
- What if the card I just bought online is fake?
- How do I prove ownership of a card after purchase?
Gods Unchained has created a trading card game where cards are treated as NFTs. Therefore, you can digitally transfer ownership of the cards and verify the authenticity of each card, solving all of the above issues. In addition, you can quickly exchange card ownership with a simple Ethereum transaction.
NBA Top Shots
The NBA Top Shot is arguably one of NFT's most popular platforms with the FLOW blockchain. The
is a new concept that captures different moments from different NBA games and imprints them into the NFT. There are various tokens with different rarities.
For example, some moments are created with only a few NFTs, while others are created with thousands. This causes the value to skyrocket as investors flood the market to own them.
What's even more interesting is that the platform will soon become one of the most hyped, and with each pack drop, thousands of aspiring people will be on the waiting list.
OpenSea Marketplace for NFTs
Finally, there is the OpenSea Marketplace where you can auction any NFT on your platform. OpenSea acts as a decentralized marketplace where transactions are conducted via smart contracts. You can trade over 200 NFTs including CryptoKitties, SuperRare Art, Gods Unchained Cards and even Ethereum domain names.
How to Buy NFTs?
Now that you`re aware of what NFTs are let`s see how you can buy them. First off, there are a few very popular marketplaces that are booming with volume on NFTs. One of them is OpenSea, and the other one is Rarible.
Let`s have a look at how to buy an NFT on OpenSea. To use both of them, you need to connect an ERC721 compatible wallet such as MetaMask.
NFT and beyond
So how has NFT maintained its value? This is the same as asking why a particular painting is worth $ 1,000. Why pay $ 1,000 for a physical painting that is as easy to forge as you are the only owner and can own a digital painting that can prove to be genuine?
Ultimately, the value of an NFT, like any other collection, depends on the amount you are willing to pay. The value is not unique to the object itself, but is assigned by people who consider it valuable. In essence, value is a shared belief.
Also note that the value of some specific NFTs has skyrocketed. For example, Beeple's "First 5,000 Days" NFT sold for a whopping $ 69 million.
In summary, NFTs have become more popular and infamous in recent years because they serve as a proof of ownership and credibility for both digital and physical items. In addition, NFTs allow users to transfer ownership without trust, eliminating fraud.