Meaning
Non-fungible tokens or NFTs are digital assets (such as drawing, animation, music, photo, or video) with a certificate of authenticity created by blockchain technology. It is a virtual object, which is actually a computer file, can be exchanged or sold with its certificate.
This tokens allow people to trade the ownership of digital entities such as arts, memes, tweets, pictures, articles, real estate, and many more digital items – in a “token” form.
NFTs got their name because of their fungibility feature because, unlike cryptocurrencies, they are unique, and cannot be changed, removed, duplicated, swapped, or destroyed, therefore, “non-fungible”.
{Fungibility refers to an asset’s ability to be exchanged with a similar asset without sacrificing its value.}
NFTs are developed on the ERC-721 protocol. This technology behind NFTs represents a very valuable characteristic as an asset class, verification of authenticity. , ERC-721 represents a class of unique tokens.
Therefore, replicating NFTs data is useless because each NFT data can be traced back to the original issuer using the blockchain technology. The ability to trace an NFT back to the original creator removes the need for third-party verification, which increases efficiency and reduces overall costs.
Unlike other cryptocurrencies, Each NFT data is distinct from other NFT token and such data cannot be replicated. While each bitcoin is identical to other bitcoin therefore, it can be used as a medium for commercial transactions.
A basic example of NFT, a digital creator could make an audio, video or picture file. Once it is uploaded on internet, we can all copy it. It’s not special and has no value.
But if that creator takes that file and converts it into a NFT format, the program adds digital information to the file. Almost like a certificate of authenticity.
A similar comparison is like when a cricket player autographs on a piece of paper. It has more value, and later can be sold at a good price.
History and Evolution of NFT Tokens
The technology for NFTs was founded in the mid-2010s but created a hype in late 2017 with CryptoKitties, a website that allow people to buy and “breed” limited-edition digital cats with cryptocurrency.
Now, as of 2021 cryptocurrencies like Bitcoin is getting its all-time high value, Majority of investors are buying and trading NFTs assets, often for very huge prices.
Beeple is the most high-profile artist to make a gigantic sale, but there are now plenty of illustrators, video and graphic artists selling work at high prices. According to the NFT Report 2020, published by L’Atelier BNP Paribas and Nonfungible.com, the value of the NFT market grew by 299 % in 2020, when it was valued at more than $250 million. But the first few months of 2021 have already seen astonishing sales, even before this auction.
How do Non-fungible tokens work?
NFTs asset have some special characteristics:
- Each token created has a unique identifier.
- They’re not directly interchangeable with other tokens 1:1. For example the value of 1 BTC is exactly the same as another BTC. This isn’t the case with NFTs.
- Each token has a single owner and this information is easily verifiable by blockchain technology.
NFTs live on Ethereum and can be bought and sold on any Ethereum-based NFT market.
In other words, if you own an NFT:
- You can easily prove that it belongs to you.
- No one can manipulate the NFTs data it in any way.
- You can also sell it to other users, this will earn the original creator resale royalties.
- Or, you can hold it forever, resting comfortably knowing that your asset is secured by Blockchain.
And if you create an NFT:
- You can easily prove you’re the creator.
- You determine the scarcity of the same.
- You can earn royalties every time it is sold to other person.
- You can sell it on any NFT market or peer-to-peer. You have right to use it on any platform and you don’t need anyone to intermediate.
Where are NFTs Used?
The distinct feature of each NFT can be used for several cases. For example, they are an ideal vehicle to digitally represent physical assets like real estate and artwork.
Because they are based on blockchain, NFTs can also be used to remove intermediaries and connect real creator of digital file with its audiences or for identity management.
Using NFTs, artists, musicians, influencers and sports franchises monetize digital assets that have previously been cheap or free. One of the main obstacle preventing the creation of digital assets is because of getting it duplicate easily by other users on the internet also has no prove whether who is the real creator. But in the case of NFTs, the digital record is saved on blockchain ledgers that can be read by anyone looking to find out the very first and current owner (if it is sold) of the asset.
How is NFT different from Bitcoin?
An NFT (non-fungible token) is a special cryptographically-generated token that uses blockchain technology to link with a unique digital asset that cannot be duplicated, changed, removed, swapped, or destroyed. Unlike other crypto tokens, such as Ethereum (ETH), Bitcoin (BTC), and Monero (XMR), NFT tokens can’t be exchanged but only buy and sell it on special marketplaces.
The Adoption of NFTs
NFTs has started been adopted across many industries but the most high-profile adoption is taking place in the entertainment industry. The NBA, in collaboration with blockchain-based company Dapper Labs, launched NBA Top Shot in 2019, an NFT marketplace for NBA highlight reels. NBA Top Shot allows individuals to buy and sell NBA highlight reels, or otherwise known as Moments.
Similar NFT market could also be adopted by other entertainment companies such as Disney, which has a wealth of intellectual property that it could leverage on such a marketplace.
Artists are also heavily adopting NFTs. NFTs provide the ability to sell artwork in a verifiable digital form directly to consumers globally without the need for an auction house or gallery. The removal of such intermediaries allows artists to keep a larger percentage of the profits from a sale.
Claire Boucher, a musician and artist, also known as “Grimes” recently sold her collection of digital artwork for $5.8 million in the form of NFTs on a virtual marketplace for NFTs called Nifty Gateway.
Digital artist Mike Winkelmann, better known as Beeple, recently sold his NFT digital art collage “Everydays: The First 5000 Days” for over $69 million at auction.
Another reason of artists using NFT technology is the impact of receiving royalties. Usually artists do not earn royalties if their artwork is resold by its 2nd owner to a new person (3rd buyer). NFT is programmed in such a way, that the original creator receives a predetermined royalty every time their artwork is sold to a new owner.
For example, Mike Winkelmann will receive a 10% royalty each time his artwork created on NFT is sold to a new buyer.
The music industry is also taking advantage of this new technology. The band Kings of Leon recently released their album as an NFT on OpenSea (marketplace for NFTs similar to Nifty Gateway).
Examples of NFTs
Below are some examples of NFTs that exist today, to help you get the idea:
- A unique digital artwork.
- A unique sneaker in a limited-run fashion line.
- An in-game item.
- An essay.
- A digital collectible.
- A domain name.
- A ticket that gives you access to an event or a coupon.
NFTs Market in the Indian Context
According to experts, NFTs is a new concept in India and will take some time for this trend to get popular here.
However, common use of NFTs could be using it as protecting intellectual property rights of Indian artisans.
“India has lakhs of traditional artisans who could benefit from using NFTs to verify their original work. Add to that the growing number of artists working in digital media who can protect their creations with a tokenized “wrapper” to show that it’s an original work,” said Rahul Pagidipati, CEO, ZebPay.
The Crypto Exchange is planning to become the first Indian company to launch an NFT, which will be named ‘Dazzle’.
“Since we announced the Zebra non-fungible token and Dazzle platform for digital art and collectibles, we have had several galleries and organizations reaching out to us. The NFT market in India, like the global market, is just beginning to take off and looks even more promising than it did six months ago,” Pagidipati said.
How to buy NFTs
Any digital asset can be purchased as an NFT. There are a few things to consider when an NFT.
- Decide a marketplace to buy an NFT. Most common NFT marketplaces are OpenSea, Mintable, Nifty Gateway and Rarible.
- Create a digital wallet to complete the payment in a form of cryptocurrency.
- Some marketplace charge a “gas” fee, required to complete the transaction on the blockchain. Additional charges can include such as the costs for converting Dollars into Ethereum and other closing expenses.
NFTs are commonly purchased using ethereum. But it can be also purchased using other ERC-20 tokens such as WAX and Flow.
There are also niche marketplaces for more specific types of NFTs. Such as NBA Top Shot for basketball video highlights or Valuables for auctioning tweets such as Dorsey’s currently up for bid.
How to sell NFTs?
- Create and account on anyone of the NFT marketplace.
- Upload your artwork/asset on NFT marketplace and follow the instruction to turn it into NFT.
- Include a description about your asset. Defining what it is and why it is good to buy.
- Suggest a pricing for your asset.