What are NFTs?
Have you ever owned a rare collectible like a Pokemon card or a priceless antique? If so, you probably also have either offered or have gotten offers to trade or sell it away to someone else. This process is what gives the collectible value, in other words, it makes it worth something. But what if I had a digital image that I want to sell or trade to someone else? Now things get more complicated since there isn’t anything stopping them from just copying my image and using it for themselves. So we are faced with a problem: How can we facilitate the exchange of things like images on the internet without allowing people to just copy and take them for free? The answer is the NFT.
Alright, but what are NFTs?
The word NFT stands for Non-Fungible Token, which sounds complicated, but it’s actually really simple. As an example, something like Bitcoin is fungible, since any two Bitcoin are exactly the same, and have the same value. NFTs are non-fungible, meaning that each is unique and has its own value, like a trading card. To put it simply, NFTs are digital collectibles.
Generally, you see NFTs linked to something like an image, music, 3D model, or many other kinds of digital files. The reason why NFTs are more secure than having an image on their own is that the ownership of the NFT is stored in the blockchain. Someone might still be able to copy your assets, but they will have a harder time selling those assets themselves since you have the certificate to prove you are the owner of it. And transactions can be made with NFTs too, allowing you to transfer this ownership and even track who owned it at any given point in time.
Since NFTs are unique and can’t be duplicated, they can have scarcity-based value, as at any given time only one copy of an NFT can exist.
One of the biggest markets for NFTs right now is artwork, from meticulous pixel-art works to 3D models. It should come as no surprise since images are simple file formats that still have a market on the internet, which is probably the reason that almost three million pieces of artwork have been sold according to CryptoArt.
Recently the founder of Twitter sold an NFT of his first tweet for $3 million USD, and amazingly Beeple sold an NFT collection of his art for 23 times that amount at a whopping $69 million. The great thing is that artists can earn royalties each time their art is sold, allowing them to profit off their work after the initial sale. While someone can save the image or video, that's akin to someone making a copy of a physical artwork like the Mona Lisa since you can prove that you own the NFT on the blockchain. As of right now, NFT art is probably the biggest use of NFT technology.
Other Use Cases
Although art is the biggest use of NFTs so far, there are many other practical use cases for NFTs that prove useful for us. Of course, current mainstream blockchains are not very energy efficient/environmentally friendly and so these may not be viable right now, but that is outside the scope of this article.
One hugely practical use could be ensuring product authenticity. That is to say, storing information about how a product is manufactured. This would mean that you could store and trace info on the blockchain as an NFT, which may describe things from how a product is manufactured to how it gets delivered to you.
A second use might be in validation. This would be something like an NFT bus ticket, where you only need one token to verify payment at different points in your journey. This may not be the most useful idea especially right now, but it surely has application.
Another perhaps obvious use case would be in gaming and online interactive social experiences. You could buy an item in the game as an NFT, and be able to make transactions involving those items. In fact, there are blockchain-based games right now that make use of NFTs, and one of the most famous is CryptoKitties.
This is perhaps the best example of a popular, successful game based on NFT technology, built on the Ethereum blockchain. The premise is simple: You can buy your own kitties, usually for a low price, then breed them to create new traits in the resulting generation. Basically, you purchase 2 of these CryptoKitten NFTs with associated data like their fur colour, then when you breed them together, an algorithm decides what traits will prevail in the next generation and mints a new kitten with those traits.
Sometimes you might get a kitten with a rare trait, or even more rarely you might create an entirely new trait, and at that point, you could sell your CryptoKitten to someone else for a higher price due to the increased rarity of your kitten. From here it is easy to see why CryptoKitties is so successful. Everyone can get in for a few bucks, but once you get rarer traits in your kittens, the price can skyrocket. In fact, some kitties sold for upwards of $1 million USD!
- NFTs are a potential solution to the problem of selling digital creations online.
- NFT stands for Non-Fungible Token, meaning that each is unique and has its own value.
- Ownership and transactions involving NFTs are made and validated using blockchain. They have scarcity-based value.
- The biggest market for NFTs right now is artwork, with over 3 million pieces of artwork sold according to CryptoArt. An artist named Beeple sold artwork for about $69 million USD.
- There are other use cases, ranging from validation, ensuring authenticity, as well as representing digital items in things like video games.
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