What is NFT? — PART 1
Non-fungible tokens (NFT) are ownership titles for various digital objects such as texts, images, audio recordings, digital works of art, game items or characters, domain names, financial instruments, club cards, and so on. What makes them so popular? Can you create your own NFT? Let us explore!
If cryptocurrencies are relatively fungible, for example, one bitcoin in one user’s wallet is equal and identical to one bitcoin in another user’s wallet, then one NFT token representing the picture is not equal to one NFT token in another user’s wallet, because they could be different paintings by different artists with different prices.
Each NFT token is unique and only exists in a single copy. Non-fungible tokens are one-of-a-kind and cannot be duplicated. Each one has to identify information stored in smart contracts. This information distinguishes one NFT from another.
Developers have solved the problem of securing ownership rights to digital objects with the help of NFT. The blockchain contains information about the owner and his tokens. The information cannot be replaced or deleted.
How did NFTs appear?
Experiments with NFT began with such solutions as Colored Coins (in 2013) and Counterparty (in 2014), which made it possible to tokenize assets on the bitcoin blockchain.
In 2017, the Rare Pepe Directory NFT project became well-known, with memes featuring Pepe the frog. The Larva Labs team created the first NFT on the Ethereum blockchain in June 2017 — pixel portraits of CryptoPunks. There were only 10,000 cryptopunks at first, and they were distributed for free, but they are now regarded as valuable blockchain antiques.
CryptoKitties was the first widely distributed work in the history of NFT. The project, which debuted in November 2017, allows you to “breed” kittens. The user takes two NFT-cats and breeds them to produce an NFT-brood, which he can keep or sell.
Many projects have begun to experiment with NFT breeding mechanics by incorporating other game elements. Third-party developers, for example, created L2 games on top of CryptoKitties. The idea behind such games is that instead of creating NFTs for the game, games are created for existing tokens. This concept is being developed by the Enjin project, which raised 75,000 ETH during its ICO at the end of 2017, as well as Eminence, which was created by Andre Cronje.
The Wrapped Kitties L2 application allows you to wrap NFT-cats in ERC-20 tokens. If the user cannot afford an expensive token, he can purchase a portion of it. On March 11, 2021, the market capitalization of wrapped NFTs was $5,098 million.
Another project with a game element is Aavegotchi, which combines the mechanisms of the Aave landing DeFi service and the popular tamagotchi toy.
There were also so-called bubble games, similar to “Hot Potato” . Their rules are simple: each subsequent NFT buyer must pay more than the previous one. After purchasing an NFT from the developers, the asset price increases automatically based on the specified algorithm with each subsequent resale.
Tokenization of non-transferable digital objects spread quickly to card games (Gods Unchained), role-playing games (MyCryptoHeroes, Neon District), sports games (F1 Delta Time, Sorare), virtual worlds (Decentraland, Cryptovoxels), Ethereum domain names (ENS), and traditional financial instruments (yinsure).
Tokenization of digital art has received a new impetus: it is now even easier to create, trade, and receive royalties from NFTs.
All classes of digital objects are actively traded on marketplaces. There are dozens of projects in the NFT production and turnover ecosystem.
What token standards are used to issue NFT?
The majority of non-fungible tokens are issued in several major standards based on Ethereum. The standardization of the NFT release ensures a higher level of interoperability (the ability of blockchains to interact with one another), allowing the transfer of such non-transferable tokens between various decentralized applications.
ERC-721 is the first and most popular implementation of NFT on Ethereum, expanding the capabilities of the basic standard ERC-20. Each type of token requires its own smart contract in it.
Other versions of the standards followed, such as:
- ERC-998 is an evolving standard that enables the creation of a composite token — a digital asset that “owns” another digital asset. For example, in a computer game, the rights to own a game character are represented by one non-fungible token, and the rights to his equipment are represented by another. ERC-998 allows you to merge them into a single token.
- ERC-875 allows you to send multiple collectibles in a single transaction.
- ERC-1155 is an advanced standard that allows you to work with multiple types of tokens simultaneously through a single smart contract A contract can contain both NFT and ordinary tokens at the same time. It allows you to store a wide variety of items, from armor and weapons to magic potions and scrolls, and each of these items can be fungible if multiple copies of the same type are available. If the game contains tens of thousands of elements, then ERC-721 requires the creation of an equal number of separate smart contracts. ERC-1155 allows you to combine ERC-721 tokens into a single contract, each with its own data set. As a result, the game character consists of all the underlying NFTs — weapons, armor, special characteristics, and even other ERC-20 tokens
Another NFT standard that is rapidly developing is the Blockchain Bean Asset or BBA. The authors of the standard for Ethereum are the Blockchain Game Alliance, which includes prominent gaming market companies like Ubisoft. Within the framework of this standard, the developers intend to integrate the possibility of decentralized content storage.
NFTs are not limited to Ethereum, they also exist in the NEO, EOS, Tron, Flow, Cosmos networks, and on other platforms.
The Mythical Games team in collaboration with game developers and the EOS ecosystem (Greymass, Cypherglass, Meet.One, Scatter и Blocks.io) plans to launch its own NFT standard for EOS: dGoods.
What does the NFT ecosystem consist of?
— Aggregators
— Wallets
— Exchange
— Protocols for NFT financialization
— Protocols for NFT Issue
— Sidechains and second-level solutions
— Network
NFT projects are largely developed in the Ethereum, Flow and WAV networks, as well as on the basis of second-level solutions and sidechains.
Issue platforms and marketplaces can be divided into the following categories:
- Aggregators that ensure the purchase and sale of NFT.
- Universal release protocols that ensure the creation of NFT.
- Niche marketplaces: marketplaces or issuers of works of art predominate, but NFT blogs, such as Mirror, and music marketplaces, such as EulerBeats, are also gradually emerging.
Where is NFT used?
— Images
— Pictures, illustrations, design, photos, stock images
— Audio
— Music, podcasts, radio programs
— Written content
— Blogs, twits, instructions
— Metaverse
— 3D models, internal assets of games, maps, AR assets
— Video
— Movies, servies, streams, shows, clips
— Address space
— IP addresses, domains
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You can also try your hand at working with cryptocurrency on our platform Sunflower Corporation.
What NFT marketplaces exist?
NFT Aggregators
NFT-marketplaces/protocols for the release of art objects
Universal marketplaces/Release Protocols
Niche Content Release Protocols
Art marketplaces are a hybrid of auction houses, galleries and release protocols.
Nifty Gateway and SuperRare invite creators with a high reputation to the platforms.
Other marketplaces, OpenSea and Rarible, are more functional and similar to Etsy or eBay — creators can exhibit their works of art on these sites on their own.
OpenSea is the largest NFT market by trading volume. It supports the trading of ERC-721 and ERC-1155 tokens, which were used to create more than 4 million unique digital items.
Collectible NFT can be traded on the Auctionity platform, which allows you to sell and buy game assets in auction mode.
The KnownOrigin trading platform, launched in February 2018, may be interesting to designers and artists. With the help of the internal token KnownOriginDigitalAsset (KODA) of the ERC-721 standard, users can purchase art objects, as well as confirm the authenticity and authorship of their creation. KnownOrigin offers for sale more than 19,000 works of art.
The Pixura project offers templates for NFT marketplaces that allow you to launch trading platforms with any ERC-721 tokens.
