NFTs Explained

Understanding NFTs

Non-fungible tokens represent a unique cryptographic asset that is immutable in nature and takes a digital form to a physical asset, meaning it can’t be plagiarized since it contains a distinctive code that one can determine if it is fake or not.

The current expression of NFTs are digital arts such as music and video games cards items. NFTs are fundamental in the Blockchain ecosystem since they help verify ownership and prove the authenticity of digital items as they have a unique structure that cannot be replicated by anyone over the Internet.

The concept of fungibility in NFTs enables assets to be transferred and interchanged for similar items without losing their value. Fungible Assets simplify the exchange and trade process since the whole outcome will be an equal value of what depicts your digital asset.

The majority of NFTs are built using Ethereum blockchain since it’s infrastructure, market adoption and protocols support these projects which are called Ethereum Requests for Comments (ERC)

ERCs are smart contracts containing a set of rules in a code that needs to be followed when building since they are token standards and package formats for Ethereum applications. A developer may create an Ethereum Blockchain app with an ERC token, but they will need to clarify their standard and gain community approval.

Ethereum contains different sorts of ERCs though the two used for building NFT digital assets are ERC-20, and ERC-721

ERC-20 enables a fungible asset to retain its own value to other tokens, for example, one token will always be equal to the other token, this illustrates that a token built using this standard will always have the same properties as another fungible token such as they will be divisible and uniform.

ERC-721 standard on the other hand is a set of rules that enables the creation of non-fungible tokens, making each item unique and non-interchangeable. These attributes make NFTs fundamentally the opposite of Bitcoin or Ether.

NFTs Metadata

This refers to the content and description of the smart contract which makes the digital asset unique, it contains image information and its attributes. The metadata is stored off the blockchain since it occupies a huge size and space, users are highly recommended to store their metadata on the Interplanetary file system (IPFS) since it is decentralized peer-to-peer file sharing system running on the blockchain ecosystem.

A look at some of the pioneering NFTs

Colored Coins

Colored coins were the first representation of NFTs, they were created to portray proof-of-ownership for real-world assets which could be applied to digital collectibles, properties and company shares. eToro’s founder and CEO, Yoni Assia was the first person to mention the idea back in 2012.

Cryptopunks

Cryptopunks was created by larva labs co-founders, John Watkinson & Matt Hall, they figured they could generate unique characters on the Ethereum blockchain. The two creators allowed users to get NFTs at a price market valuation for each digital asset collected.

NFTs Use cases

Gaming NFTs

The gaming industry is estimated to be worth over $300 billion. Gaming platforms using NFTs have gradually become mainstream with the rise of Axie Infinity. NFTs games are built to use NFT characters as in-game features. For example, your game avatar could be an NFT, and in-game items like weapons and vehicles could be NFTs on the blockchain. And these NFTs can be traded and exchanged between players.

Music NFTs

NFTs allow artists to tokenize an album or a single and sell it on the blockchain. They can also earn royalties from secondary sales of the NFTs, hence having a leverage on the revenue generated.

Conclusion

There has been massive growth in the NFT ecosystem with market places such as opensea gaining traction, blockchain wallets such as MetaMask enables interactions to be much easier for users, developers are working around the clock to ensure NFTs projects are interoperable with other blockchain networks.