What Are NFTs?
THE NOT-SO-ROARING 2020s
The 2020s have been a very interesting decade so far. Considering the fact this decade started with a pandemic, and countless other major world events that have happened since then. We are just barely about to start 2023 and the world has changed so drastically. Economically, politically, and socially.
One of the most interesting occurrences in the 2020s, which some say is of world-changing importance, and others dismiss as not important at all, is the emergence of NFTs. First created in 2014, NFTs gained massive popularity after the legendary $69.3 million sale of an NFT art piece titled “Everydays: The First 5000 Days” by the artist named Beeple (real name: Mike Winkelmann).
As someone from the outside looking in, NFTs seem to be just a trend. With as much social media noise and celebrity endorsements as they have received, it is very easy to view NFTs as just a trend that’s here for a short time. Yet many argue that NFTs are a groundbreaking development.
This article is an attempt to further investigate and clear up confusion about this new, seemingly unique “technology” called NFTs. Trying to be fair and maintain the position that they possibly have more potential than has been presented.
First, I need to understand them, and what they do. Here I want to discuss what NFTs truly are, what defines them or makes them a unique and interesting prospect, what the potential use cases are, and how NFTs can be applied through real examples.
DEFINING NFTs — What are they?
The acronym “NFT” stands for “Non-Fungible Token.” NFTs are a digital asset class, based on the popular Blockchain technology. Blockchain being a decentralized, digital ledger, and peer-to-peer network, allowing anonymous users to verify information through consensus-agreement of multiple computers on the same network. NFTs are special tokens, usually in picture form, that can be bought, sold and shared via the Blockchain.
Although, knowing that the acronym NFTs means “non-fungible tokens” is not always helpful… So, let’s try to dissect what that means:
Fungibility — is the capacity of a good, or asset, to be interchanged with other individual goods/assets; in other words, interchangeability.
Token — is historically an item serving as a visible or tangible representation of a thing, fact, quality, feeling, etc; an item that represents another item.
Thus, when something is NOT (non) an interchangeable (fungible) representation (token), then it becomes an NFT. That means it is a unique item that cannot be repeated. Coded with a blockchain-specific programming language called Solidity, NFTs are essentially made to be 1-of-1 rare items, and exist as unique digital assets.
Although people invest in NFTs, they are not a true asset class, as much as they are digital indicators of ownership. Meaning that NFTs can be tied to assets, and point to assets, yet are not necessarily assets themselves, as much as proof of ownership.
DIFFERENT FORMS OF NFTs — What forms do NFTs come in?
Once we begin to wrap our minds around the definition of NFTs, it begs the question what do you own when you buy a strictly digital NFT? Also, what are all the forms of NFTs currently available?
As of the release of this article in 2023, there are many potential types of NFTs currently in development. NFTs come in some of the following forms:
FORM OF NFT == TYPE OF OWNERSHIP (Assets NFT Form Relates To) -== POSSIBLE BENEFIT
NFT-Fi == finance == financing possibilities through ownership of NFTs
Borrowing/Lending == Loan or interest == Mutual parties can agree to borrow and lend loans through NFTs
Music == Songs, fans’, and musician’s intellectual property == Artists and fans have decentralized ways to connect
Fashion == Clothes and electronically augmented garments == Theft prevention and irrefutable receipts of purchase
Metaverse == Digitally simulated life == Declaring ownership of digital assets within the Metaverse
Gaming == Video games and apps == Play to earn and gamified ownership
Art == Physical and digital art == Valued art can be shared more easily between artists and collectors
Analytics == Data analytics and insights == Being able to capitalize from analytics insights within NFT ecosystem
Display == Avatars and likenesses == People can enjoy physical creations based on NFTs they own
Portfolio Management == Investment portfolios == NFT collectors can track their investments and holdings
DAOs == Community groups, membership == Community, narrative, and brand-building opportunities
Special Ticket == Special events, gifts, tickets, and merchandise == A new way to grant or gain exclusive access to rare events
This list of forms of NFTs keeps growing by the day, and definitions are still blurry, as users and developers continue to innovate in the field and create further possibilities. It is fair to say this is only an introduction to the possible forms of NFTs that will exist.
SMART CONTRACT — What’s the point and potential application of them?
Likely the most significant and centrally defining principle of the NFT is the SMART CONTRACT…
A smart contract is a self-executing digital contract that contains the terms and conditions of an agreement between two or more parties. It is the main part of an NFT on blockchain platforms, which allows for transparent execution of transactions without the need for intermediaries.
Smart contracts have a wide range of real-world applications, from financial services to supply chain management and real estate. For example, in finance, smart contracts can automate the execution of financial instruments such as derivatives, loans, and insurance policies. In supply chain management, smart contracts can help track the movement of goods and ensure compliance with regulations.
The benefits of smart contracts for individuals include increased efficiency, reduced costs, and greater transparency. By eliminating the need for intermediaries, such as lawyers or brokers, smart contracts can streamline transactions and reduce fees. They can also provide a greater level of transparency, as all parties have access to the terms of the contract and the transaction history.
Individuals can use DeFi platforms to borrow and lend cryptocurrencies without the need for a bank or other intermediary. They can also use NFTs to buy and sell unique digital assets, with the security and transparency the blockchain allows.
The main reason why individuals would benefit from smart contracts is that they provide a secure, efficient, and transparent way to execute agreements directly, peer to peer. This can save time and money, reduce fraud, and increase trust between parties.
NFTs may be here to push forward the digitization of everything physical… They signal a new kind of trading system, and a gamification of standard economic processes. Similar to what has already been transpiring in the age of the internet, but to a much more granular, unique, and decentralized extent than before. Blockchain is customizable.
Conclusion
NFTs can be hard to define, but once we understand them as proof of ownership certificates, we can begin to relate them to more well understood assets tangible and intangible.
It is interesting to note the variety of applications and various types of NFTs. Each type of NFT relating to unique forms of ownership, and unique potential benefits. Understanding that there are use cases that relate to each individual, and each person might find a different possible use for an NFT in their own life.
The smart contract seems to be the central defining pillar of NFTs, outside of being on the blockchain, that will lead to the most innovation, opportunity, and possibility.
If you had money for savings or personal investments, and have an interest in new technologies and industry, then NFTs are a relatively good opportunity to test the waters with and take time to look into. Some risks are associated with NFTs because they are a relatively new technology, and the value of NFTs can be highly volatile. There have also been reported incidents of fraud in the NFT market, so one has to do their research and only buy from reputable sellers.
Overall, whether you’re an artist, a collector, or just curious about this emerging technology, hopefully this article has shed some light of understanding on the basics of what an NFT is and how it works.
