The Dummies Guide to NFT: How NFTs are related to Web3
Sometimes we dive into the past to better understand the present, which is why I am taking the liberty to share the story of how NFTs came to be.
You may wonder when NFTs were introduced and why they suddenly have so much buzz. After reading different but similar stories on the history of NFT, I have decided to work with facts and dates.
What were you doing in 2012? It is okay if you do not remember, but that was when the idea of coloured coins was born, which, after a series of evolutions, became the NFTs you now know today.
A fun fact is several NFTs are powered by the Ethereum blockchain (launched in 2015), but the concept of NFT was already in existence by 2012 in a paper by Meni Rosenfield where he talked about coloured coins. Although coloured coins could not be realised due to multiple fallacies, they still laid the foundation for what was to come with NFTs.
In 2014, rare pepes coins were introduced, bringing about the meme economy era. Pepes was one of the first actualisations of NFTs. If you are an avid Whatsapp user, you must have seen those comrade stickers with a green frog (pepes).
The creation of crypto kitties in 2017 brought virality to the NFT world like never before. Also, in 2017, the CryptoPunks were created by John Watkinson and Matt Hall and were given out entirely for free—all 10,000! CryptoPunks are now worth at least $93,624, so you can see how awesome that was.
From 2017 till now, the fame of NFTs keep skyrocketing like a rocket launched into space. That’s the summary of how NFTs came to be. Coming right up is the moment you have been waiting for. Find out what NFTs are next.
Audience
You should read on if you belong to any of these categories:
- Creative
- Anyone who would like to go into the business of NFTs
- Anyone with knowledge of Web3
Key Objectives
- What are NFTs?
- Fun facts about NFTs
- What is considered an NFT?
- Why do people buy NFTs?
- Are NFTs part of Web3?
- Characteristics of NFTs
- What are the use cases of NFTs?
What are NFTs?
NFTs are rare, immutable (i.e. cannot edit, modify, or delete) and irreplaceable digital assets that allow for ownership verification (i.e. to prove authenticity and ownership of digital art). In real life, black is equal to black, white is equivalent to white, but black is never similar to white.
What am I driving at? 1 ETH = 1 ETH; there is no difference between the value of the two. However, the value of one CryptoPunk differs from the value of another; this is where the word non-fungible comes in. Bitcoin, Ethereum, BNB, Dash, etc., are all fungible tokens that can be replaced. You cannot interchange NFTs with one another (i.e. one crypto kitty cannot be swapped with another crypto kitty).
You also can’t simply create art and call it NFT immediately; you must go through a minting process to produce NFTs. Think of how manufacturers have to make physical coins; the same applies to digital assets.
The minting procedure is quite specific as it not only turns a file into a crypto asset but also produces a cryptographic token that contains the digital signature of the wallet that has the token. This allows creators to sell their works and earn while allowing future owners of NFTs to verify and claim ownership.
Furthermore, a creator can decide to earn from subsequent sales when their NFTs are sold to another entity.
Fun facts about NFTs
- Ethereum is the most widely used blockchain for minting all NFTs, the first set of NFTs was introduced (2014) before the Ethereum blockchain was developed
- The top five countries that are the biggest adopters of NFTs are Asian
- The most valuable NFT is worth more than a 91.8million dollars
- More than 50% of NFT sales are below $200. This means there is an opportunity for you to own a NFT
What is considered an NFT?
You can sell any digital file you have created as NFTs; it is up to you! However, NFTs are digital assets that range from images, 3D art files, audio clips, memes, tweets, tickets, drawings, music, games items, and videos. What about writers? Can they sell their writing as NFT? The answer is yes!
Popular and expensive NFTs include The Merge, CryptoPunks, four humans in one, 3 Clock, etc.
Why do people buy NFTs?
You may wonder what the science/logic behind purchasing NFT is. NFTs are digital and virtual arts; they are not preserving the beauty of your home like the famous reason for purchasing physical art.
So, why do people buy them? See below:
- Profit
Although cryptocurrencies are volatile, many invest in a token because it might become profitable. NFTs are no different, but in the case of NFTs, it is pretty tricky. Why? The art has to be in demand, and someone has to be willing to pay the price for you to make a profit.
- Exclusivity aka Bragging rights
Since only one entity (i.e. individuals, organisations, etc.) can own a specific digital art in the world that others will not have access to. It gives them bragging rights and exclusive perks like early access to upcoming NFT collections or entry into private online forums/communities.
Are NFTs a part of Web3?
Finally, the central part of this article. You may have wondered for a long time what the similarities between Web3 and NFTs are or how they are connected. Although there are several arguments and controversies over what the Web3 era would look like, it is definite that Web3 would impact our lives just as Web2 has. From the way we connect to how we live.
NFTs, on the other hand, are digital assets that enable ownership and exchange of goods on Web3 without relying on intermediaries.
Web3 has always been about rewarding creators, and NFTs are another means for ensuring it. Creators can now create their arts and sell them as digital tokens to earn without waiting for the big companies to develop cryptocurrencies.
To get the scope of NFTs, imagine how you visit e-commerce sites to purchase a product on Web2. In Web3 (the internet powered by blockchain), decentralised applications are like the e-commerce stores that enable the buying and selling of products (i.e. clothing items), but in this case — NFTs. Through these technologies, creators can gain complete control and power over their work and revenue.
The characteristics of NFTs
Below are three characteristics of NFTs
- Originality
You can tell an original art from fakes, thanks to digital art creators’ ability to sign the NFT. How? With the help of smart contracts, creators can initiate an action in the blockchain, which allows for time-stamping and making NFTs unalterable. Think of how watermarks are implemented in Web 2, but in this case, the watermark isn’t directly on the creation.
- Indestructible
NFTs are assets on the blockchain which means, unlike physical art items, they can neither be burnt, broken, nor come in contact with any natural disaster.
- Indivisible
What indivisible means here is: in the case of tokens like bitcoin, you can buy $50 worth of bitcoin, but you can’t buy the $50 price of a CryptoPunk worth $500. You either buy the CryptoPunk for $500 or nothing!
What are the use cases of NFTs?
- Gaming
Game players are most interested in NFTs since they know about virtual worlds and currencies. Their interest is piqued because they can transfer or trade game items in the marketplace.
Players prefer owning gaming items as it personalises their experience and makes it more tangible than traditional games that prohibit the sales or transfer of in-game items. Gamers can now earn by building or increasing their in-game assets.
- Art
It is no news that NFTs are used as digital art. Creators now use NFTs to protect their creations from copyright infringement or plagiarism of work. This could be a means for museums and galleries to showcase their arts due to COVID-19 restrictions.
- Certifications
Some courses may offer NFTs and course completion certificates or licenses to save access time. It may be much easier to use NFT to store proof of course completion and reduce the burden of verifying records. I haven’t seen one before, but the idea seems incredible.
Bonus
As always, I give my readers a bonus; this time, the reward is yet to be seen by anyone, including myself. The bonus would be my next article on how to mint NFTs and sell them, especially articles. So if you are a writer, you should check out my next article.
Key Takeaway
Today you learnt about NFT, its connection with Web3, its characteristics, and much more. In the following article, learn how to mine NFTs and sell them properly. You never can tell; you might be the next big thing in the NFT world. So till next time, Adios!
